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-------------------------------------------------------------------------------- TURINCO, INC. STOCK OPTION AGREEMENT (2006 Stock Option Plan – Employee) This STOCK OPTION AGREEMENT is made effective as of this u day of u, 200u between TURINCO, INC., a Nevada corporation, (the “Company”) and [NAME OF EMPLOYEE] (the “Employee”). BACKGROUND           A.      Employee has either been hired to serve as an Employee of the Company, or a subsidiary of the Company, or the Company desires to induce the Employee to continue to serve the Company, or a subsidiary of the Company as an Employee.           B.      The Company has adopted the 2006 Stock Option Plan (the "Plan") pursuant to which shares of its common stock have been reserved for issuance under the Plan. NOW, THEREFORE, the parties hereto agree as follows: Grant of Option 1.                The Company hereby irrevocably grants under the Plan to the Employee the right and option (hereinafter referred to as the “Option”) to purchase from the Company all or any portion of an aggregate of [Number of Options] (Number of Options) shares of common stock of the Company (the “Shares”) subject to the terms and conditions herein set forth. 2.                The number of Shares granted will be subject to adjustment pursuant to the terms of the Plan. Exercise Price 3.                The exercise price of the Shares covered by the Option shall be $uper Share. Exercise and Vesting of Option 4.                The Option will vest on the following dates (each a “Vesting Date”): Number of Vested Options Date of Vesting u u u u u u 5.                Except as provided in Section 7 of this Agreement, the Option will only be exercisable with respect to that portion of the Option that has vested. 6.                In the event of termination of the Option prior to any Vesting Date, that portion of the Option scheduled to vest on such Vesting Date, and all portions of the Option scheduled to vest in the -------------------------------------------------------------------------------- - 2 - future, shall not vest and all of the Employee’s rights to and under such non-vested portions of the Option shall terminate. Term of Option 7.                To the extent vested, and except as otherwise provided in this Agreement, the Option shall be exercisable until u (the “Expiration Date”). This Agreement and the right of the Employee to exercise the Option will terminate upon the earliest of the following dates: (a)      the date which is three (3) months from the date on which the Employee ceases to be a Employee of the Company or any subsidiary of the Company, if applicable; (b)      in the event of the termination of the Employee for Cause (as defined in the Plan), the earliest date on which the Employee is terminated as a Employee; (c)      the date which is one (1) year from the date of the Employee’s retirement, disability or death, in the event of termination as a result of the retirement, disability or death of the Employee; or (d)      the Expiration Date. Upon termination of this Agreement and the right of Employee to exercise the Option as set forth above, the Option shall terminate and become null and void. Manner of Exercising Option 8.                Subject to the terms and conditions of this Agreement, the Option may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of Shares to be purchased and accompanied by the full exercise price for such Shares. Any such notice shall be deemed given when received by the Company at its corporate headquarters. The exercise price shall be payable: (a)      in United States dollars upon exercise of the Option and may be paid by cash, uncertified or certified check or bank draft; or (b)      at the election and sole discretion of the Company, in such other manner as is permitted pursuant to the Plan. All Shares that shall be issued upon the exercise of the Option as provided herein shall be issued as fully paid and non-assessable shares of the Company’s common stock. Rights of Option Holder 9.                The Employee, as holder of the Option, shall not have any of the rights of a shareholder with respect to the Shares covered by the Option except to the extent that one or more certificates for such Shares shall be delivered to him or her upon the due exercise of all or any portion of the Option. Non-Transferability 10.               The Option shall not be transferred, pledged or assigned except as provided in the Plan. -------------------------------------------------------------------------------- - 3 - No Employment or Right to Corporate Assets 11.               Nothing contained in this Agreement shall be deemed to grant the Employee any right to employment with the Company for any period of time or to any right to continue his or her present or any other rate of compensation, nor shall this Agreement be construed as giving the Employee, the Employee’s beneficiaries or any other person any equity or interests of any kind in the assets of the Company or creating a trust of any kind or a fiduciary relationship of any kind between the Company and any such person. Securities Law Matters 12.               The Employee acknowledges that the Shares to be received by him or her upon exercise of the Option have not been registered under the Securities Act of 1933, as amended, or the Blue Sky laws of any state (collectively, the “Securities Acts”). The Employee acknowledges and understands that the Company is under no obligation to register, under the Securities Acts, the Shares received by him or her or to assist him or her in complying with any exemption from such registration if he or she should at a later date wish to dispose of the Shares. The Employee acknowledges that if the Shares are not registered under the Securities Acts at the time of the exercise of the Option, or any part thereof, the Shares shall bear a legend restricting the transferability thereof, such legend to be substantially in the following form: > “The shares represented by this certificate have not been registered or > qualified under the Securities Act of 1933, as amended, or state securities > laws. The shares may not be offered for sale, sold, pledged or otherwise > disposed of unless so registered or qualified, unless an exemption exists or > unless such disposition is not subject to the federal or state securities > laws, and the Company may require that the availability of any exemption or > the inapplicability of such securities laws be established by an opinion of > counsel, which opinion of counsel shall be reasonably satisfactory to the > Company.” Employee Representations 13.               The Employee hereby represents and warrants that: (a)      the Employee has reviewed with his or her own tax advisors all applicable tax consequences of the transactions contemplated by this Agreement. The Employee is relying solely on such advisors and not on any statements or representation of the Company or any of its agents. The Employee understands that he or she will be solely responsible for any tax liability that may result to him or her as a result of the transactions contemplated by this Agreement; (b)      the Employee has been advised to obtain his or her own legal advice in connection with the execution of this Agreement; and (c)      the Option, if exercised, will be exercised for investment purposes and not with a view to the sale or distribution of the Shares to be received upon exercise thereof. The Plan 14.               The Option is granted pursuant to the Plan and is governed by the terms thereof, which are incorporated herein by reference. In the event of any conflict or inconsistency between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall govern and control. -------------------------------------------------------------------------------- - 4 - Governing Law 15.               This Agreement, in its interpretation and effect, shall be governed by the laws of the State of Nevada applicable to contracts executed and to be performed therein. Further Assurances 16.               Each party hereto agrees to execute such further papers, agreements, assignments or documents of title as may be necessary or desirable to affect the purposes of this Agreement and carry out its provisions. Entire Agreement 17.               This Agreement and the Plan embody the entire agreement made between the parties hereto with respect to the matters covered herein and shall not be modified except in writing signed by the party to be charged. Counterparts 18.               This Agreement may be executed in any number of counterparts and by facsimile, each of which shall be deemed an original, and all of which shall constitute but one and the same agreement. TURINCO, INC.   Per:     Michael Jervis     President   Signature of Employee           Name of Employee           Address of Employee                 --------------------------------------------------------------------------------

EXHIBIT 10.07 Comprehensive Marketing Solutions, LLC 64 North Summit Street Tenafly, NJ 07670 April 15, 2006 Edward J. Quilty, President and CEO Derma Sciences, Inc. 214 Carnegie Center, Suite 100 Princeton, NJ 08540 Dear Mr. Quilty: Please allow this letter to serve as a Sales and Marketing Agreement between Comprehensive Marketing Solutions, LLC (“CMS”) and Derma Sciences, Inc. (“Derma” or the “Company”), as contemplated in Article 5.4 of that certain Asset Purchase Agreement between Western Medical, Ltd. (“Western Medical”) and Derma, dated as of January 26, 2006. I. OBJECTIVES The parties agree that CMS shall provide representation of the Company and its products, to specific accounts, both existing and to be developed. As such, CMS shall perform services, with the following objectives: 1. Obtain tangible competitive and distributor market information. Identify sales growth opportunities consistent with the Company’s future direction and goals. 2. Develop significant, profitable, meaningful business for the Company’s product offerings. 3. Manage and support ongoing supplier/channel partner relationships and house accounts. 4. Provide support for the marketing and sale of those wound care products to be transferred from Western Medical to Derma pursuant to the Asset Purchase Agreement dated as of January 26, 2006, and more particularly described on Schedule 1.1.1 thereof. Said Schedule 1.1.1 is attached hereto and made a part of this Agreement. It is understood that the above objectives are only achievable through open communication and a close working relationship between CMS and Derma. -------------------------------------------------------------------------------- Edward J. Quilty, President and CEO Derma Sciences, Inc. April 15, 2006 Page 2 II. ROLES/RESPONSIBILITIES It is understood and agreed that Derma and CMS will participate in several joint activities, including, but not limited to, the following: • Determination of Target marketing and pricing strategy. • Planning Target volumes over time. • Review of Target account performance. During the term of this Agreement, and in order to successfully achieve the parties' mutual goals, information/support shall be provided from each party, as follows: • From Derma   – Derma shall provide CMS with an overview of the history of the Company   – Derma shall provide CMS with its market and distribution strategic objectives   – Derma shall provide CMS both market segment and product category training   – Derma shall provide CMS with competitive scenarios   – Derma shall advise CMS of its role in achieving Company goals   – Derma shall provide support materials as reasonably requested by CMS including, but not limited to, samples and literature necessary for CMS to perform its responsibilities hereunder.       • From CMS   – Status of targeted account activity   – Suggestions for improving Derma's product performance in the market   – Competitive information (to the extent this does not compromise agreements with other clients or confidential relationships)   – Other information deemed by both parties as critical to performance under this Agreement. Derma and CMS will jointly participate in further defining how best to achieve the goals of the Company set forth above, based upon the following ongoing factors: • Regular communications • Reporting and reviewing formats and timetables • Commission negotiation, calculation and payment terms • Information exchange/management, including control of confidential information • Target account relationship management -------------------------------------------------------------------------------- Edward J. Quilty, President and CEO Derma Sciences, Inc. April 15, 2006 Page 3 III. COMPENSATION The compensation to be paid by Derma to CMS for the first four (4) months of this Agreement shall be as follows: • A monthly fee of $15,000.00, commencing on April 15, 2006. Additionally, CMS shall receive commissions upon "New Business" in the amount of five (5%) percent for the initial four (4) months of the term. New Business is defined as (i) revenues relative to existing customers for the term of the Agreement (calculated separately for each account) in excess of revenues experienced during the twelve (12) calendar months preceding April 15, 2006, and (ii) all revenues relative to new customers. The compensation to be paid by Derma to CMS for the next eight (8) months of this Agreement shall be as follows: • A monthly fee of $7,500.00, commencing on August 1, 2006, plus the commissions on "New Business" as outlined during the first four (4) months above.     • The parties shall periodically identify, in writing, those accounts which constitute "New Business," as defined in this Agreement. IV. OUT-OF-POCKET EXPENSES Throughout the term of this Agreement, and any extensions, out-of-pocket expenses, which may include (but are not limited to) travel, telephone, and other expenses directly related to achieving the objectives outlined in this Agreement, shall be reimbursed by Derma to CMS on an ongoing basis, upon submission by CMS of appropriate requests for reimbursement thereof. Fees, expenses, and commissions will be billed by CMS monthly, and shall be paid by Derma immediately upon receipt of statements therefor. V. ADDITIONAL TERMS/CONDITIONS Indemnification Derma agrees to indemnify and hold CMS harmless from and against any and all losses, claims, damages or liabilities (or actions in respect thereof) related to CMS's engagement pursuant to this Agreement, or the services to be performed by CMS in connection therewith, and will reimburse CMS for all expenses (including reasonable fees and expenses of counsel) as they are incurred by CMS in connection with investigating, preparing or defending any such -------------------------------------------------------------------------------- Edward J. Quilty, President and CEO Derma Sciences, Inc. April 15, 2006 Page 4 actions or claims. Derma will not, however, be responsible for any claims, liabilities, losses, damages or expenses that result directly from CMS's gross negligence in performing the services, which are the subject of this Agreement. Derma also agrees that CMS shall not have liability (whether direct or indirect, in contract or tort or otherwise) to Derma in connection with any transaction, or engagement pursuant to this Agreement or the services performed by CMS in connection therewith except for any liability for such losses, claims, damages, or expenses incurred by Derma that results directly from CMS's gross negligence in performing the services which are the subject of this Agreement, and then only up to the aggregate compensation of CMS under this Agreement. Independent Contractor It is understood and agreed that CMS will represent Derma in targeted/assigned relationships, as outlined above. The status of CMS shall at all times be that of independent contractor and not that of employee, servant, agent, or partner of the Company. Term This Agreement shall become effective upon signing of same by both parties. The term hereof shall be one (1) year from April 15, 2006, subject to renewal for additional one (1) year periods, upon the written consent of both parties. Derma shall provide CMS with notice of its intention to either renew or terminate this Agreement at the end of each term, not less than sixty (60) days prior to the end of the term. At the end of the term or any renewal terms, Derma shall be responsible for all outstanding fees, expenses and commissions due at the time of termination. In addition, New Business which closes within twelve (12) months after termination shall be subject to the commissions payable to CMS as outlined in the above section addressing compensation. VI. GOVERNING LAW This Agreement and all questions relating to its validity, interpretation, performance, remediation and enforcement (including, but not limited to, provisions concerning limitations of actions) shall be governed by and construed in accordance with the domestic laws of the State of New Jersey, notwithstanding any choice-of-laws doctrines of such jurisdiction or any other jurisdiction which ordinarily would cause the substantive law of another jurisdiction to apply, without the aid of any canon, custom or rule of law requiring construction against the draftsman. -------------------------------------------------------------------------------- Edward J. Quilty, President and CEO Derma Sciences, Inc. April 15, 2006 Page 5 VII. NOTICES All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if and when delivered personally or by overnight courier to the parties at the following addresses, or sent by fax, with confirmation of receipt, to the fax numbers specified below (or at such other address or fax number for a party as shall be specified by like notice):   If to Derma:       Derma Sciences, Inc. Attn: Edward J. Quilty, President and CEO 214 Carnegie Center, Suite 100 Princeton, NJ 08540 Telecopier No.: (609) 514-8554 E-mail: [email protected]       with a copy to:       Heder & Hedger Attn: Raymond C. Hedger, Jr., Esq. 2 Fox Chase Drive Hershey, PA 17033 Telecopier No.: (717) 534-9813 E-mail: [email protected]       and       If to CMS:       Comprehensive Marketing Solutions, LLC Attn: Christopher Fuhrmann, Managing Member 64 North Summit Street Tenafly, NJ 07670 Telecopier No.: (888) 329-0555 E-mail: [email protected]       with a copy to: -------------------------------------------------------------------------------- Edward J. Quilty, President and CEO Derma Sciences, Inc. April 15, 2006 Page 6   Law Offices of Charles A. Gruen Attn: Charles A. Gruen, Esq. 45 Essex Street, Suite 200 Hackensack, NJ 07601 Telecopier No.: (201) 342-6474 E-mail: [email protected] or to such other address as the person to whom notice is to be given may have previously furnished to the other in writing in the manner set forth above. VIII. CONSENT TO JURISDICTION The parties hereto hereby consent to the exclusive jurisdiction of the State Courts situate in Bergen County, New Jersey and the Federal Courts situate in Newark, New Jersey with respect to any disputes, claims, controversies or other actions or proceedings arising under this Agreement. The parties hereto hereby waive any and all rights to commence any action or proceeding before any Court or judicial body or in any other venue with respect to the subject matter hereof. IX. HEADINGS The Section headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. X. COUNTERPARTS This Agreement may be executed simultaneously in several counterparts, each of which shall be original, but all of which together will constitute one and the same instrument. Delivery of an executed counterpart by facsimile shall be deemed an original counterpart to this Agreement. XI. EXPENSES OF THE PARTIES Each party shall bear the expenses incurred by such party in connection with the negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby. -------------------------------------------------------------------------------- Edward J. Quilty, President and CEO Derma Sciences, Inc. April 15, 2006 Page 7 XII. CONSTRUCTION The construction of this Agreement shall not take into consideration the party who drafted or whose representative drafted any portion of this Agreement and no canon of construction shall be applied that resolves ambiguities against the drafter of a document. The parties acknowledge that they were advised by competent counsel that each has chosen to represent such party and each party has had a full opportunity to comment upon and negotiate the terms of this Agreement.         IN WITNESS WHEREOF, this Sales and Marketing Agreement has been duly executed by and delivered by a duly authorized officer of each of Derma and CMS.   DERMA SCIENCES, INC.         By:       Dated: April 15, 2006 Edward J. Quilty President and CEO         COMPREHENSIVE MARKETING SOLUTIONS, LLC         By:       Dated: April 15, 2006 Christopher Fuhrmann Managing Member   -------------------------------------------------------------------------------- Schedule 1.1.1 ASSETS Products: Item Number: 2070 Description: PSS SELECT UNNABOOT 3" x 10 YARDS (60 EACH) Item Number: 2071 Description: PSS SELECT UNNABOOT 4" x 10 YARDS (60 EACH) Item Number: 2072 Description: PSS SELECT UNNABOOT 3" x 10 YARDS W/ CALAMINE (60 EACH) Item Number: 2073 Description: PSS SELECT UNNABOOT 4" x 10 YARDS W/ CALAMINE (60 EACH) Item Number: 261320 Description: DOMEPASTE 3" PASTE BANDAGE Item Number: 261440 Description: DOMEPASTE 4" PASTE BANDAGE Item Number: 90-0434 Description: COPRESS 3" x 5 YARD COHESIVE - HT PKG Item Number: 90-0435 Description: COPRESS 4" x 5 YARD COHESIVE - HT PKG Item Number: 90-0506 Description: 4" 100% COTTON GAUZE Item Number: 90-0507 Description: 3" 100% COTTON GAUZE Item Number: APPLICATORS Description: FINGER SPLINTS ALUMINUM Item Number: BA2500 Description: BANDNET SIZE 0 - 25 YARDS STRETCHED Item Number: BA2500.5 Description: BANDNET SIZE .5 - 25 YARDS STRETCHED -------------------------------------------------------------------------------- Item Number: BA2501 Description: BANDNET SIZE 1 - 25 YARDS STRETCHED Item Number: BA2502 Description: BANDNET SIZE 2 - 25 YARDS STRETCHED Item Number: BA2503 Description: BANDNET SIZE 3 - 25 YARDS STRETCHED Item Number: BA2504 Description: BANDNET SIZE 4 - 25 YARDS STRETCHED Item Number: BA2505 Description: BANDNET SIZE 5 - 25 YARDS STRETCHED Item Number: BA2505.5 Description: BANDNET SIZE 5.5 - 25 YARDS STRETCHED Item Number: BA2506 Description: BANDNET SIZE 6 - 25 YARDS STRETCHED Item Number: BA2507 Description: BANDNET SIZE 7 - 25 YARDS STRETCHED Item Number: BA2508 Description: BANDNET SIZE 8 - 25 YARDS STRETCHED Item Number: BA2509 Description: BANDNET SIZE 9 - 25 YARDS STRETCHED Item Number: BA2510 Description: BANDNET SIZE 10 - 25 YARDS STRETCHED Item Number: BA2511 Description: BANDNET SIZE 11 - 25 YARDS STRETCHED Item Number: BA2512 Description: BANDNET SIZE 12 - 25 YARDS STRETCHED Item Number: BA2514 Description: BANDNET SIZE 14 - 25 YARDS STRETCHED Item Number: BA2522 Description: BANDNET SIZE 22 - 25 YARDS STRETCHED Item Number: BA5000 Description: BANDNET SIZE 0 - 50 YARDS STRETCHED -------------------------------------------------------------------------------- Item Number: BA5000.5 Description: BANDNET SIZE .5 - 50 YARDS STRETCHED Item Number: BA5001 Description: BANDNET SIZE 1 - 50 YARDS STRETCHED Item Number: BA5002 Description: BANDNET SIZE 2 - 50 YARDS STRETCHED Item Number: BA5003 Description: BANDNET SIZE 3 - 50 YARDS STRETCHED Item Number: BA5004 Description: BANDNET SIZE 4 - 50 YARDS STRETCHED Item Number: BA5005 Description: BANDNET SIZE 5 - 50 YARDS STRETCHED Item Number: BA5005.5 Description: BANDNET SIZE 5.5 - 50 YARDS STRETCHED Item Number: BA5006 Description: BANDNET SIZE 6 - 50 YARDS STRETCHED Item Number: BA5007 Description: BANDNET SIZE 7 - 50 YARDS STRETCHED Item Number: BA5008 Description: BANDNET SIZE 8 - 50 YARDS STRETCHED Item Number: BA5009 Description: BANDNET SIZE 9 - 50 YARDS STRETCHED Item Number: BA5010 Description: BANDNET SIZE 10 - 50 YARDS STRETCHED Item Number: BA5011 Description: BANDNET SIZE 11 - 50 YARDS STRETCHED Item Number: BL-113L Description: BECK-LEE STRESS T-SHIRTS - LARGE (5 BAGS PER CASE) Item Number: BL-113M Description: BECK-LEE STRESS T-SHIRT - MEDIUM (5 BAGS PER CASE) Item Number: BL-113S Description: BECK-LEE STRESS T-SHIRT - SMALL (5 BAGS PER CASE) -------------------------------------------------------------------------------- Item Number: BL-113XL Description: BECK-LEE STRESS T-SHIRT - EXTRA LARGE (5 BAGS PER CASE) Item Number: C15510-219 Description: ALLEGIANCE TUBULAR GAUZE 5/8" X 50 YARDS (WHITE) Item Number: C15510-220 Description: ALLEGIANCE TUBULAR GAUZE 1" X 50 YARDS (WHITE) Item Number: C15510-221 Description: ALLEGIANCE TUBULAR GAUZE 1 1/2" X 50 YARDS (WHITE) Item Number: C15510-222 Description: ALLEGIANCE TUBULAR GAUZE 2 5/8" X 50 YARDS (WHITE) Item Number: C15510-223 Description: ALLEGIANCE TUBULAR GAUZE 3 5/8" X 50 YARDS (WHITE) Item Number: C15510-231 Description: ALLEGIANCE LUCITE APPLICATOR - SIZE #1 Item Number: C15510-232 Description: ALLEGIANCE LUCITE APPLICATOR - SIZE #2 Item Number: C15510-234 Description: ALLEGIANCE LUCITE APPLICATOR - SIZE #3 Item Number: C15510-241 Description: ALLEGIANCE CAGE APPLICATOR - SIZE #1 Item Number: C15510-242 Description: ALLEGIANCE CAGE APPLICATOR - SIZE #2 Item Number: C15510-243 Description: ALLEGIANCE CAGE APPLICATOR - SIZE #3 Item Number: C15510-244 Description: ALLEGIANCE CAGE APPLICATOR - SIZE #4 Item Number: GEN10NET Description: GENETIC LABS SIZE 10 ELASTIC NET - 25 YARDS STRETCHED Item Number: GEN11/2TUBE Description: GENETIC LABS TUBULAR GAUZE 1 1/2" X 50 YARDS (BULK) -------------------------------------------------------------------------------- Item Number: GEN1NET Description: GENETIC LABS SIZE 1 ELASTIC NET - 25 YARDS STRETCHED Item Number: GEN1TUBE Description: GENETIC LABS TUBULAR GAUZE 1" X 50 YARDS (BULK) Item Number: GEN25/8TUBE Description: GENETIC LABS TUBULAR GAUZE 2 5/8 BULK Item Number: GEN2NET Description: GENETIC LABS SIZE 2 ELASTIC NET - 25 YARDS STRETCHED Item Number: GEN3NET Description: GENETIC LABS SIZE 3 ELASTIC NET - 25 YARDS STRETCHED Item Number: GEN4NET Description: GENETIC LABS SIZE 4 ELASTIC NET - 25 YARDS STRETCHED Item Number: GEN5/8TUBE Description: GENETIC LABS TUBULAR GAUZE 5/8" X 50 YARDS (BULK) Item Number: GEN5NET Description: GENETIC LABS SIZE 5 ELASTIC NET - 25 YARDS STRETCHED Item Number: GEN6NET Description: GENETIC LABS SIZE 6 ELASTIC NET - 25 YARDS STRETCHED Item Number: GEN7/8TUBE Description: GENETIC LABS TUBULAR GAUZE 7/8" X 50 YARDS (BULK) Item Number: GEN7NET Description: GENETIC LABS SIZE 7 ELASTIC NET - 25 YARDS STRETCHED Item Number: GEN8NET Description: GENETIC LABS SIZE 8 ELASTIC NET - 25 YARDS STRETCHED Item Number: GEN9NET Description: GENETIC LABS SIZE 9 ELASTIC NET - 25 YARDS STRETCHED Item Number: GL-100-3R Description: 3" FLEXOPLAST REVERSE ADHESIVE BANDAGE - 5 YARDS STRETCHED Item Number: GL-1000 Description: GLENSLEEVE II - HAND/WRIST # 21038 -------------------------------------------------------------------------------- Item Number: GL-1000B Description: GLENSLEEVE II - HAND/WRIST (BEIGE) Item Number: GL-1000WP Description: GLENSLEEVE HAND/WRIST/ARM PROTECTOR. WHITE PADDED /12/CASE Item Number: GL-1000WP/PAIR Description: WHITE PADDED GLENSLEEVES/PAIR/ BULK Item Number: GL-105F Description: SURGITUBE 5/8" X 5 YARDS (FLESH) - INCL. SPLINT APPLICATOR Item Number: GL-105W Description: SURGITUBE 5/8" X 5 YARDS (WHITE) - INCL. SPLINT APPLICATOR Item Number: GL-1100B Description: GLENSLEEVE 1100 PETITE HAND/WRIST/ARM BEIGE 12 PAIR PER CASE Item Number: GL-110W Description: SURGITUBE 5/8" X 10 YARDS (WHITE) - INCL. SPLINT APPLICATOR Item Number: GL-1CDBX Description: # 1 cotton dacron boxed with applicator Item Number: GL-200-3 Description: 3" UNNA-PAK - ONE DOZEN COHESIVE BANDAGE/3"PASTE BANDAGE Item Number: GL-200-4 Description: 4" UNNA-PAK / DZ. COHESIVE BANDAGE/4" PASTE BANDAGE Item Number: GL-2000 Description: GLENSLEEVE II - HAND/WRIST/THUMB #21033 Item Number: GL-205F Description: SURGITUBE 7/8" X 5 YARDS (FLESH) - INCL. SPLINT APPLICATOR Item Number: GL-205W Description: SURGITUBE 7/8" X 5 YARDS (WHITE) - INCL. SPLINT APPLICATOR Item Number: GL-209 Description: SURGITUBE 5/8" X 50 YARDS (FLESH) - FOR USE WITH APPLICATOR Item Number: GL-210 Description: SURGITUBE 1" X 50 YARDS (FLESH) - FOR USE WITH APPLICATOR Item Number: GL-210F Description: SURGITUBE 7/8" x 10 YARDS (FLESH) - INCL. SPLINT APPLICATOR -------------------------------------------------------------------------------- Item Number: GL-210W Description: SURGITUBE 7/8" X 10 YARDS (WHITE) - INCL. SPLINT APPLICATOR Item Number: GL-211 Description: SURGITUBE 1 1/2" X 50 YARD (FLESH) - FOR USE WITH APPLICATOR Item Number: GL-212 Description: SURGITUBE 2 5/8" X 50 YARD (FLESH) - FOR USE WITH APPLICATOR Item Number: GL-219 Description: SURGITUBE 5/8" X 50 YARDS (WHITE) - FOR USE WITH APPLICATOR Item Number: GL-220 Description: SURGITUBE 1" X 50 YARDS (WHITE) - FOR USE WITH APPLICATOR Item Number: GL-221 Description: SURGITUBE 1 1/2" X 50 YARD (WHITE) - FOR USE WITH APPLICATOR Item Number: GL-222 Description: SURGITUBE 2 5/8" X 50 YARD (WHITE) - FOR USE WITH APPLICATOR Item Number: GL-223 Description: SURGITUBE 3 5/8" X 50 YARD (WHITE) - FOR USE WITH APPLICATOR Item Number: GL-224 Description: SURGITUBE 5" X 50 YARDS (WHITE) Item Number: GL-225 Description: SURGITUBE 7" X 50 YARDS (WHITE) Item Number: GL-227 Description: CAGE APPLICATOR SET (SIZES 1, 2 & 3) Item Number: GL-230 Description: METAL CAGE APPLICATOR - SIZE #0 Item Number: GL-231 Description: METAL CAGE APPLICATOR - SIZE #1 Item Number: GL-231P Description: LUCITE TUBE APPLICATOR - SIZE #1 -------------------------------------------------------------------------------- Item Number: GL-232 Description: METAL CAGE APPLICATOR - SIZE #2 Item Number: GL-232P Description: LUCITE TUBE APPLICATOR - SIZE #2 Item Number: GL-234 Description: METAL CAGE APPLICATOR - SIZE #3 Item Number: GL-234P Description: LUCITE TUBE APPLICATOR - SIZE #3 Item Number: GL-235 Description: STARTER KIT W/TUBE GAUZE AND CAGE APPLICATORS Item Number: GL-236 Description: METAL CAGE APPLICATOR - SIZE #4 Item Number: GL-241 Description: SURGITUBE 5/8" X 50 YARDS (WHITE) - FOR USE W/O APPLICATOR Item Number: GL-242 Description: SURGITUBE 7/8" X 50 YARDS (WHITE) - FOR USE W/O APPLICATOR Item Number: GL-242A Description: SURGITUBE 1 1/8" X 50 YARDS (WHITE) - FOR USE W/O APPLICATOR Item Number: GL-243 Description: SURGITUBE 1 1/2" X 50 YARDS (WHITE) - FOR USE W/O APPLICATOR Item Number: GL-244 Description: SURGITUBE 1 1/2" X 50 YARDS (WHITE) - FOR USE W/O APPLICATOR Item Number: GL-245 Description: SURGITUBE 2" X 50 YARDS (WHITE) - FOR USE W/O APPLICATOR Item Number: GL-246 Description: SURGITUBE 5/8" X 50 YARDS (FLESH) - FOR USE W/O APPLICATOR Item Number: GL-247 Description: SURGITUBE 7/8" X 50 YARDS (FLESH) - FOR USE W/O APPLICATOR Item Number: GL-248 Description: SURGITUBE 1 1/2" X 50 YARDS (FLESH) - FOR USE W/O APPLICATOR -------------------------------------------------------------------------------- Item Number: GL-251 Description: SURGITUBE 5/8" x 15 YARDS (WHITE) Item Number: GL-252 Description: SURGITUBE 7/8" x 15 YARDS (WHITE) Item Number: GL-2522 Description: SURGILAST SIZE 22 - 25 YARDS STRETCHED Item Number: GL-252A Description: SURGITUBE 1 1/8" x 15 YARDS (WHITE) Item Number: GL-260 Description: SURGITUBE 2" X 50 YARDS (FLESH) - FOR USE W/O APPLICATOR Item Number: GL-2CDBX Description: #2 COTTON DACRON - BOXED WITH APPLICATORS Item Number: GL-300-1 Description: PRIMER 3" X 10 YDS. UNNA BOOT Item Number: GL-300-1C Description: PRIMER 3" X 10 YDS. UNNA BOOT W/CALAMINE Item Number: GL-300-1F Description: PRIMER FLEX 3" ELASTIC UNNABOOT 10 YDS STRETCHED Item Number: GL-3000 Description: GLENSLEEVE II - BELOW KNEE #21043 Item Number: GL-3000B Description: GLENSLEEVE II - BELOW KNEE (BEIGE) # 21052 Item Number: GL-305F Description: SURGITUBE 1 1/2" X 5 YARDS (FLESH) Item Number: GL-305W Description: SURGITUBE 1 1/2" X 5 YARDS (WHITE) Item Number: GL-310W Description: SURGITUBE 1 1/2" X 10 YARDS (WHITE) -------------------------------------------------------------------------------- Item Number: GL-400-1 Description: PRIMER 4" X 10 YDS. UNNA BOOT Item Number: GL-400-1C Description: PRIMER 4" X 10 YDS. UNNA BOOT W/CALAMINE Item Number: GL-400-1F Description: PRIMER FLEX 4" ELASTIC UNNABOOT 10 YDS STRETCHED Item Number: GL-405W Description: SURGITUBE 1 1/2" X 5 YARDS (WHITE) - TIGHT WEAVE Item Number: GL-501 Description: SURGILAST SIZE 1 - 50 YARDS STRETCHED Item Number: GL-502 Description: SURGILAST SIZE 2 - 50 YARDS STRETCHED Item Number: GL-503 Description: SURGILAST SIZE 3 - 50 YARDS STRETCHED Item Number: GL-504 Description: SURGILAST SIZE 4 - 50 YARDS STRETCHED Item Number: GL-505 Description: SURGILAST SIZE 5 - 50 YARDS STRETCHED Item Number: GL-506 Description: SURGILAST SIZE 5.5 - 50 YARDS STRETCHED Item Number: GL-507 Description: SURGILAST SIZE 6 - 50 YARDS STRETCHED Item Number: GL-508 Description: SURGILAST SIZE 7 - 50 YARDS STRETCHED Item Number: GL-509 Description: SURGILAST SIZE 8 - 50 YARDS STRETCHED Item Number: GL-510 Description: SURGILAST SIZE 9 - 50 YARDS STRETCHED Item Number: GL-511 Description: SURGILAST SIZE 10 - 50 YARDS STRETCHED -------------------------------------------------------------------------------- Item Number: GL-512 Description: SURGILAST SIZE 11 - 50 YARDS STRETCHED Item Number: GL-600 Description: SURGILAST PRE-CUT HEAD DRESSING (20 UNITS PER BOX) Item Number: GL-620 Description: SURGILAST PRE-CUT PERINEUM/SMALL-MEDIUM (20 UNITS PER BOX) Item Number: GL-622 Description: SURGILAST PRE-CUT PERINEUM/LARGE-X-LARGE (20 UNITS PER BOX) Item Number: GL-641 Description: SURGILAST PRE-CUT FOOT/KNEE/ELBOW/HAND (20 UNITS PER BOX) Item Number: GL-701 Description: SURGILAST SIZE 1 - 25 YARDS STRETCHED Item Number: GL-702 Description: SURGILAST SIZE 2 - 25 YARDS STRETCHED Item Number: GL-703 Description: SURGILAST SIZE 3 - 25 YARDS STRETCHED Item Number: GL-704 Description: SURGILAST SIZE 4 - 25 YARDS STRETCHED Item Number: GL-705 Description: SURGILAST SIZE 5 - 25 YARDS STRETCHED Item Number: GL-706 Description: SURGILAST SIZE 5.5 - 25 YARDS STRETCHED Item Number: GL-707 Description: SURGILAST SIZE 6 - 25 YARDS STRETCHED Item Number: GL-708 Description: SURGILAST SIZE 7 - 25 YARDS STRETCHED Item Number: GL-709 Description: SURGILAST SIZE 8 - 25 YARDS STRETCHED Item Number: GL-710 Description: SURGILAST SIZE 9 - 25 YARDS STRETCHED -------------------------------------------------------------------------------- Item Number: GL-711 Description: SURGILAST SIZE 10 - 25 YARDS STRETCHED Item Number: GL-712 Description: SURGILAST SIZE 11 - 25 YARDS STRETCHED Item Number: GL-713 Description: SURGILAST SIZE 12 - 25 YARDS STRETCHED Item Number: GL-714 Description: SURGILAST SIZE 13 - 25 YARDS STRETCHED Item Number: GL-715 Description: SURGILAST SIZE 14 - 25 YARDS STRETCHED Item Number: GL-720 Description: SURGILAST SIZE A - 10 YARDS STRETCHED Item Number: GL-722 Description: SURGILAST SIZE B - 10 YARDS STRETCHED Item Number: GL-724 Description: SURGILAST SIZE C - 10 YARDS STRETCHED Item Number: GL-726 Description: SURGILAST SIZE D - 10 YARDS STRETCHED Item Number: GL-750 Description: SURGILAST STRESS VEST - SMALL/MEDIUM (20 UNITS PER BOX) Item Number: GL-752 Description: SURGILAST STRESS VEST - LARGE/X-LARGE (20 UNITS PER BOX) Item Number: GL-800 Description: HEEL & ELBOW PROTECTORS - SMALL (12 PAIRS) Item Number: GL-800/24 Description: HEEL & ELBOW PROTECTORS - SMALL (24 PAIRS) Item Number: GL-801 Description: HEEL & ELBOW PROTECTORS - MEDIUM/LARGE (12 PAIRS) Item Number: GL-801/24 Description: HEEL & ELBOW PROTECTORS - MEDIUM/LARGE (24 PAIRS) Item Number: GL-801/PR Description: HEEL AND ELBOW PROTECTOR SIZE MEDIUM/ LARGE ONE PAIR -------------------------------------------------------------------------------- Item Number: GL-802 Description: HEEL & ELBOW PROTECTORS - EXTRA-LARGE (12 PAIRS) Item Number: GL-802/24 Description: HEEL & ELBOW PROTECTORS - EXTRA-LARGE (24 PAIRS) Item Number: GL-802/PR Description: HEEL AND ELBOW SIZE X-LGE - ONE PAIR Item Number: GL-899 Description: GLENSLEEVE ARM PROTECTORS - SMALL/MEDIUM (12 PAIRS) Item Number: GL-900 Description: GLENSLEEVE ARM PROTECTORS - LARGE/EXTRA-LARGE (12 PAIRS) Item Number: GL-9702 Description: ORTHOPAEDIC STOCKINETTE 2" X 25 YARDS (COTTON) #10022 Item Number: GL-9703 Description: ORTHOPAEDIC STOCKINETTE 3" X 25 YARDS (COTTON) #10023 Item Number: GL-9704 Description: ORTHOPAEDIC STOCKINETTE 4" X 25 YARDS (COTTON) Item Number: GL-9706 Description: ORTHOPAEDIC STOCKINETTE 6" X 25 YARDS (COTTON) Item Number: GL-9712 Description: ORTHOPAEDIC STOCKINETTE 2" X 25 YARDS (SYNTHETIC) Item Number: GL-9713 Description: ORTHOPAEDIC STOCKINETTE 3" X 25 YARDS (SYNTHETIC) Item Number: GL-9714 Description: ORTHOPAEDIC STOCKINETTE 4" X 25 YARDS (SYNTHETIC) Item Number: GL-ALUAPP Description: ALUMINUM FINGER SPLINT APPLICATOR - ONE DOZEN Item Number: GL-B10 Description: SURGIGRIP LATEX-FREE SIZE B - 2 1/2" x 10 METERS #01114 -------------------------------------------------------------------------------- Item Number: GL-C10 Description: SURGIGRIP LATEX-FREE SIZE C - 2 3/4" x 10 METERS Item Number: GL-D10 Description: SURGIGRIP LATEX-FREE SIZE D - 3" x 10 METERS Item Number: GL-E10 Description: SURGIGRIP LATEX-FREE SIZE E - 3 1/2" x 10 METERS Item Number: GL-F10 Description: SURGIGRIP LATEX-FREE SIZE F - 4" x 10 METERS Item Number: GL-G10 Description: SURGIGRIP LATEX-FREE SIZE G - 4 1/2" x 10 meters per box Item Number: GL-J10 Description: SURGIGRIP LATEX-FREE SIZE J - 6 3/4" X 10 METERS. Item Number: GL-K10 Description: SURGIGRIP LATEX-FREE SIZE K - 8 " x 10 METERS Item Number: GL-L10 Description: SURGIGRIP LATEX-FREE SIZE L - 12 3/4" x 10 METERS Item Number: GL-LF2501 Description: SURGILAST LATEX-FREE SIZE 1 - 25 YARDS STRETCHED Item Number: GL-LF2502 Description: SURGILAST LATEX-FREE SIZE 2 - 25 YARDS STRETCHED Item Number: GL-LF2503 Description: SURGILAST LATEX-FREE SIZE 3 - 25 YARDS STRETCHED Item Number: GL-LF2504 Description: SURGILAST LATEX-FREE SIZE 4 - 25 YARDS STRETCHED Item Number: GL-LF2505 Description: SURGILAST LATEX-FREE SIZE 5 - 25 YARDS STRETCHED Item Number: GL-LF2505.5 Description: SURGILAST LATEX-FREE SIZE 5.5 - 25 YARDS STRETCHED Item Number: GL-LF2506 Description: SURGILAST LATEX-FREE SIZE 6 - 25 YARDS STRETCHED -------------------------------------------------------------------------------- Item Number: GL-LF2507 Description: SURGILAST LATEX-FREE SIZE 7 - 25 YARDS STRETCHED Item Number: GL-LF2508 Description: SURGILAST LATEX-FREE SIZE 8 - 25 YARDS STRETCHED Item Number: GL-LF2509 Description: SURGILAST LATEX-FREE SIZE 9 - 25 YARDS STRETCHED Item Number: GL-LF2510 Description: SURGILAST LATEX-FREE SIZE 10 - 25 YARDS STRETCHED Item Number: GL-LF2511 Description: SURGILAST LATEX-FREE SIZE 11 - 25 YARDS STRETCHED Item Number: GL-LF2512 Description: SURGILAST LATEX-FREE SIZE 12 - 25 YARDS STRETCHED Item Number: GL-LF2514 Description: SURGILAST LATEX-FREE SIZE 14 - 25 YARDS STRETCHED Item Number: GL10-1 Description: SURGILAST SIZE 1 - 10 YARDS STRETCHED Item Number: GL10-10 Description: SURGILAST SIZE 10 - 10 YARDS STRETCHED Item Number: GL10-11 Description: SURGILAST SIZE 11 - 10 YARDS STRETCHED Item Number: GL10-12 Description: SURGILAST SIZE 12 - 10 YARDS STRETCHED Item Number: GL10-2 Description: SURGILAST SIZE 2 - 10 YARDS STRETCHED Item Number: GL10-3 Description: SURGILAST SIZE 3 - 10 YARDS STRETCHED Item Number: GL10-4 Description: SURGILAST SIZE 4 - 10 YARDS STRETCHED Item Number: GL10-5 Description: SURGILAST SIZE 5 - 10 YARDS STRETCHED -------------------------------------------------------------------------------- Item Number: GL10-6 Description: SURGILAST SIZE 6 - 10 YARDS STRETCHED Item Number: GL10-7 Description: SURGILAST SIZE 7 - 10 YARDS STRETCHED Item Number: GL10-8 Description: SURGILAST SIZE 8 - 10 YARDS STRETCHED Item Number: GL10-9 Description: SURGILAST SIZE 9 - 10 YARDS STRETCHED Item Number: GL100-1 Description: FLEXOPLAST - ELASTIC ADHESIVE BANDAGE (1" X 5 YARDS)12/BOX Item Number: GL100-2 Description: FLEXOPLAST - ELASTIC ADHESIVE BANDAGE (2" X 5 YARDS) - 6/BOX Item Number: GL100-3 Description: FLEXOPLAST - ELASTIC ADHESIVE BANDAGE (3" X 5 YARDS) - 4/BOX Item Number: GL100-4 Description: FLEXOPLAST - ELASTIC ADHESIVE BANDAGE (4" X 5 YARDS) - 6/BOX Item Number: LF25A Description: SURG-O-FLEX LATEX-FREE SIZE A - 25 YARDS STRETCHED Item Number: LF25B Description: SURG-O-FLEX LATEX-FREE SIZE B - 25 YARDS STRETCHED Item Number: LF25C Description: SURG-O-FLEX LATEX-FREE SIZE C - 25 YARDS STRETCHED Item Number: LF25D Description: SURG-O-FLEX LATEX-FREE SIZE D - 25 YARDS STRETCHED Item Number: LF73245 Description: LATEX FREE 2"/4.5YDS STRETCHED REBS W/CLIPS (50/CASE) Item Number: LF73345 Description: LATEX FREE 3"/4.5YD STRETCHED REB W/CLIPS (50 PER CASE) -------------------------------------------------------------------------------- Item Number: LF73445 Description: LATEX FREE 4/ 4.5YDS STRETCHED REB W/CLIPS (50 PER CASE) Item Number: LF73645 Description: LATEX FREE 6"/ 4.5YDS STRETCHED REB W/CLIPS (50 PER CASE) Item Number: NONUNNA3 Description: 3" x 10 YARD UNNABOOT BANDAGE WITH CALAMINE - MEDLINE Item Number: NONUNNA4 Description: 4" X 10 YARD UNNABOOT BANDAGE WITH CALAMINE - MEDLINE Item Number: R99903 Description: 3" ZINC PASTE BANDAGE (100 PER CASE) Item Number: R99903C Description: 3" ZINC PASTE BANDAGE W/ CALAMINE (100 PER CASE) Item Number: R99904 Description: KERMA 4" ZINC PASTE BANDAGE (100 PER CASE) Item Number: R99904C Description: KERMA 4" ZINC PASTE BANDAGE W/ CALAMINE (100 PER CASE) Item Number: SPLINTS Description: ALUMINUM FINGER SPLINTS Item Number: SU2500 Description: SURG-O-FLEX SIZE 0 - 25 YARDS STRETCHED Item Number: SU2501 Description: SURG-O-FLEX SIZE 1 - 25 YARDS STRETCHED Item Number: SU2502 Description: SURG-O-FLEX SIZE 2 - 25 YARDS STRETCHED Item Number: SU2503 Description: SURG-O-FLEX SIZE 3 - 25 YARDS STRETCHED Item Number: SU2504 Description: SURG-O-FLEX SIZE 4 - 25 YARDS STRETCHED Item Number: SU2505 Description: SURG-O-FLEX SIZE 5 - 25 YARDS STRETCHED Item Number: SU2505.5 Description: SURG-O-FLEX SIZE 5.5 - 25 YARDS STRETCHED -------------------------------------------------------------------------------- Item Number: SU2506 Description: SURG-O-FLEX SIZE 6 - 25 YARDS STRETCHED Item Number: SU2507 Description: SURG-O-FLEX SIZE 7 - 25 YARDS STRETCHED Item Number: SU2508 Description: SURG-O-FLEX SIZE 8 - 25 YARDS STRETCHED Item Number: SU2509 Description: SURG-O-FLEX SIZE 9 - 25 YARDS STRETCHED Item Number: SU2510 Description: SURG-O-FLEX SIZE 10 - 25 YARDS STRETCHED Item Number: SU2511 Description: SURG-O-FLEX SIZE 11 - 25 YARDS STRETCHED Item Number: SU25A Description: SURG-O-FLEX SIZE A - 25 YARDS STRETCHED Item Number: SU25B Description: SURG-O-FLEX SIZE B - 25 YARDS STRETCHED Item Number: SU25C Description: SURG-O-FLEX SIZE C - 25 YARD STRETCHED Item Number: SU25D Description: SURG-O-FLEX SIZE D - 25 YARDS STRETCHED Item Number: SU25E Description: SURG-O-FLEX SIZE E - 12.5 YARDS STRETCHED Item Number: WM-.504 Description: NON STERILE PRE-CUT .5 X 4" (5 PCS PER PACK - 36 PACKS/CASE) Item Number: WM-0106 Description: NON STERILE PRE-CUT SIZE 1 X 6" (36 PER CASE) Item Number: WM-0118 Description: LATEX-FREE NON STERILE PRE-CUT SIZE 1 X 18" (36 PER CASE) -------------------------------------------------------------------------------- Item Number: WM-0218 Description: LATEX-FREE NON STERILE PRE-CUT SIZE 2 X 18" (36 PER CASE) Item Number: WM-0418 Description: LATEX-FREE NON STERILE PRE-CUT SIZE 4 X 18" (36 PER CASE) Item Number: WM-0524 Description: NON STERILE PRE-CUTS SIZE 5 X 24" (36 PER CASE) Item Number: WM-0618 Description: LATEX-FREE NON STERILE PRE-CUT SIZE 6 X 18" (36 PER CASE) Item Number: WM-0624 Description: NON STERILE PRE-CUTS SIZE 6 X 24" (36 PER CASE) Item Number: WM-0718 Description: NON STERILE PRE-CUTS SIZE 7 X 18" (36 PER CASE) Item Number: WM-0818 Description: LATEX-FREE NON STERILE PRE-CUT SIZE 8 X 18" (36 PER CASE) Item Number: WM-0830 Description: NON STERILE PRE-CUTS SIZE 8 X 30" (36 PER CASE) Item Number: WM-0924 Description: NON STERILE PRE-CUT SIZE 9 X 24" (36 PER CASE) Item Number: WM-1018 Description: LATEX-FREE NON STERILE PRE-CUT SIZE 10 X 18" (36 PER CASE) Item Number: WM-102A/10 Description: READY TO USE PRE-CUT - CHEST/PERINEUM PANTY - SMALL (10 EA) Item Number: WM-102B/10 Description: READY TO USE PRE-CUT CHEST/PERINEUM PANTY - MED. SZ 7 10 EA Item Number: WM-102C/10 Description: READY TO USE PRE-CUT - CHEST/PERINEUM PANTY - LARGE (10 EA) Item Number: WM-103B/10 Description: READY TO USE PRE-CUT -PERINEUM PANTY - LGE (10 Per Bag) Sz 7 Item Number: WM-105A Description: READY TO USE PRE-CUT - CRANIUM CAP - AVERAGE (10 EA) Item Number: WM-105B/10 Description: READY TO USE PRE-CUT - FULL HEAD CAP - AVERAGE (10 EA) -------------------------------------------------------------------------------- Item Number: WM-106/10 Description: READY TO USE PRE-CUT - HIP/THIGH - AVERAGE (10 EA) Item Number: WM-108A/30 Description: READY TO USE PRE-CUT - KNEE/FOOT/ELBOW/HAND - MEDIUM (30 EA) Item Number: WM-108B/30 Description: READY TO USE PRE-CUT - KNEE/FOOT/ELBOW/HAND - LARGE (30 EA) Item Number: WM-113L Description: BAND NET STRESS TEST T SHIRTS - LARGE (10 PER BAG) Item Number: WM-113M Description: BAND NET STRESS TEST T SHIRTS - MEDIUM (10 PER BAG) Item Number: WM-113S Description: BAND NET STRESS TEST T-SHIRTS - SMALL (10 PER BAG) Item Number: WM-113XL Description: BAND NET STRESS TEST T-SHIRTS - EXTRA LARGE (10 PER BAG) Item Number: WM-2224 Description: NON STERILE PRE-CUT SIZE 22 X 24" (36 PER CASE) Item Number: WM-2CDBX Description: 7/8" x 40 YARDS COTTON DACRON SIZE 2 - BOXED WITH APPLICATOR Item Number: WM-5CDBX Description: 2-5/8" x 40 YARDS COTTON DACRON SIZE 5 - BOXED W/ APPLICATOR Item Number: WM-B10 Description: SURGIGRIP 2 1/2" X 11 YDS. HANDS/LIMBS Item Number: WM-C10 Description: SURGIGRIP 2 3/4" X 11 YDS. SMALL HANDS/LIMBS Item Number: WM-COPRESS3 Description: CO-PRESS 3" X 5 YARD COHESIVE BANDAGE Item Number: WM-COPRESS4 Description: CO-PRESS 4 " X 5 YARD COHESIVE DRESSING Item Number: WM-D10 Description: SURGIGRIP 3" X 11 YDS. LARGE ARMS AND LEGS -------------------------------------------------------------------------------- Item Number: WM-E10 Description: SURGIGRIP 3 1/2" X 11 YDS. LEGS/SMALL THIGHS Item Number: WM-F10 Description: SURGIGRIP 4" X 11 YDS. LARGE KNEES/THIGHS Item Number: WM-G10 Description: SURGIGRIP 4 1/2" X 11 YDS. LARGE THIGHS Item Number: WM-GEN3 Description: 3" x 10 YARDS GENERIC UNNA BOOT Item Number: WM-GEN3C Description: 3" x 10 YARDS GENERIC UNNA BOOT WITH CALAMINE Item Number: WM-GEN4 Description: 4" x 10 YARDS GENERIC UNNA BOOT Item Number: WM-GEN4/EACH Description: 4" GENERIC UNNA BOOT - EACH Item Number: WM-GEN4C Description: 4" x 10 YARDS GENERIC UNNA BOOT WITH CALAMINE Item Number: WM-GEN4C/EA Description: GENERIC 4" UNNABOOT WITH CALAMINE / EACH Item Number: WM-J10 Description: SURGIGRIP 6 3/4" X 11 YDS. SMALL TRUNK Item Number: WM51-01 Description: STOMASAFE OSTOMY BAG HOLDER - SMALL (10 PER CASE) Item Number: WM51-03 Description: STOMASAFE OSTOMY BAG HOLDER - MEDIUM (10 PER CASE) Item Number: WM51-05 Description: STOMASAFE OSTOMY BAG HOLDER - LARGE (10 PER CASE) Item Number: WM51-07 Description: STOMASAFE OSTOMY BAG HOLDER - EXTRA LARGE (10 PER CASE) -------------------------------------------------------------------------------- Schedule 2: CMS Additional Services 1.         Market Research/Data 2.         Third-Party Logistics 3.         GPO Data and Contacts 4.         Regulatory Assistance 5.         EDI 6.         Trade Association(s) 7.         Trade Advertising Assistance 8.         Sampling Programs 9.         Transactional Internet Portal 10.       Donations – Relief Organizations --------------------------------------------------------------------------------

Exhibit 10.1   EMPLOYMENT AGREEMENT   THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of the 8 day of February, 2006, by and between EVANS & SUTHERLAND COMPUTER CORPORATION, a Utah corporation (the “Company”) and Jonathan Shaw (the “Executive”).   W I T N E S S E T H:   WHEREAS, the Executive is employed as an executive of Spitz, Inc. (“Spitz”);   WHEREAS, the Company intends to acquire Spitz;   WHEREAS, the Executive desires to provide services to the Company in an executive capacity;   WHEREAS, the Company desires to have the benefit of the Executive’s efforts and services;   WHEREAS, the Company and the Executive desire to terminate all prior employment agreements with the Company, if any; and   WHEREAS, the Company has determined that it is appropriate and in the best interests of the Company to provide to the Executive protection in the event of certain terminations of the Executive’s employment relationship with the Company in accordance with the terms and conditions contained herein and the Executive desires to have such protection.   NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the Company and the Executive hereto mutually covenant and agree as follows:   1.                                       DEFINITIONS.   Whenever used in this Agreement, the following terms shall have the meanings set forth below:   (a)                                  “Accrued Benefits” shall mean the amount equal to the sum of the following to the extent not previously paid:   (i)                                     All salary earned or accrued through the Termination Date;   (ii)                                  Reimbursement pursuant to Section 6(d) for any and all monies expended by the Executive and not advanced by the Company in connection with the Executive’s employment for reasonable and necessary expenses incurred by the Executive through the Termination Date;   --------------------------------------------------------------------------------   (iii)                               Any and all other cash benefits of deferred compensation plans previously earned through the Termination Date unless deferred at the election of the Executive for payment at another time or the applicable deferred compensation plan provides for payment at another time;   (iv)                              The full amount of any bonus earned in a prior period and payable to the Executive in accordance with Section 6(b) herein, subject to the limitations in Section 10 and Section 12; and   (v)                                 All other payments and benefits to which the Executive may be entitled under the terms of any benefit plan of the Company, which as of the Termination Date, is applicable to all regular full-time employees of the Company generally.   (b)                                 “Act” shall mean the Securities Exchange Act of 1934;   (c)                                  “Affiliate” shall have the same meaning as given to that term in Rule 12b-2 of Regulation 12B promulgated under the Act;   (d)                                 “Base Period Income” shall be an amount equal to the Executive’s “annualized includable compensation” for the “base period” as defined in Sections 280G(d)(1) and (2) of the Code and the regulations adopted thereunder;   (e)                                  “Beneficial Owner” shall have the same meaning as given to that term in Rule 13d-3 of the Act, provided that any pledgee of Company voting securities shall not be deemed to be the Beneficial Owner thereof prior to its disposition of, or acquisition of voting rights with respect to, such securities;   (f)                                    “Board” shall mean the Board of Directors of the Company;   (g)                                 “Business Disposition” shall mean the sale, transfer, liquidation or other disposition of all or substantially all of the assets of the digital theater, planetarium and related businesses of the Company to a Person or Persons; or the sale, transfer, or other disposition by the Company of Spitz stock to a Person or Persons; excluding the subsuming of Spitz into the Company;   (h)                                 “Cause” shall mean any of the following:   (i)                                     The engaging by the Executive in fraudulent conduct, as evidenced by a determination in a binding and final judgment, order or decree of a court or administrative agency of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal, in an action, suit or proceeding, whether civil, criminal, administrative or investigative, which the Chief Executive Officer of the Company determines, in his sole discretion, has a significant adverse impact on the Company or on the performance of the Executive’s duties to the Company;   (ii)                                  Conviction of a felony, as evidenced by a binding and final judgment, order or decree of a court of competent jurisdiction, in effect after   2 --------------------------------------------------------------------------------   exhaustion or lapse of all rights of appeal, which the Chief Executive Officer of the Company determines, in his sole discretion, has a significant adverse impact on the Company or on the performance of the Executive’s duties to the Company;   (iii)                               Neglect or refusal by the Executive to perform the Executive’s duties or responsibilities; or   (iv)                              A significant violation by the Executive of the Company’s established policies and procedures;   Notwithstanding the foregoing, Cause shall not exist under Sections 1(g)(iii) and (iv) herein unless the Company furnishes written notice to the Executive of the specific offending conduct and the Executive fails to correct such offending conduct within the thirty (30) day period commencing on the receipt of such notice.   (i)                                     “Change of Control” shall mean a change in ownership or managerial control of the stock, assets or business of the Company resulting from one or more of the following circumstances:   (i)                                     A change of control of the Company, of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Act, or any successor regulation of similar import, regardless of whether the Company is subject to such reporting requirement;   (ii)                                  A change in ownership of the Company through a transaction or series of transactions, such that any Person or Persons (other than any current officer of the Company or member of the Board) become(s), in the aggregate, the Beneficial Owner(s), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the Company’s then outstanding securities;   (iii)                               Any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the common stock of the Company would be converted into cash (other than cash attributable to dissenters’ rights), securities or other property provided by a Person or Persons other than the Company, other than a consolidation or merger of the Company in which the holders of the common stock of the Company immediately prior to the consolidation or merger have approximately the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger;   (iv)                              The shareholders of the Company approve a sale, transfer, liquidation or other disposition of all or substantially all of the assets of the Company to a Person or Persons;   (v)                                 During any period of two (2) consecutive years, individuals who, at the beginning of such period, constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority thereof, unless the   3 --------------------------------------------------------------------------------   election or nomination for election of each new director was approved by the vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period;   (vi)                              The filing of a proceeding under Chapter 7 of the Federal Bankruptcy Code (or any successor or other statute of similar import) for liquidation with respect to the Company;   (vii)                           The filing of a proceeding under Chapter 11 of the Federal Bankruptcy Code (or any successor or other statute of similar import) for reorganization with respect to the Company if in connection with any such proceeding, this Agreement is rejected, or a plan of reorganization is approved an element of which plan entails the liquidation of all or substantially all the assets of the Company;   A “Change of Control” shall be deemed to occur on the actual date on which any of the foregoing circumstances shall occur; provided, however, that in connection with a “Change of Control” specified in Section 1(h)(vii), a “Change of Control” shall be deemed to occur on the date of the filing of the relevant proceeding under Chapter 7 or Chapter 11 of the Federal Bankruptcy Code (or any successor or other statute of similar import). Notwithstanding the foregoing, a “Change of Control” shall not include any transaction that constitutes a “Rule 13e-3 transaction” under Rule 13e-3 of the Act or an “issuer tender offer” under Rule 13e-4 of the Act.   (j)                                     “Change of Control Period” shall mean the period commencing 180 days immediately prior to the date a Change of Control is deemed to occur pursuant to Section 1(h), herein, and ending on the second anniversary of such date of Change of Control;   (k)                                  “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time;   (l)                                     “Disability” shall mean a physical or mental condition whereby the Executive is unable to perform on a full-time basis the customary duties of the Executive under this Agreement;   (m)                               “Effective Date” shall mean the date that the Company acquires control of Spitz; but not later than August 1, 2006 unless a later date is mutually agreed upon by the Company and the Executive;   (n)                                 “Federal Short Term-Rate” shall mean the rate defined in Section 1274(d)(1)(C)(i) of the Code;   (o)                                 “Good Reason” shall mean any of the following:   (i)                                     The change of the Executive’s assigned employment location without the Executive’s consent where the lesser of (A) the distance from the Executive’s residence at the time of the change to the new work location; or (B)   4 --------------------------------------------------------------------------------   the distance from the Executive’s residence on the day preceding the date of this Agreement to the new work location, is greater than fifty (50) miles;   (ii)                                  A significant adverse change, without the Executive’s written consent, in the nature or scope of the Executive’s authority, powers, functions, duties or responsibilities that existed during the 180-day period immediately preceding the date of a Business Disposition, or a material reduction in the level of support services, staff, secretarial and other assistance, office space and accoutrements available to a level below that which was provided to the Executive during the 180-day period immediately preceding the date of a Business Disposition, and that which is necessary to perform any duties assigned to the Executive during the 180-day period immediately preceding the date of a Business Disposition; or   (iii)                               Breach or violation of any material provision of this Agreement by the Company, which is not remedied within five business days following notice to the Company by the Executive.   (p)                                 “Good Reason During a Change of Control” shall mean any of the following events occurring during a Change of Control Period:   (ii)                                  (i)                                     The change of the Executive’s assigned employment location without the Executive’s consent where the lesser of (A) the distance from the Executive’s residence at the time of the change to the new work location; or (B) the distance from the Executive’s residence on the day preceding the date of this Agreement to the new work location, is greater than fifty (50) miles;   (ii)                                  The removal of the Executive from or any failure to reelect the Executive to any of the positions held by the Executive during the 180-day period immediately preceding the Change of Control Period, except in the event that such removal or failure to reelect relates to the termination by the Company of the Executive’s employment for Cause or by reason of death, Disability or voluntary retirement;   (iii)                               A significant adverse change, without the Executive’s written consent, in the nature or scope of the Executive’s authority, powers, functions, duties or responsibilities that existed during the 180-day period immediately preceding the Change of Control Period, or a material reduction in the level of support services, staff, secretarial and other assistance, office space and accoutrements available to a level below that which was provided to the Executive during the 180-day period immediately preceding the Change of Control Period, and that which is necessary to perform any duties assigned to the Executive during the 180-day period immediately preceding the Change of Control Period; or   5 --------------------------------------------------------------------------------   (iv)                              Breach or violation of any material provision of this Agreement by the Company, which is not remedied within five business days following notice to the Company by the Executive;   (q)                                 “Gross Income” shall mean the Executive’s current calendar year targeted compensation under Sections 6(a) and 6(b) of this Agreement;   (r)                                    “Notice of Termination” shall mean the notice described in Section 14 herein;   (s)                                  “Person” shall mean any individual, partnership, joint venture, association, trust, corporation or other entity, other than an employee benefit plan of the Company or an entity organized, appointed or established pursuant to the terms of any such benefit plan;   (t)                                    “Prior Employment Agreement” shall mean the employment agreement between Spitz and the Executive dated September 1, 2002.   (u)                                 “Stay Agreement” shall mean the agreement between Spitz and the Executive dated December 20, 2004.   (v)                                 “Termination Date” shall mean, except as otherwise provided in Section 14 herein,   (i)                                     The Executive’s date of death;   (ii)                                  Thirty (30) days after the delivery of the Notice of Termination terminating the Executive’s employment on account of Disability pursuant to Section 9 herein, unless the Executive returns on a full-time basis to the performance of his or her duties prior to the expiration of such period;   (iii)                               Thirty (30) days after the delivery of the Notice of Termination if the Executive’s employment is terminated by the Executive voluntarily;   (iv)                              Thirty (30) days after the delivery of the Notice of Termination if the Executive’s employment is terminated by the Company for any reason other than death or Disability; or   (v)                                 The date the Executive is terminated for Cause.   (w)                               “Termination Payment” shall mean the payment described in Section 13 herein;   (x)                                   “Total Payments” shall mean the sum of the Termination Payment and any other “payments in the nature of compensation” (as defined in Section 280G of the Code and the regulations adopted thereunder) to or for the benefit of the Executive, the receipt of which is contingent on a Change of Control and to which Section 280G of the Code applies.   6 --------------------------------------------------------------------------------   2.                                       EMPLOYMENT.   The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein.   (a)                                  On the Effective Date, the Prior Agreement shall be terminated and the Executive, Transnational, Inc., Spitz, and the Company shall have no further obligations under the Prior Agreement.   (b)                                 The Company acknowledges the Stay Agreement and agrees to satisfy Spitz’ obligations under the Stay Agreement to the extent that Spitz fails to do so.   3.                                       TERM.   This Agreement shall commence on the Effective Date. This Agreement shall end on that date employment of the Executive is terminated pursuant to the terms and conditions of either Section 8, 9, 10, 11 or 12, herein.   4.                                       POSITIONS AND DUTIES.   The Executive shall serve as an executive of the Company and in such additional capacities as set forth in Section 7 herein. In connection with the foregoing positions, the Executive shall have such duties, responsibilities and authority as may from time to time be assigned to the Executive by the Chief Executive Officer. The Executive shall devote substantially all the Executive’s working time and efforts to the business and affairs of the Company. The Chief Executive Officer, in his or her sole discretion, may alter, modify, or change the Executive’s duties, offices, positions, responsibilities and obligations set forth in this Agreement at any time, consistent with the status of a senior executive of the Company.   5.                                       PLACE OF PERFORMANCE.   In connection with the Executive’s employment by the Company, the Executive shall be based at the office of the Company in Chadds Ford, Pennsylvania except for required travel on Company business.   6.                                       COMPENSATION AND RELATED MATTERS.   (a)                                  Salary. The Company shall pay to the Executive an annualized base salary at a rate of $161,360 in equal installments as nearly as practicable on the Company’s regular payroll dates, in arrears. Such annualized base salary may be increased from time to time in accordance with normal business practices of the Company. The annualized base salary of the Executive shall not be decreased below its then existing amount during the term of this Agreement;   7 --------------------------------------------------------------------------------   (b)                                 MIP. Subject to the Company’s right to terminate or amend, at any time with or without notice to the Executive, the Evans & Sutherland Management Incentive Plan (MIP), the Executive shall be entitled to participate in the Evans & Sutherland MIP as agreed in writing in a MIP document;   (c)                                  Executive Savings Plan. Subject to the Company’s right to terminate or amend, at any time with or without notice to the Executive, the Company’s Executive Savings Plan, the Executive shall be entitled to participate in the Executive Savings Plan according to the terms and conditions of the Executive Savings Plan.   (d)                                 Expenses. The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in performing services hereunder, including professional association, license fee and professional education expenses related to the Executive’s position and duties and all expenses for travel and living expenses while away from home on business or at the request of and in the service of the Company, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company at the time incurred;   (e)                                  Other Benefits. The Company shall provide the Executive with all other benefits normally provided to an employee of the Company similarly situated to the Executive, including being added as a named officer on the Company’s existing directors’ and officers’ liability insurance policy;   (f)                                    Vacations. The Executive shall be entitled to the number of vacation days in each calendar year, and to compensation in respect of earned but unused vacation days, determined in accordance with the Company’s vacation plan as in effect from time to time. The Executive shall also be entitled to all paid holidays given by the Company to its executives; and   (g)                                 Services Furnished. The Company shall furnish the Executive with office space, and such other facilities and services as shall be suitable to the Executive’s position and adequate for the performance of the Executive’s duties as set forth in Section 4 hereof.   7.                                       OFFICES.   The Executive agrees to serve without additional compensation, if elected or appointed thereto, in one or more executive offices of the Company, or any affiliate or subsidiary of the Company, or as a member of the board of directors of any subsidiary or affiliate of the Company; provided, however, that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is currently provided in the Company’s bylaws or otherwise and that the Executive is covered by a directors’ and officers’ liability insurance or other policy applicable to the election or appointment.   8 --------------------------------------------------------------------------------   8.                                       TERMINATION AS A RESULT OF DEATH.   If the Executive shall die during the term of this Agreement, the Executive’s employment shall terminate on the Executive’s date of death and the Executive’s surviving spouse, or the Executive’s estate if the Executive dies without a surviving spouse, shall be entitled to the Executive’s Accrued Benefits as of the Termination Date and the applicable Termination Payment.   9.                                       TERMINATION FOR DISABILITY.   If, as a result of the Executive’s Disability, the Executive shall have been unable to perform the Executive’s duties hereunder on a full-time basis for four (4) consecutive months and within thirty (30) days after the Company provides the Executive with a Termination Notice, the Executive shall not have returned to the performance of the Executive’s duties on a full-time basis, the Company may terminate the Executive’s employment, subject to Section 14 herein. During the term of the Executive’s Disability prior to termination, the Executive shall continue to receive all salary and other benefits payable under Section 6 herein, including participation in all employee benefit plans, programs and arrangements in which the Executive was entitled to participate immediately prior to the Disability; provided, however, that the Executive’s continued participation is permitted under the terms and provisions of such plans, programs and arrangements. In the event that the Executive’s participation in any such plan, program or arrangement is barred as the result of such Disability, the Executive shall be entitled to receive an amount equal to the contributions, payments, credits or allocations which would have been paid by the Company to the Executive, to the Executive’s account or on the Executive’s behalf under such plans, programs and arrangements. In the event the Executive’s employment is terminated on account of the Executive’s Disability in accordance with this Section 9, the Executive shall receive the Executive’s Accrued Benefits as of the Termination Date and shall remain eligible for all benefits provided by any long-term disability programs of the Company in effect at the time of such termination. The Executive shall also be entitled to the Termination Payment described in Section 13(a).   10.                                 TERMINATION FOR CAUSE.   If the Executive’s employment with the Company is terminated by the Company for Cause, subject to the procedures set forth in Section 14 herein, the Executive shall be entitled to receive the Executive’s Accrued Benefits as of the Termination Date, however, the Executive’s Accrued Benefits will not include any amount for bonus under Section 1(a)(iv). The Executive shall not be entitled to receipt of any Termination Payment.   11.                                 OTHER TERMINATION BY COMPANY.   If the Executive’s employment with the Company is terminated by the Company other than by reason of death, Disability or Cause, subject to the procedures set forth in Section 14 herein, the Executive (or in the event of the Executive’s death following the Termination Date, the Executive’s surviving spouse or the Executive’s estate if the Executive dies without a surviving spouse) shall receive the Executive’s Accrued Benefits and the applicable Termination Payment. The Executive shall not, in connection with any consideration receivable in   9 --------------------------------------------------------------------------------   accordance with this Section 11, be required to mitigate the amount of such consideration by securing other employment or otherwise and such consideration shall not be reduced by reason of the Executive securing other employment or for any other reason.   12.                                 VOLUNTARY TERMINATION BY EXECUTIVE.   From and after the commencement of this Agreement, as provided under Section 3, provided that the Executive furnishes thirty (30) days prior written notice to the Company, the Executive shall have the right to voluntarily terminate this Agreement at any time. If the Executive’s voluntary termination is without Good Reason or without Good Reason During a Change of Control, the Executive shall receive the Executive’s Accrued Benefits as of the Termination Date and shall not be entitled to any Termination Payment, however, the Executive’s Accrued Benefits will not include any amount for bonus under Section 1(a)(iv). If the Executive’s voluntary termination is for Good Reason or Good Reason During a Change of Control, the Executive (or in the event of the Executive’s death following the Termination Date, the Executive’s surviving spouse or the Executive’s estate if the Executive dies without a surviving spouse) shall receive the Executive’s Accrued Benefits and the applicable Termination Payment. The Executive shall not, in connection with any consideration receivable in accordance with this Section 12, be required to mitigate the amount of such consideration by securing other employment or otherwise and such consideration shall not be reduced by reason of the Executive securing other employment or for any other reason.   13.                                 TERMINATION PAYMENT.   (a)                                  If the Executive’s employment is terminated as a result of death or Disability, the Executive shall receive a Termination Payment equal to one (1.0) times the Executive’s Gross Income. The Company will reimburse the Executive for the full medical, dental and vision premiums for continuation coverage under COBRA for the Executive and dependents who qualify for continuation coverage under COBRA for one year following Termination Date.   (b)                                 If, prior to a Change of Control Period, the Executive’s employment is terminated by the Executive for Good Reason or by the Company for any reason other than death, Disability or Cause, the Termination Payment payable to the Executive by the Company or an affiliate of the Company shall be equal to one (1.0) times the Executive’s Gross Income. The Company will reimburse the Executive for the full medical, dental and vision premiums for continuation coverage under COBRA for the Executive and dependents who qualify for continuation coverage under COBRA for one year following the Termination Date.   (c)                                  If, during a Change of Control Period, the Executive’s employment is terminated by the Executive for Good Reason During a Change of Control or by the Company for any reason other than death, Disability, or Cause, the Termination Payment payable to the Executive by the Company or an affiliate of the Company shall be one (1.0) times the Executive’s Gross Income. The Company will reimburse the Executive for the full medical, dental and vision premiums for continuation coverage under   10 --------------------------------------------------------------------------------   COBRA for the Executive and dependents who qualify for continuation coverage under COBRA for one (1) year following the Termination Date.   (d)                                 It is the intention of the Company and the Executive that the benefits under this Agreement shall be capped such that no portion of the Termination Payment and any other “payments in the nature of compensation” (as defined in Section 280G of the Code and the regulations adopted thereunder) to or for the benefit of the Executive under this Agreement, or under any other agreement, plan or arrangement, shall be deemed to be an “excess parachute payment” as defined in Section 280G of the Code. It is agreed that the present value of the Total Payments shall not exceed an amount equal to two and ninety-nine hundredths (2.99) times the Executive’s Base Period Income, which is the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code or which the Company may pay without loss of deduction under Section 280G(a) of the Code. Present value for purposes of this Agreement shall be calculated in accordance with the regulations issued under Section 280G of the Code. Within sixty (60) days following delivery of the Notice of Termination or notice by the Company to the Executive of its belief that there is a payment or benefit due the Executive which will result in an excess parachute payment as defined in Section 280G of the Code, the Executive and the Company shall, at the Company’s expense, obtain such opinions as more fully described hereafter, which need not be unqualified, of legal counsel and certified public accountants or a firm of recognized executive compensation consultants. The Executive shall select said legal counsel, certified public accountants and executive compensation consultants; provided, however, that if the Company does not accept one (1) or more of the parties selected by the Executive, the Company shall provide the Executive with the names of such legal counsel, certified public accountants and/or executive compensation consultants as the Company may select; provided, further, however, that if the Executive does not accept the party or parties selected by the Company, the legal counsel, certified public accountants and/or executive compensation consultants selected by the Executive and the Company, respectively, shall select the legal counsel, certified public accountants and/or executive compensation consultants, whichever is applicable, who shall provide the opinions required by this Section 13(d). The opinions required hereunder shall set forth (a) the amount of the Base Period Income of the Executive, (b) the present value of Total Payments and (c) the amount and present value of any excess parachute payments. In the event that such opinions determine that there would be an excess parachute payment, the Termination Payment or any other payment determined by such counsel to be includable in Total Payments shall be reduced or eliminated as specified by the Executive in writing delivered to the Company within thirty (30) days of his or her receipt of such opinions or, if the Executive fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculation set forth in such opinions there will be no excess parachute payment. The provisions of this Section 13(d), including the calculations, notices and opinions provided for herein shall be based upon the conclusive presumption that the compensation and other benefits, including but not limited to the Gross Income, earned on or after the date of a Change of Control by the Executive pursuant to the Company’s compensation programs if such payments would have been made in the future in any event, even though the timing of such payment is triggered by the Change of Control, are reasonable compensation for services rendered prior to the   11 --------------------------------------------------------------------------------   Change of Control; provided, however, that in the event legal counsel so requests in connection with the opinion required by this Section 13(d), a firm of recognized executive compensation consultants, selected by the Executive and the Company pursuant to the procedures set forth above, shall provide an opinion, upon which such legal counsel may rely, as to the reasonableness of any item of compensation as reasonable compensation for services rendered prior to the Change of Control by the Executive. In the event that the provisions of Sections 280G and 4999 of the Code are repealed without succession, this Section 13(d) shall be of no further force or effect.   (e)                                  The Termination Payment shall be payable as follows:   (i)                                     In the event the Executive’s Termination Date is during a Change of Control Period, any Termination Payment shall be paid to the Executive in a lump sum not later than ten (10) days following the Executive’s Termination Date. Such lump sum payment shall not be reduced by any present value, interest rate, or similar factor. Further, the Executive shall not be required to mitigate the amount of such payment by securing other employment or otherwise and such payment shall not be reduced by reason of the Executive securing other employment or for any other reason.   (ii)                                  In the event the Executive’s Termination Date is prior to or after a Change of Control Period, any Termination Payment shall be paid to the Executive in equal installments on the Company’s regular paydays over the twelve-month period following the Termination Date. Such payments shall not be reduced or increased by any present value, interest rate, or similar factor. Further, the Executive shall not be required to mitigate the amount of such payment by securing other employment or otherwise and such payment shall not be reduced by reason of the Executive securing other employment or for any other reason.   (f)                                    Notwithstanding anything to the contrary herein, in no event will a termination of the Executive’s employment with the Company be deemed to trigger a right to receive a Termination Payment if the termination is effected by the mutual agreement of the Company and the Executive to accommodate a reassignment of the Executive to an entity created or acquired by the Company or Spitz, or to which the Company or Spitz has contributed rights to technology, assets or business plans, if at the time of such termination the Company or Spitz owns or is acquiring a minimum of a 19% equity interest in such entity. In the event of any such termination, the Executive shall only be entitled to receive the Executive’s Accrued Benefits as of the Termination Date.   12 --------------------------------------------------------------------------------   14.                                 TERMINATION NOTICE AND PROCEDURE.   Any termination by the Company or the Executive of the Executive’s employment during the employment period shall be communicated by written Notice of Termination (“Notice of Termination”) to the Executive, if such Notice of Termination is delivered by the Company, and to the Company, if such Notice of Termination is delivered by the Executive, all in accordance with the following procedures:   (a)                                  The Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances alleged to provide a basis for termination;   (b)                                 Any Notice of Termination by the Company shall be approved by a resolution duly adopted by a majority of the Board, or a majority of the Board may delegate such authority to approve any Notice of Termination to the Chief Executive Officer of the Company;   (c)                                  If the Executive shall in good faith furnish a Notice of Termination for Good Reason or for Good Reason During a Change of Control and the Company notifies the Executive that a dispute exists concerning the existence of Good Reason or Good Reason During a Change of Control, within the fifteen (15) day period following the Company’s receipt of such notice, the Executive shall continue the Executive’s employment during such dispute. If it is thereafter determined that (i) Good Reason or Good Reason During a Change of Control did exist, the Executive’s Termination Date shall be the earlier of (A) the date on which the dispute is finally determined, either by mutual written agreement of the parties or pursuant to Section 16, (B) the date of the Executive’s death or (C) one day prior to the second (2nd) anniversary of a Change of Control, if any, or (ii) Good Reason or Good Reason During a Change of Control did not exist, the employment of the Executive shall continue after such determination as if the Executive had not delivered the Notice of Termination asserting Good Reason or Good Reason During a Change of Control; and   (d)                                 If the Executive gives Notice of Termination of his or her employment for Good Reason or Good Reason During a Change of Control and a dispute arises as to the existence of Good Reason or Good Reason During a Change of Control, and the Executive does not continue his employment during such dispute, and it is finally determined that the reason for termination set forth in such Notice of Termination did not exist, if such notice was delivered by the Executive, the Executive shall be deemed to have voluntarily terminated the Executive’s employment other than for Good Reason or Good Reason During a Change of Control.   13 --------------------------------------------------------------------------------   15.                                 NON-COMPETE.   The Executive hereby agrees that during the term of this Agreement and for the period of one (1) year from the termination hereof, for any reason, the Executive will not:   (a)                                  Own, manage, operate or control any business of the type and character engaged in and competitive with the digital theater, planetarium, and related businesses of the Company or any subsidiary thereof. For purposes of this Section 15, ownership of securities of not in excess of five percent (5%) of any class of securities of a public company shall not be considered to be competition with the Company or any subsidiary thereof; or   (b)                                 Act as, or become employed as, an officer, director, employee, consultant or agent of any business of the type and character engaged in and competitive with the digital theater, planetarium, and related businesses of the Company or any of its subsidiaries; or   (c)                                  Solicit any similar business to that of the digital theater, planetarium, and related businesses of the Company’s for, or sell any products that are in competition with the Company’s digital theater, planetarium, and related business products to, any company which is, as of the date hereof or through the Termination Date, a customer or client of the Company or any of its subsidiaries, or was such a customer or client thereof within two years prior to the Termination Date; or   (d)                                 Solicit the employment of (i) any employee of the Company or its subsidiaries that is an employee at anytime during this term of this Agreement or during the one year period following the termination of this Agreement, or (ii) any former employee of the Company or its subsidiaries who was employed by the Company or its subsidiaries during the one (1) year period preceding the Termination Date.   (e)                                  Notwithstanding the foregoing provisions of Section 15, the Executive shall have no obligations under this Section 15, and the Company covenants not to initiate litigation or any other dispute resolution mechanism involving this Section 15 if the Company fails to satisfy, in any respect, any of its obligations under Section 13. This Section 15(e) does not apply if there is there is no obligation for a Termination Payment.   16.                                 REMEDIES AND JURISDICTION.   (a)                                  The Executive hereby acknowledges and agrees in addition to all other remedies available to the Company for a breach of this Agreement (including, without limitation, the right to recover damages), the Company shall be entitled to seek injunctive relief. To enforce the provisions of this Section 16(a), the Company may seek relief from any court with proper jurisdiction.   (b)                                 All claims, disputes and other matters in question between the parties arising under this Agreement, shall, unless otherwise provided herein, be decided by binding arbitration before a single independent arbitrator selected pursuant to Section 16(d). TO THE EXTENT ALLOWABLE UNDER APPLICABLE LAW, ALL   14 --------------------------------------------------------------------------------   DISPUTES INVOLVING ALLEGED UNLAWFUL EMPLOYMENT DISCRIMINATION, BREACH OF CONTRACT OR POLICY, OR EMPLOYMENT TORT COMMITTED BY THE COMPANY OR A REPRESENTATIVE OF THE COMPANY, INCLUDING CLAIMS OF VIOLATIONS OF FEDERAL OR STATE DISCRIMINATION STATUTES OR PUBLIC POLICY, SHALL BE RESOLVED PURSUANT TO THIS AGREEMENT AND THERE SHALL BE NO RECOURSE TO COURT, WITH OR WITHOUT A JURY TRIAL. The arbitration hearing shall occur at a time and place convenient to the parties in Philadelphia, Pennsylvania, within thirty (30) days of selection or appointment of the arbitrator. The arbitration shall be governed by the National Rules for the Resolution of Employment Disputes of AAA in effect on the date of the first notice of demand for arbitration. The arbitrator shall issue written findings of fact and conclusions of law, and an award, within fifteen (15) days of the date of the hearing unless the parties otherwise agree.   (c)                                  In cases of breach of contract or policy, damages shall be limited to contract damages. In cases of discrimination claims prohibited by statute, the arbitrator may direct payment consistent with the applicable statute. Issues of procedure, arbitrability, or confirmation of award shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16.   (d)                                 The parties shall select the arbitrator from a panel list made available by the AAA. If the parties are unable to agree to an arbitrator within ten (10) days of receipt of a demand for arbitration, the arbitrator will be chosen by alternatively striking from a list of five (5) arbitrators obtained by the Company from AAA. The Executive shall have the first strike.   17.                                 ATTORNEYS’ FEES.   In the event that either party hereunder institutes any legal or arbitration proceedings in connection with its rights or obligations under this Agreement, each party in such proceeding shall be responsible for all of its own costs incurred in connection with such proceeding, including attorneys’ fees and any other fees, expenses, or costs.   18.                                 SUCCESSORS.   This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, estates, executors, administrators, heirs and beneficiaries. In the event of the Executive’s death, all amounts payable to the Executive under this Agreement shall be paid to the Executive’s surviving spouse, or the Executive’s estate if the Executive dies without a surviving spouse.   This Agreement shall inure to the benefit of, be binding upon and be enforceable by, any successor, surviving or resulting corporation or other entity   (a)                                  to which all or substantially all of the business and assets of the Company shall be transferred whether by merger, consolidation, transfer or sale, or   (b)                                 to which the Company shall transfer ownership under a Business Disposition.   15 --------------------------------------------------------------------------------   19.                                 ENFORCEMENT.   The provisions of this Agreement shall be regarded as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby.   20.                                 AMENDMENT OR TERMINATION.   This Agreement may not be amended or terminated during its term, except by written instrument executed by the Company and the Executive.   21.                                 SURVIVABILITY.   The provisions of Sections 15, 16, 17, 18 and 19 shall survive termination of this Agreement.   22.                                 ENTIRE AGREEMENT.   Except for the Confidentiality and Inventions Agreement between the Executive and the Company, this Agreement sets forth the entire agreement between the Executive and the Company with respect to the subject matter hereof, and supersedes all prior oral or written agreements, negotiations, commitments and understandings with respect thereto. Prior employment agreements between the Executive and the Company are hereby terminated in their entirety and superceded by this Agreement.   23.                                 VENUE; GOVERNING LAW.   This Agreement and the Executive’s and Company’s respective rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Utah without giving effect to the provisions, principles, or policies thereof relating to choice or conflicts of laws.   16 --------------------------------------------------------------------------------   24.                                 NOTICE.   All notices, requests, instructions or other documents to be given under this Agreement shall be in writing and shall be deemed given (i) three business days following sending by registered or certified mail, postage prepaid, (ii) when sent, if sent by facsimile; provided, however, that the facsimile is promptly confirmed by telephone confirmation thereof, (iii) when delivered, if delivered personally to the intended recipient, and (iv) one business day following sending by overnight delivery via a national courier service, and in each case, addressed to a party at the following address for such party:     Company:   Evans & Sutherland Computer Corporation       600 Komas Drive       Salt Lake City, Utah 84108       Attn: Vice President of Human Resources       Fax: (801) 588-4517       Tel: (801) 588-1609                   Executive:   Jonathan Shaw                               Fax: (     )      -                       Tel: (     )      -           Or to such other address as the Company shall have given to the Executive or, if to the Executive, to such address as the Executive shall have given to the Company or facsimile number as the party to whom notice is given may have previously furnished to the other in writing in the manner set forth above.   25.                                 NO 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 similar or dissimilar provisions or conditions at the same time or any prior or subsequent time.   26.                                 HEADINGS.   The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement.   27.                                 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 instrument.   17 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has executed this Agreement, on the date and year first above written.     “COMPANY”           EVANS & SUTHERLAND COMPUTER   CORPORATION, a Utah Corporation           By:     /s/ James R. Oyler       James R. Oyler   President and Chief Executive Officer             “EXECUTIVE”                 /s/ Jonathan Shaw     Jonathan Shaw     18 --------------------------------------------------------------------------------

  Exhibit 10.1 AGREEMENT      This Agreement (the “Agreement”) is entered into this 3rd day of May, 2006, by and between S1 Corporation, a Delaware corporation (“S1” or the “Company”), on the one hand, and each of Starboard Value and Opportunity Master Fund Ltd., Ramius Master Fund, Ltd, Ramius Fund III, Ltd., Parche, LLC, RCG Ambrose Master Fund, Ltd., RCG Halifax Fund, Ltd., C4S & Co., L.L.C., Admiral Advisors, LLC, Ramius Advisors, LLC, Ramius Capital Group, L.L.C., Morgan B. Stark, Peter A. Cohen, Jeffrey M. Solomon, Thomas W. Strauss, Barington Companies Equity Partners, L.P., James A. Mitarotonda, Barington Companies Investors, LLC, Barington Companies Offshore Fund, Ltd. (BVI), Barington Investments, L.P., Barington Companies Advisors, LLC, Barington Capital Group, L.P., LNA Capital Corp., Arcadia Partners, L.P., Arcadia Capital Management, LLC, William J. Fox, Jeffrey C. Smith, Jeffrey Glidden, Richard Rofé, Edward Terino and John Mutch (collectively, the “Ramius Group”), on the other hand. For purposes of this Agreement, the Ramius Group shall also include all parties (and their affiliates) to the Schedule 13D with respect to Company common stock of any or all members of the Ramius Group, as now or hereinafter filed with the SEC (the “Schedule 13D”). RECITALS      WHEREAS, upon further review and analysis of its long term plan for success with financial and legal advisors, the Board of S1 has determined to engage its financial, legal and other advisors to explore strategic alternatives available to S1 in order to maximize stockholder value;      WHEREAS, the Board has determined that it is in the best interests of the Company for Jeffrey Smith of the Ramius Group to join the Board in the class of directors to expire in 2008; and      WHEREAS, the parties hereto desire to set forth certain covenants and agreements to resolve their respective views regarding various matters as to the Company, including the individuals to be presented to the S1 stockholders as nominees for election to the Board at the Company’s 2006 Annual Meeting (as defined below) without the burden, distraction or expense of a proxy contest.      NOW, THEREFORE, in consideration for the covenants and other agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:   --------------------------------------------------------------------------------        1. Covenants of S1. S1 covenants and agrees that, in reliance on the covenants and agreements of the Ramius Group set forth herein:           (a) No later than the first business day after the date of this Agreement, the Board of S1 shall meet (the “Board Meeting”) and (i) agree to fix the size of the Board at seven directors; (ii) appoint Jeffrey Smith of the Ramius Group as a director of the Company in the class whose term expires at the 2008 annual meeting of stockholders; (iii) set a record date of 21 business days after the date of the Board Meeting for an annual meeting of stockholders to be held on or about June 30, 2006 (the “2006 Annual Meeting”) with the only matters to be submitted for a stockholder vote at the 2006 Annual Meeting being the election of the Board Nominees (as defined below); (iv) nominate Messrs. Thomas Johnson and John Speigel (the “Board Nominees”) (both of whom S1 represents and warrants have consented to such nomination) to stand for election at the 2006 Annual Meeting; and (v) adopt an amendment to Section 2.3 of the Company’s Bylaws in the form attached hereto as Exhibit A to allow stockholders holding at least one-tenth of the outstanding common stock of the Company to call a special meeting of stockholders;           (b) At the Board Meeting, the Board (including the newly appointed Director Smith) shall immediately take all necessary and advisable actions to explore strategic alternatives available to the Company to maximize stockholder value, including instructing Friedman, Billings, Ramsey Group, Inc., to take all appropriate steps to advise on strategic alternatives available to the Company. To the extent any smaller committee of the Board subsequently takes responsibility for such exploration or related process, that committee shall include Director Smith (unless he or any member of the Ramius Group has a direct or indirect interest in any proposed strategic alternative (other than in their role as a stockholder));           (c) S1 shall issue a press release no later than the first business day after the date of this Agreement substantially in the form attached as Exhibit B;           (d) S1 shall reimburse the Ramius Group for its reasonable, documented out-of-pocket fees and expenses incurred (including proxy solicitation, legal and public relations) in connection with the Schedule 13D, the preparation of its proxy solicitation and related matters for the 2006 Annual Meeting and the negotiation and execution of this Agreement and all related activities and matters, provided such reimbursement shall not exceed $87,500 in the aggregate;           (e) From the date hereof through and including September 30, 2006, S1 will not (i) bring any proposals to the stockholders other than the election of the Board Nominees at the 2006 Annual Meeting, and any other proposals which may be necessary in furtherance of any strategic alternative, (ii) take any action to 2 --------------------------------------------------------------------------------   amend the Bylaws of the Company other than as provided in Section 1(a) hereof or (iii) take any action to increase the size of the Board beyond seven members.      2. Covenants of the Ramius Group. Each member of the Ramius Group, on behalf of himself or itself, as applicable, covenants and agrees that, in reliance on the covenants and agreements of S1 set forth herein:           (a) they will support the election of the Board Nominees, agree to vote all shares beneficially owned by them in favor of the Board Nominees, and agree to refrain from taking any action inconsistent with the foregoing, in each case at the 2006 Annual Meeting;           (b) they will not solicit authority, directly or indirectly, from any S1 stockholder to elect or vote for any candidate or candidates for election to the Board at the 2006 Annual Meeting other than the Board Nominees or otherwise present for consideration to any S1 stockholder in connection with the 2006 Annual Meeting any candidates other than the Board Nominees or any proposal for any action, other than proposals or action which are made by the Board of Directors, nor will they engage in any campaign or efforts to have votes withheld from or otherwise campaign against any of the Board Nominees in connection with the 2006 Annual Meeting or cause any other party to do, or assist any other party in doing, any of the foregoing;           (c) from the date hereof through and including September 30, 2006, they will not engage in any “solicitation” of proxies or consents, seek to advise, encourage or influence any person with respect to the voting of any Company securities, except in support of Board-approved proposals; initiate, propose or otherwise “solicit” stockholders of the Company for the approval of, stockholder proposals; induce or attempt to induce any other person to initiate any such stockholder proposal or any attempt to call a special meeting of stockholders; provided, however, nothing herein shall limit the ability of any member of the Ramius Group to vote its shares of common stock of the Company on any matter submitted to a vote of the stockholders of the Company other than the election of the Board Nominees or to announce its opposition to any Board-approved stockholder proposals not supported by Director Smith;           (d) from the date hereof through and including September 30, 2006, they will not form, join or in any way participate in any “group” with respect to any voting securities, other than a “group” that includes all or some lesser number of the persons identified as part of the Ramius Group, but does not include any other members who are not currently identified as Ramius Group members as of the date hereof; 3 --------------------------------------------------------------------------------             (e) on or before two business days from the date of this Agreement, they will amend or cause to be amended the Schedule 13D to file this Agreement and to make all appropriate disclosure related thereto; and           (f) by execution of this Agreement, Starboard Value and Opportunity Master Fund Ltd. hereby rescinds notice of its intention to nominate any persons for director at the 2006 Annual Meeting, and hereby rescinds notice of its intention to propose any other matters to come before the stockholders at the 2006 Annual Meeting. For purposes of clarity, the demand to inspect certain records and lists of S1 stockholders and certain other documents as set forth in the demand letter referred to in the Schedule 13D is hereby rescinded.      3. General.           (a) (i) S1 represents and warrants that the individual set forth below as signatory to this Agreement for S1 has the authority to execute this Agreement on behalf of S1 and to bind S1 to the terms hereof.                (ii) Each member of the Ramius Group listed herein, on behalf of himself or itself, as applicable, represents and warrants that (x) to the best of his or its knowledge, except for Ramius Fund III, Ltd, which became a member of the Ramius Group on May 1, 2006, all parties (and their affiliates) to the Schedule 13D with respect to Company common stock as filed with the SEC are the only parties required under applicable law to be listed in the Schedule 13D, and the references to those parties are correctly set forth in this Agreement, and (y) each signatory to this Agreement by any member of the Ramius Group has the authority to execute the Agreement on behalf of himself and the applicable member of the Ramius Group associated with that signatory’s name, and to bind such member of the Ramius Group to the terms hereof.           (b) This Agreement shall be governed by the laws of the State of Delaware, without regard to the conflicts of law provisions thereof.           (c) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.           (d) The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4 --------------------------------------------------------------------------------             (e) If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision(s) in good faith so as to become enforceable while hewing as closely as possible to the original intent. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision(s), then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall remain enforceable in accordance with its terms.           (f) Each party acknowledges that its breach of this Agreement would cause irreparable injury to the other for which monetary damages would not be an adequate remedy. Accordingly, a party will be entitled to seek injunctions and other equitable remedies in the event of such a breach by the other party (or any of its members).           (g) This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties with respect to the subject matter hereof are expressly canceled. [Signature page follows] 5 --------------------------------------------------------------------------------        In Witness Whereof, the Parties have caused this Agreement to be executed and delivered by themselves or their duly authorized officer or attorney-in-fact as of the date first set forth above.       S1 CORPORATION           /s/ James S. Mahan                 Print Name: James S. Mahan III           Title: CEO           Starboard Value and Opportunity Master Fund Ltd.     /s/ Jeffrey M. Solomon                 Print Name: Jeffrey M. Solomon           Title: Authorized Signatory           Ramius Master Fund, Ltd.     /s/ Jeffrey M. Solomon                 Print Name: Jeffrey M. Solomon           Title: Authorized Signatory           Parche, LLC     /s/ Jeffrey M. Solomon                 Print Name: Jeffrey M. Solomon           Title: Authorized Signatory     6 --------------------------------------------------------------------------------         RCG Ambrose Master Fund, Ltd.     /s/ Jeffrey M. Solomon                 Print Name: Jeffrey M. Solomon           Title: Authorized Signatory           RCG Halifax Fund, Ltd.     /s/ Jeffrey M. Solomon                 Print Name: Jeffrey M. Solomon           Title: Authorized Signatory           Ramius Fund III, Ltd.     /s/ Morgan B. Stark                 Print Name: Morgan B. Stark           Title: Authorized Signatory           C4S & Co., L.L.C.     /s/ Jeffrey M. Solomon                 Print Name: Jeffrey M. Solomon           Title: Authorized Signatory           Admiral Advisors, LLC     /s/ Jeffrey M. Solomon                 Print Name: Jeffrey M. Solomon           Title: Authorized Signatory           Ramius Advisors, LLC     /s/ Jeffrey M. Solomon                 Print Name: Jeffrey M. Solomon           Title: Authorized Signatory     7 --------------------------------------------------------------------------------             Ramius Capital Group, L.L.C.     /s/ Jeffrey M. Solomon                     Print Name: Jeffrey M. Solomon               Title: Authorized Signatory               Morgan B. Stark     /s/ Morgan B. Stark                     Print Name: Morgan B. Stark               Title:                             Peter A. Cohen     /s/ Peter A. Cohen                     Print Name: Peter A. Cohen               Title:                             Jeffrey M. Solomon     /s/ Jeffrey M. Solomon                     Print Name: Jeffrey M. Solomon               Title:                             Thomas W. Strauss     /s/ Thomas W. Strauss                     Print Name: Thomas W. Strauss               Title:                   8 --------------------------------------------------------------------------------         Barington Companies Equity Partners, L.P.     /s/ James A. Mitarotonda                 Print Name: James A. Mitarotonda           Title: Managing Member of General Partner, Barington Companies Investors, LLC                          James A. Mitarotonda     /s/ James A. Mitarotonda                 Print Name: James A. Mitarotonda           Title: Managing Member           Barington Companies Investors, LLC     /s/ James A. Mitarotonda                 Print Name: James A. Mitarotonda           Title: Managing Member           Barington Companies Offshore Fund, Ltd. (BVI)     /s/ James A. Mitarotonda                 Print Name: James A. Mitarotonda           Title: President           Barington Investments, L.P.     /s/ James A. Mitarotonda                 Print Name: James A. Mitarotonda           Title: Authorized Signatory     9 --------------------------------------------------------------------------------         Barington Companies Advisors, LLC     /s/ James A. Mitarotonda                 Print Name: James A. Mitarotonda           Title: Authorized Signatory           Barington Capital Group, L.P.     /s/ James A. Mitarotonda                 Print Name: James A. Mitarotonda           Title: President and CEO of General Partner, LNA Capital Corp.                          LNA Capital Corp.     /s/ James A. Mitarotonda                 Print Name: James A. Mitarotonda           Title: President and CEO           Arcadia Partners, L.P.     /s/ Richard Rofe                 Print Name: Richard Rofe           Title: General Partner           Arcadia Capital Management, LLC     /s/ Richard Rofe                 Print Name: Richard Rofe           Title: President     10 --------------------------------------------------------------------------------             Richard Rofé     /s/ Richard Rofe                     Print Name: Richard Rofe               Title:                             William J. Fox     /s/ William Fox                     Print Name: William Fox               Title:                             Jeffrey C. Smith     /s/ Jeffrey C. Smith                     Print Name: Jeffrey C. Smith               Title:                             Jeffrey Glidden     /s/ Jeffrey D. Glidden                     Print Name: Jeffrey D. Glidden               Title:                             Edward Terino     /s/ Edward Terino                     Print Name: Edward Terino               Title: Co-CEO and CFO, Arlington Tankers, Ltd.               John Mutch     /s/ John Mutch                     Print Name: John Mutch               Title: General Partner, MV Advisors     11 --------------------------------------------------------------------------------   EXHIBIT A Section 2.3 of the Bylaws of the Company is amended by deleting the section in its entirety and replacing it with the following: “Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by statute, may be called at any time by the Chairman of the Board of Directors, the President, or a majority of the Board of Directors, and shall be called by the Chairman of the Board of Directors, the President, or the Secretary upon the written request of the holders of not less than one tenth of all of the outstanding capital stock of the Corporation entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered to the principal office of the Corporation addressed to the Chairman of the Board, the President, or the Secretary.” 12 --------------------------------------------------------------------------------   EXHIBIT B S1 Reaches Agreement with Ramius Group to End Proxy Contest Jeffrey Smith of Ramius Capital to Join Board of Directors ATLANTA, May 3, 2006 – S1 Corporation (Nasdaq: SONE), a leading global provider of customer interaction financial and payments solutions, announced today that it has reached a definitive agreement with a group of investors led by Ramius Capital Group, L.L.C. to settle their dispute relative to the nomination of certain directors to the S1 Board of Directors at the 2006 Annual Meeting. As a result of this settlement, the Ramius Group agreed to withdraw the notice of its intention to nominate directors and make other shareholder proposals at the Company’s 2006 Annual Meeting. Additionally, Jeffrey C. Smith, a managing director of Ramius Capital Group, L.L.C., will be joining the S1 Board of Directors. The Company also agreed to amend its Bylaws to restore the right of stockholders owning 10% of the outstanding shares of common stock to call a special meeting. S1 also said that it has retained Friedman, Billings, Ramsey Group as its financial advisor to assist the Board of Directors in actively exploring strategic alternatives to maximize shareholder value. The law firm of Hogan & Hartson L.L.P. has also been retained to advise in connection with this review. No assurance can be given that any transaction will be entered into or consummated as a result of this review. About S1 S1 Corporation (Nasdaq: SONE) delivers customer interaction software for financial and payment services and offers unique solution sets for financial institutions, retailers, and processors. S1 employs 1,500 people in operations throughout North America, Europe and Middle East, Africa, and Asia-Pacific regions. Worldwide, more than 3,000 customers use S1 software solutions, which are comprised of applications that address virtually every market segment and delivery channel. S1 partners with best-in-class organizations to provide flexible and extensible software solutions for its customers. Additional information about S1 is available at www.s1.com. Forward Looking Statements This press release contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act. These statements include statements with respect to our financial condition, results of operations and 13 --------------------------------------------------------------------------------   business. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends” or similar terminology identify forward-looking statements. These statements are based on our beliefs as well as assumptions made using information currently available to us. Because these statements reflect our current views concerning future events, they involve risks, uncertainties and assumptions. Therefore, actual results may differ significantly from the results discussed in the forward-looking statements. The risk factors included in our reports filed with the Securities and Exchange Commission (and available on our web site at www.s1.com or the SEC’s web site at www.sec.gov ) provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Except as provided by law, we undertake no obligation to update any forward-looking statement. Contacts: Investors: John Stone, Chief Financial Officer 404-923-3500 [email protected] Press: Mike Pascale/Rhonda Barnat of The Abernathy MacGregor Group 212-371-5999 [email protected]/[email protected] 14

-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. US $1,003,836.00 [plus interest] OXFORD MEDIA, INC. 11% PROMISSORY NOTE DUE MARCH __, 2007 FOR VALUE RECEIVED, OXFORD MEDIA, INC., a corporation organized and existing under the laws of the State of Nevada (the "Company"), promises to pay to Palisades Master Fund, LP the registered holder hereof (the "Holder"), the principal sum of One Million Three Thousand Eight Hundred and Thirty Six 00/100 Dollars (US $1,003,836.00) on the Maturity Date (as defined below) and to pay interest on the principal sum outstanding from time to time at the rate of eleven percent (11%) per annum (computed on the basis of the actual number of days elapsed and a year of 365 days), accruing from June ___, 2006, the date of initial issuance of this Note (the ”Issue Date”), to the date of payment. Such interest shall be payable on the date which is the earlier of (i) the Maturity Date, or (ii) the date of any prepayment of principal permitted hereunder. Accrual of interest shall commence on the Issue Date and shall continue to accrue on a daily basis until payment in full of the principal sum has been made or duly provided for (whether before or after the Maturity Date). This Note is being issued pursuant to the terms of the Exchange Agreement, dated as of June 30, 2006 (the “Loan Agreement”), to which the Company and the Holder (or the Holder’s predecessor in interest) are parties. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement. This Note is subject to the following additional provisions: 1.    The term “Maturity Date” means March __, 2007. 2.    (i)    This Note may be prepaid in whole or in part at any time prior to the Maturity Date, without penalty. Any payment shall be applied as provided in Section 3. This Note may be used as consideration for any financing the Company may enter into.   1 --------------------------------------------------------------------------------   (ii)    TIME IS OF THE ESSENCE WITH RESPECT TO ANY PAYMENT DUE HEREUNDER. The Company shall be in default hereunder if any payment is not made in a timely manner, without any right to cure unless such right to cure is granted by the Holder in each instance, which consent shall be in the sole discretion of the Holder and may be withheld for any reason or for no reason whatsoever. 3.    Any payment made on account of the Note shall be applied in the following order of priority: (i) first, to any amounts due hereunder other than principal and accrued interest, (ii) then, to accrued interest through and including the date of payment, and (iii) then, to principal of this Note. 4.    All payments contemplated hereby to be made “in cash” shall be made in immediately available good funds of United States of America currency by wire transfer to an account designated in writing by the Holder to the Company (which account may be changed by notice similarly given). For purposes of this Note, the phrase “date of payment” means the date good funds are received in the account designated by the notice which is then currently effective. 5.    Subject to the terms of the Loan Agreement, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or currency, as herein prescribed. This Note is direct obligations of the Company. 6.    Omitted. 7.    Except as provided in Section 6 above, no recourse shall be had for the payment of the principal of, or the interest on, this Note, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 8.    The Holder of the Note, by acceptance hereof, agrees that this Note is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Note except under circumstances which will not result in a violation of the Securities Act of 1933, as amended, or any applicable state Blue Sky or foreign laws or similar laws relating to the sale of securities. 9.    Any notice given by any party to the other with respect to this Note shall be given in the manner contemplated by the Loan Agreement in the section entitled “Notices”. 10.     This Note shall be governed by and construed in accordance with the laws of the State of New York. Each of the parties consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of the County of New York or the state courts of the State of New York sitting in the County of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non coveniens, to the bringing of any such proceeding in such jurisdictions. To the extent determined by such court, the Company shall reimburse the Holder for any reasonable legal fees and disbursements incurred by the Holder in enforcement of or protection of any of its rights under any of this Note.   2 --------------------------------------------------------------------------------   11.    JURY TRIAL WAIVER. The Company and the Holder hereby waive a trial by jury in any action, proceeding or counterclaim brought by either of the Parties hereto against the other in respect of any matter arising out of or in connection with this Note. 12.     The following shall constitute an "Event of Default":   a. The Company shall default in the payment of principal or interest on this Note or any other amount due under the Loan Agreements, including the Extension Agreement dated June 30, 2006, time being of the essence; or   b. Any of the representations or warranties made by the Company herein, in the Loan Agreement or any of the other Transaction Agreements shall be false or misleading in any material respect at the time made; or   c. The Company shall (1) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (2) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or   d. A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent; or   e. Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or   f. Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company. If an Event of Default shall have occurred, then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Note immediately due and payable (and the Maturity Date shall be accelerated accordingly), without presentment, demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and interest shall accrue on the total amount due (the “Default Amount”) on the date of the Event of Default (the “Default Date”) at the rate of 18% per annum or the maximum rate allowed by law, whichever is lower, from the Default Date until the date payment is made, and the Holder may immediately enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law.   3 --------------------------------------------------------------------------------   13.    In the event for any reason, any payment by or act of the Company or the Holder shall result in payment of interest which would exceed the limit authorized by or be in violation of the law of the jurisdiction applicable to this Note, then ipso facto the obligation of the Company to pay interest or perform such act or requirement shall be reduced to the limit authorized under such law, so that in no event shall the Company be obligated to pay any such interest, perform any such act or be bound by any requirement which would result in the payment of interest in excess of the limit so authorized. In the event any payment by or act of the Company shall result in the extraction of a rate of interest in excess of a sum which is lawfully collectible as interest, then such amount (to the extent of such excess not returned to the Company) shall, without further agreement or notice between or by the Company or the Holder, be deemed applied to the payment of principal, if any, hereunder immediately upon receipt of such excess funds by the Holder, with the same force and effect as though the Company had specifically designated such sums to be so applied to principal and the Holder had agreed to accept such sums as an interest-free prepayment of this Note. If any part of such excess remains after the principal has been paid in full, whether by the provisions of the preceding sentences of this Section or otherwise, such excess shall be deemed to be an interest-free loan from the Company to the Holder, which loan shall be payable immediately upon demand by the Company. The provisions of this Section shall control every other provision of this Note. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized this __th day of June 2006.       OXFORD MEDIA, INC.       By:_______________________________________           President               4 --------------------------------------------------------------------------------

STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. Depositor NEW CENTURY MORTGAGE CORPORATION, Servicer and WELLS FARGO BANK N.A., Trustee POOLING AND SERVICING AGREEMENT Dated as of February 1, 2006 Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS...................................................................................4 SECTION 1.01 Defined Terms..........................................................................4 SECTION 1.02 Allocation of Certain Interest Shortfalls.............................................48 ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES..............................49 SECTION 2.01 Conveyance of the Mortgage Loans......................................................49 SECTION 2.02 Acceptance of REMIC I by Trustee......................................................52 SECTION 2.03 Repurchase or Substitution of Mortgage Loans by the Responsible Party and the Seller..53 SECTION 2.04 Capital Contribution..................................................................56 SECTION 2.05 Representations, Warranties and Covenants of the Servicer.............................56 SECTION 2.06 Issuance of the REMIC I Regular Interests and the Class R-I Interest..................58 SECTION 2.07 Conveyance of the REMIC I Regular Interests; Acceptance of REMIC II by the Trustee....59 SECTION 2.08 Issuance of Class R Certificates......................................................59 ARTICLE III ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS...........................................59 SECTION 3.01 Servicer to Act as Servicer...........................................................59 SECTION 3.02 Sub-Servicing Agreements Between Servicer and Sub-Servicers...........................61 SECTION 3.03 Successor Sub-Servicers...............................................................62 SECTION 3.04 Liability of the Servicer.............................................................62 SECTION 3.05 No Contractual Relationship Between Sub-Servicers, the Trustee or the Certificateholders....................................................................63 SECTION 3.06 Assumption or Termination of Sub-Servicing Agreements by the Trustee..................63 SECTION 3.07 Collection of Certain Mortgage Loan Payments..........................................64 SECTION 3.08 Sub-Servicing Accounts................................................................64 SECTION 3.09 Collection of Taxes, Assessments and Similar Items; Servicing Accounts................64 SECTION 3.10 Custodial Account and Certificate Account.............................................65 -i- TABLE OF CONTENTS (continued) PAGE SECTION 3.11 Withdrawals from the Custodial Account and Certificate Account........................67 SECTION 3.12 Investment of Funds in the Custodial Account and the Certificate Account..............69 SECTION 3.13 [Reserved]............................................................................70 SECTION 3.14 Maintenance of Hazard Insurance and Errors and Omissions and Fidelity Coverage........70 SECTION 3.15 Enforcement of Due-On-Sale Clauses; Assumption Agreements.............................72 SECTION 3.16 Realization Upon Defaulted Mortgage Loans.............................................73 SECTION 3.17 Trustee to Cooperate; Release of Mortgage Files.......................................75 SECTION 3.18 Servicing Compensation................................................................76 SECTION 3.19 Reports to the Trustee and Others; Custodial Account Statements.......................76 SECTION 3.20 [Reserved]............................................................................77 SECTION 3.21 [Reserved]............................................................................77 SECTION 3.22 Access to Certain Documentation.......................................................77 SECTION 3.23 Title, Management and Disposition of REO Property.....................................77 SECTION 3.24 Obligations of the Servicer in Respect of Prepayment Interest Shortfalls..............80 SECTION 3.25 Obligations of the Servicer in Respect of Mortgage Rates and Monthly Payments.........80 SECTION 3.26 Advance Facility......................................................................81 SECTION 3.27 Net WAC Rate Carryover Reserve Account................................................82 ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS...............................................................83 SECTION 4.01 Distributions.........................................................................83 SECTION 4.02 Statements to Certificateholders......................................................89 SECTION 4.03 Remittance Reports; Advances..........................................................93 SECTION 4.04 Allocation of Realized Losses.........................................................94 SECTION 4.05 Compliance with Withholding Requirements..............................................97 SECTION 4.06 Exchange Commission; Additional Information...........................................97 -ii- TABLE OF CONTENTS (continued) PAGE ARTICLE V THE CERTIFICATES.............................................................................98 SECTION 5.01 The Certificates......................................................................98 SECTION 5.02 Registration of Transfer and Exchange of Certificates................................100 SECTION 5.03 Mutilated, Destroyed, Lost or Stolen Certificates....................................105 SECTION 5.04 Persons Deemed Owners................................................................105 SECTION 5.05 Certain Available Information........................................................105 ARTICLE VI THE DEPOSITOR AND THE SERVICER..............................................................106 SECTION 6.01 Respective Liabilities of the Depositor and the Servicer.............................106 SECTION 6.02 Merger or Consolidation of the Depositor or the Servicer.............................106 SECTION 6.03 Limitation on Liability of the Depositor, the Servicer and Others....................107 SECTION 6.04 Limitation on Resignation of the Servicer............................................107 SECTION 6.05 Rights of the Depositor in Respect of the Servicer...................................108 ARTICLE VII DEFAULT.....................................................................................109 SECTION 7.01 Servicer Events of Default...........................................................109 SECTION 7.02 Trustee to Act; Appointment of Successor.............................................111 SECTION 7.03 Notification to Certificateholders...................................................112 SECTION 7.04 Waiver of Servicer Events of Default.................................................112 ARTICLE VIII CONCERNING THE TRUSTEE......................................................................112 SECTION 8.01 Duties of Trustee....................................................................112 SECTION 8.02 Certain Matters Affecting the Trustee................................................113 SECTION 8.03 Trustee Not Liable for Certificates or Mortgage Loans................................115 SECTION 8.04 Trustee May Own Certificates.........................................................115 SECTION 8.05 Trustee's Fees and Expenses..........................................................115 SECTION 8.06 Eligibility Requirements for Trustee.................................................116 SECTION 8.07 Resignation and Removal of the Trustee...............................................116 SECTION 8.08 Successor Trustee....................................................................117 SECTION 8.09 Merger or Consolidation of Trustee...................................................118 SECTION 8.10 Appointment of Co-Trustee or Separate Trustee........................................118 SECTION 8.11 Trustee to Execute Cap Contract......................................................119 -iii- TABLE OF CONTENTS (continued) PAGE SECTION 8.12 Appointment of Office or Agency......................................................119 SECTION 8.13 Representations and Warranties of the Trustee........................................119 SECTION 8.14 Appointment of the Custodian.........................................................120 ARTICLE IX TERMINATION.................................................................................120 SECTION 9.01 Termination Upon Repurchase or Liquidation of All Mortgage Loans.....................120 SECTION 9.02 Additional Termination Requirements..................................................122 ARTICLE X REMIC PROVISIONS............................................................................123 SECTION 10.01 REMIC Administration.................................................................123 SECTION 10.02 Prohibited Transactions and Activities...............................................125 SECTION 10.03 Servicer and Trustee Indemnification.................................................126 ARTICLE XI TRUSTEE COMPLIANCE WITH REGULATION AB.......................................................126 SECTION 11.01 Intent of the Parties; Reasonableness................................................126 SECTION 11.02 Additional Representations and Warranties of the Trustee.............................126 SECTION 11.03 Information to Be Provided by the Trustee............................................127 SECTION 11.04 Report on Assessment of Compliance and Attestation...................................128 SECTION 11.05 Indemnification; Remedies............................................................128 ARTICLE XII SERVICER COMPLIANCE WITH REGULATION AB......................................................129 SECTION 12.01 Intent of the Parties; Reasonableness................................................129 SECTION 12.02 Additional Representations and Warranties of the Servicer............................130 SECTION 12.03 Information to Be Provided by the Servicer...........................................130 SECTION 12.04 Servicer Compliance Statement........................................................134 SECTION 12.05 Report on Assessment of Compliance and Attestation...................................135 SECTION 12.06 Use of Sub-Servicers and Subcontractors..............................................136 SECTION 12.07 Indemnification; Remedies............................................................137 ARTICLE XIII MISCELLANEOUS PROVISIONS....................................................................139 SECTION 13.01 Amendment............................................................................139 SECTION 13.02 Recordation of Agreement; Counterparts...............................................141 SECTION 13.03 Limitation on Rights of Certificateholders...........................................141 SECTION 13.04 Governing Law........................................................................142 -iv- TABLE OF CONTENTS (continued) PAGE SECTION 13.05 Notices..............................................................................142 SECTION 13.06 Severability of Provisions...........................................................142 SECTION 13.07 Notice to Rating Agencies............................................................143 SECTION 13.08 Article and Section References.......................................................143 SECTION 13.09 Grant of Security Interest...........................................................143 SECTION 13.10 Intention of Parties.................................................................144 SECTION 13.11 Assignment...........................................................................145 SECTION 13.12 Inspection and Audit Rights..........................................................145 SECTION 13.13 Certificates Nonassessable and Fully Paid............................................145 SECTION 13.14 Perfection Representations...........................................................145 SECTION 13.15 Notice to Holder of Class CE Certificate.............................................145 ARTICLE XIV RIGHTS OF THE CLASS CE CERTIFICATEHOLDER....................................................146 SECTION 14.01 Reports and Notices..................................................................146 SECTION 14.02 Class CE Certificateholder's Directions With Respect to Defaulted Mortgage Loans.....147 -v- Exhibits Exhibit A-1 Form of Class A-1 Certificates Exhibit A-2 Form of Class A-2 Certificates Exhibit A-3 Form of Class A-3 Certificates Exhibit A-4 Form of Class A-4 Certificates Exhibit A-5 Form of Class M-1 Certificates Exhibit A-6 Form of Class M-2 Certificates Exhibit A-7 Form of Class M-3 Certificates Exhibit A-8 Form of Class M-4 Certificates Exhibit A-9 Form of Class M-5 Certificates Exhibit A-10 Form of Class M-6 Certificates Exhibit A-11 Form of Class M-7 Certificates Exhibit A-12 Form of Class M-8 Certificates Exhibit A-13 Form of Class M-9 Certificates Exhibit A-14 Form of Class M-10 Certificates Exhibit A-15 Form of Class CE Certificate Exhibit A-16 Form of Class P Certificate Exhibit A-17 Form of Class R Certificate Exhibit B Form of Custodial Agreement Exhibit C [Reserved] Exhibit D Form of Mortgage Loan Purchase Agreement Exhibit E Request for Release Exhibit F-1 Form of Transferor Representation Letter and Form of Transferee Representation Letter in Connection with Transfer of the Private Certificates Pursuant to Rule 144A Under the 1933 Act Exhibit F-2 Form of Transfer Affidavit and Agreement and Form of Transferor Affidavit in Connection with Transfer of Residual Certificates Exhibit G Form of Certification with respect to ERISA and the Code Exhibit H Form of Lost Note Affidavit Exhibit I-1 Form of 10-K Certificate Exhibit I-2 Form of Certification to be Provided to Servicer by the Trustee Exhibit J Form Servicing Criteria to be Addressed in Assessment of Compliance Exhibit K Form of Cap Contract Exhibit L Form of Report Pursuant to Section 13.01 Schedule 1 Mortgage Loan Schedule Schedule 2 Prepayment Charge Schedule Schedule 3 Perfection Representations, Warranties and Covenants Schedule 4 Standard File Layout Data Elements -vi- This Pooling and Servicing Agreement, is dated and effective as of February 1, 2006, among STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. as Depositor, NEW CENTURY MORTGAGE CORPORATION as Servicer and WELLS FARGO BANK, N.A. as Trustee. PRELIMINARY STATEMENT: The Depositor intends to sell pass-through certificates to be issued hereunder in multiple classes, which in the aggregate will evidence the entire beneficial ownership interest in each REMIC (as defined herein) created hereunder. The Trust Fund (as defined herein) will consist of a segregated pool of assets comprised of the Mortgage Loans and certain other related assets subject to this Agreement. REMIC I As provided herein, the Trustee will elect to treat the segregated pool of assets consisting of the Mortgage Loans and certain other related assets (other than any Servicer Prepayment Charge Payment Amounts, the Net WAC Rate Carryover Reserve Account and the Cap Contracts) subject to this Agreement as a REMIC for federal income tax purposes, and such segregated pool of assets will be designated as "REMIC I." The Class R-I Interest will be the sole class of "residual interests" in REMIC I for purposes of the REMIC Provisions (as defined herein). The following table irrevocably sets forth the designation, the REMIC I Remittance Rate, the initial Uncertificated Balance and, for purposes of satisfying Treasury regulation Section 1.860G-1(a)(4)(iii), the "latest possible maturity date" for each of the REMIC I Regular Interests (as defined herein). None of the REMIC I Regular Interests will be certificated. REMIC I INITIAL LATEST POSSIBLE DESIGNATION REMITTANCE RATE UNCERTIFICATED BALANCE MATURITY DATE(1) ----------- --------------- ---------------------- ---------------- I-LTAA Variable (2) 1,434,303,913 January 2036 I-LTA1 Variable (2) 5,823,140 January 2036 I-LTA2 Variable (2) 1,886,950 January 2036 I-LTA3 Variable (2) 2,503,700 January 2036 I-LTA4 Variable (2) 817,450 January 2036 I-LTM1 Variable (2) 525,980 January 2036 I-LTM2 Variable (2) 489,960 January 2036 I-LTM3 Variable (2) 288,210 January 2036 I-LTM4 Variable (2) 266,600 January 2036 I-LTM5 Variable (2) 244,980 January 2036 I-LTM6 Variable (2) 223,360 January 2036 I-LTM7 Variable (2) 201,750 January 2036 I-LTM8 Variable (2) 158,520 January 2036 I-LTM9 Variable (2) 144,100 January 2036 I-LTM10 Variable (2) 144,100 January 2036 I-LTZZ Variable (2) 15,325,196.60 January 2036 REMIC I INITIAL LATEST POSSIBLE DESIGNATION REMITTANCE RATE UNCERTIFICATED BALANCE MATURITY DATE(1) ----------- --------------- ---------------------- ---------------- I-LTP Variable (2) 100 January 2036 _____________________ (1) For purposes of Section 1.860G-1(a)(4)(iii) of the Treasury regulations, the Distribution Date immediately following the maturity date for the Mortgage Loan with the latest maturity date has been designated as the "latest possible maturity date" for each REMIC I Regular Interest. (2) Calculated in accordance with the definition of "REMIC I Remittance Rate" herein. 2 REMIC II As provided herein, the Trustee will elect 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." The Class R-II Interest will evidence 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, the Pass-Through Rate, the initial aggregate Certificate Principal Balance and, for purposes of satisfying Treasury regulation Section 1.860G-1(a)(4)(iii), the "latest possible maturity date" for the indicated Classes of Certificates. INITIAL AGGREGATE CERTIFICATE PRINCIPAL LATEST POSSIBLE MATURITY DESIGNATION PASS-THROUGH RATE BALANCE DATE(1) ----------- ----------------- --------------------- ------------------------ Class A-1(2) Variable(2) $582,314,000.00 September 25,2027 Class A-2(2) Variable(2) $188,695,000.00 August 25, 2030 Class A-3(2) Variable(2) $250,370,000.00 October 25, 2034 Class A-4(2) Variable(2) $81,745,000.00 November 25, 2035 Class M-1(2) Variable(2) $52,598,000.00 January 25, 2036 Class M-2(2) Variable(2) $48,996,000.00 January 25, 2036 Class M-3(2) Variable(2) $28,821,000.00 January 25, 2036 Class M-4(2) Variable(2) $26,660,000.00 January 25, 2036 Class M-5(2) Variable(2) $24,498,000.00 January 25, 2036 Class M-6(2) Variable(2) $22,336,000.00 January 25, 2036 Class M-7(2) Variable(2) $20,175,000.00 January 25, 2036 Class M-8(2) Variable(2) $15,852,000.00 January 25, 2036 Class M-9(2) Variable(2) $14,410,000.00 January 25, 2036 Class M-10(2) Variable(2) $14,410,000.00 January 25, 2036 Class CE(3) Variable(4) $69,171,649.96 N/A Class P N/A(5) $100.00 N/A _____________________ (1) For purposes of Section 1.860G-1(a)(4)(iii) of the Treasury regulations, the Distribution Date immediately following the maturity date for the Mortgage Loans with the latest maturity date has been designated as the "latest possible maturity date" for each Class of Certificates. (2) Calculated in accordance with the definition of "Pass-Through Rate" herein. (3) The Class CE Certificates will be comprised of two REMIC II Regular Interests, a principal only regular interest designated REMIC II Regular Interest CE-PO and an interest only regular interest designated REMIC II Regular Interest CE-IO, each of which will be entitled to distributions as set forth herein. (4) The Class CE Certificates will accrue interest at its variable Pass-Through Rate on the Notional Amount of the Class CE-IO outstanding from time to time which notional amount shall equal the aggregate Uncertificated Balance of the REMIC I Regular Interests. The Class CE Certificates will not accrue interest on its Certificate Principal Balance. (5) The Class P Certificates will not accrue interest. As of the Cut-off Date, the Mortgage Loans had an aggregate Stated Principal Balance equal to $1,441,051,749.96. In consideration of the mutual agreements herein contained, the Depositor, the Servicer and the Trustee agree as follows: 3 ARTICLE I DEFINITIONS SECTION 1.01 Defined Terms. Whenever used in this Agreement, including, without limitation, in the Preliminary Statement hereto, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article. Unless otherwise specified, all calculations described herein shall be made on the basis of a 360-day year consisting of twelve 30-day months. "Accepted Servicing Practices": The servicing standards set forth in Section 3.01. "Accrued Certificate Interest": With respect to any Class A Certificate, Mezzanine Certificate and the Class CE Certificates and each Distribution Date, interest accrued during the related Interest Accrual Period at the Pass-Through Rate for such Certificate for such Distribution Date on the Certificate Principal Balance, in the case of the Class A Certificates and the Mezzanine Certificates, or on the Notional Amount, in the case of the Class CE Certificates, of such Certificate immediately prior to such Distribution Date. The Class P Certificates are not entitled to distributions in respect of interest and, accordingly, will not accrue interest. All distributions of interest on the Class A Certificates and the Mezzanine Certificates will be calculated on the basis of a 360-day year and the actual number of days in the applicable Interest Accrual Period. All distributions of interest on the Class CE Certificates will be based on a 360-day year consisting of twelve 30-day months. Accrued Certificate Interest with respect to each Distribution Date, as to any Class A Certificate, Mezzanine Certificate or the Class CE Certificates, shall be reduced by an amount equal to the portion allocable to such Certificate pursuant to Section 1.02 hereof of the sum of (a) the aggregate Prepayment Interest Shortfall, if any, for such Distribution Date to the extent not covered by payments pursuant to Section 3.24 and (b) the aggregate amount of any Relief Act Interest Shortfall, if any, for such Distribution Date. In addition, Accrued Certificate Interest with respect to each Distribution Date, as to the Class CE Certificates, shall be reduced by an amount equal to the portion allocable to the Class CE Certificates of Realized Losses, if any, pursuant to Section 4.04 hereof. "Additional Form 10-D Disclosure" has the meaning set forth in Section 4.06(a). "Additional Form 10-K Disclosure" has the meaning set forth in Section 4.06(b). "Additional Servicer" means (i) each affiliated servicer meeting the requirements of Item 1108(a)(2)(ii) of Regulation AB that Services any of the Mortgage Loans, and (ii) each unaffiliated servicer meeting the requirements of Item 1108(a)(2)(iii) of Regulation AB (other than the Trustee), who Services 10% or more of the Mortgage Loans. "Adjustable-Rate Mortgage Loan": Each of the Mortgage Loans identified on the Mortgage Loan Schedule as having a Mortgage Rate that is subject to adjustment. "Adjustment Date": With respect to each Adjustable-Rate Mortgage Loan, the first day of the month in which the Mortgage Rate of such Mortgage Loan changes pursuant to the related 4 Mortgage Note. The first Adjustment Date following the Cut-off Date as to each Adjustable-Rate Mortgage Loan is set forth in the Mortgage Loan Schedule. "Advance": As to any Mortgage Loan or REO Property, any advance made by the Servicer in respect of any Distribution Date pursuant to Section 4.03. "Advance Facility": As defined in Section 3.26(a). "Advance Facility Trustee": As defined in Section 3.26(b). "Advancing Person": As defined in Section 3.26(a) hereof. "Affiliate": With respect to any specified Person, any other Person controlling or controlled by or under 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. "Agreement": This Pooling and Servicing Agreement and all amendments hereof and supplements hereto. "Allocated Realized Loss Amount": With respect to any Distribution Date and any Class of Class A Certificates or Mezzanine Certificates, the sum of (i) any Realized Losses allocated to such Class of Certificates on such Distribution Date and (ii) the amount of any Allocated Realized Loss Amount for such Class of Certificates remaining unpaid from the previous Distribution Date minus the amount of the increase in the related Certificate Principal Balance due to the receipt of Subsequent Recoveries as provided in Section 4.01. "Assignment": An assignment of Mortgage, notice of transfer or equivalent instrument, in recordable form (excepting therefrom, if applicable, the mortgage recordation information which has not been required pursuant to Section 2.01 hereof or returned by the applicable recorder's office), which is sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the sale of the Mortgage, 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. "Available Distribution Amount": With respect to any Distribution Date, an amount equal to (1) the sum of (a) the aggregate of the amounts on deposit in the Custodial Account and Certificate Account as of the close of business on the related Determination Date, (b) the aggregate of any amounts received in respect of an REO Property withdrawn from any REO Account and deposited in the Certificate Account for such Distribution Date pursuant to Section 3.23, (c) the aggregate of any amounts deposited in the Certificate Account by the Servicer in respect of Prepayment Interest Shortfalls for such Distribution Date pursuant to Section 3.24, (d) the aggregate of any Advances made by the Servicer for such Distribution Date pursuant to Section 4.03 and (e) the aggregate of any Advances made by the Trustee as successor Servicer or 5 any other successor Servicer for such Distribution Date pursuant to Section 7.02, reduced (to not less than zero), by (2) the portion of the amount described in clause (1)(a) above that represents (i) Monthly Payments on the Mortgage Loans received from a Mortgagor on or prior to the Determination Date but due during any Due Period subsequent to the related Due Period, (ii) Principal Prepayments on the Mortgage Loans received after the related Prepayment Period (together with any interest payments received with such Principal Prepayments to the extent they represent the payment of interest accrued on the Mortgage Loans during a period subsequent to the related Prepayment Period) (other than Prepayment Charges), (iii) Liquidation Proceeds and Insurance Proceeds received in respect of the Mortgage Loans after the related Prepayment Period, (iv) amounts reimbursable or payable to the Depositor, the Servicer, the Trustee, the Custodian, the Seller or any Sub-Servicer pursuant to Section 3.11, Section 3.12, Section 8.05 or otherwise payable in respect of Extraordinary Trust Fund Expenses, (v) the Trustee Fee payable from the Certificate Account pursuant to Section 8.05, (vi) amounts deposited in the Custodial Account or the Certificate Account in error and (vii) the amount of any Prepayment Charges collected by the Servicer in connection with the Principal Prepayment of any of the Mortgage Loans or any Servicer Prepayment Charge Payment Amount. "Bankruptcy Code": The Bankruptcy Reform Act of 1978 (Title 11 of the United States Code), as amended. "Bankruptcy Loss": With respect to any Mortgage Loan, a Realized Loss resulting from a Deficient Valuation or Debt Service Reduction. "Bloomberg": As defined in Section 4.02. "Book-Entry Certificate": The Class A Certificates and the Mezzanine Certificates for so long as the Certificates of such Class shall be registered in the name of the Depository or its nominee. "Book-Entry Custodian": The custodian appointed pursuant to Section 5.01. "Business Day": Any day other than a Saturday, a Sunday or a day on which banking or savings and loan institutions in the State of California, the State of New York or in any city in which the Corporate Trust Office of the Trustee is located, are authorized or obligated by law or executive order to be closed. "Cap Contracts": Collectively, the Class A Cap Contract and the Mezzanine Cap Contract. "Cash-Out Refinancing": A Refinanced Mortgage Loan the proceeds of which are more than a nominal amount in excess of the principal balance of any existing first mortgage or subordinate mortgage on the related Mortgaged Property and any closing costs related to such Refinance Mortgage Loan. "Certificate": Any one of the Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates, Class A-1, Class A-2, Class A-3, Class A-4, Class M-1, Class 6 M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8, Class M-9, Class M-10, Class CE, Class P and Class R issued under this Agreement. "Certificate Account": The trust account or accounts created and maintained by the Trustee pursuant to Section 3.10(b), which shall be entitled "Wells Fargo Bank, N.A., as Trustee, in trust for the registered holders of Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates." The Certificate Account must be an Eligible Account. "Certificate Factor": With respect to any Class of Regular Certificates as of any Distribution Date, a fraction, expressed as a decimal carried to six places, the numerator of which is the aggregate Certificate Principal Balance (or the Notional Amount, in the case of the Class CE Certificates) of such Class of Certificates on such Distribution Date (after giving effect to any distributions of principal and in the case of the Class A Certificates, the Mezzanine Certificates and the Class CE Certificates, the allocations of Realized Losses in reduction of the Certificate Principal Balance (or the Notional Amount, in the case of the Class CE Certificates) of such Class of Certificates to be made on such Distribution Date), and the denominator of which is the initial aggregate Certificate Principal Balance (or the Notional Amount, in the case of the Class CE Certificates) of such Class of Certificates as of the Closing Date. "Certificateholder" or "Holder": The Person in whose name a Certificate is registered in the Certificate Register, except that a Disqualified Organization or a Non-United States Person shall not be a Holder of a Residual Certificate for any purpose hereof and, solely for the purpose of giving any consent pursuant to this Agreement, any Certificate registered in the name of the Depositor or the Servicer or any Affiliate thereof shall be deemed not to be outstanding and the Voting Rights to which it is entitled shall not be taken into account in determining whether the requisite percentage of Voting Rights necessary to effect any such consent has been obtained, except as otherwise provided in Section 13.01. The Trustee may conclusively rely upon a certificate of the Depositor or the Servicer in determining whether a Certificate is held by an Affiliate thereof. 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 the Depository or on the books of a Depository Participant or on the books of an indirect participating brokerage firm for which a Depository Participant acts as agent. "Certificate Principal Balance": With respect to each Class A Certificate, Mezzanine Certificate or Class P Certificate as of any date of determination, the Certificate Principal Balance of such Certificate on the Distribution Date immediately prior to such date of determination plus any Subsequent Recoveries added to the Certificate Principal Balance of such Certificate pursuant to Section 4.01, minus all distributions allocable to principal made thereon and, in the case of the Class A Certificates and the Mezzanine Certificates, Realized Losses allocated thereto on such immediately prior Distribution Date (or, in the case of any date of 7 determination up to and including the first Distribution Date, the initial Certificate Principal Balance of such Certificate, as stated on the face thereof). With respect to each Class CE Certificates as of any date of determination, an amount equal to the Percentage Interest evidenced by such Certificate times the excess, if any, of (A) the then aggregate Uncertificated Balance of the REMIC I Regular Interests over (B) the then aggregate Certificate Principal Balance of the Class A Certificates, the Mezzanine Certificates and the Class P Certificates then outstanding. "Certificate Register": The register maintained pursuant to Section 5.02. "Class": Collectively, all of the Certificates bearing the same class designation. "Class A Cap Contract": The cap contract, dated as of the Closing Date, between the Trustee on behalf of the Trust and the counterparty thereunder for the benefit of the Holders of the Class A Certificates in the form attached hereto as Exhibit K. "Class A-1 Certificates": Any one of the Class A-1 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-1 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Class A Cap Contract to the extent described herein. "Class A-2 Certificates": Any one of the Class A-2 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-1 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Class A Cap Contract to the extent described herein. "Class A-3 Certificates": Any one of the Class A-3 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-1 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Class A Cap Contract to the extent described herein. "Class A-4 Certificates": Any one of the Class A-4 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-1 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Class A Cap Contract to the extent described herein. "Class A Certificates": Collectively, the Class A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates and the Class A-4 Certificates. "Class A Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the aggregate Certificate Principal Balance of the Class A Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. 8 "Class CE Certificate": Any one of the Class CE Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-3 and evidencing a Regular Interest in REMIC II for purposes of the REMIC Provisions. "Class M-1 Certificate": Any one of the Class M-1 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-2 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Mezzanine Cap Contract to the extent described herein. "Class M-1 Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the distribution of the Class A Principal Distribution Amount on such Distribution Date) and (ii) the Certificate Principal Balance of the Class M-1 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. "Class M-2 Certificate": Any one of the Class M-2 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-2 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Mezzanine Cap Contract to the extent described herein. "Class M-2 Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the distribution of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates (after taking into account the distribution of the Class M-1 Principal Distribution Amount on such Distribution Date) and (iii) the Certificate Principal Balance of the Class M-2 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. "Class M-3 Certificate": Any one of the Class M-3 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-2 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Mezzanine Cap Contract to the extent described herein. "Class M-3 Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the distribution of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates (after taking into account the distribution of the Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates (after taking into account the distribution of the Class M-2 Principal Distribution Amount on such 9 Distribution Date) and (iv) the Certificate Principal Balance of the Class M-3 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. "Class M-4 Certificate": Any one of the Class M-4 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-2 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Mezzanine Cap Contract to the extent described herein. "Class M-4 Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the distribution of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates (after taking into account the distribution of the Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates (after taking into account the distribution of the Class M-2 Principal Distribution Amount on such Distribution Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates (after taking into account the distribution of the Class M-3 Principal Distribution Amount on such Distribution Date) and (v) the Certificate Principal Balance of the Class M-4 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. "Class M-5 Certificate": Any one of the Class M-5 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-2 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Mezzanine Cap Contract to the extent described herein. "Class M-5 Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the distribution of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates (after taking into account the distribution of the Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates (after taking into account the distribution of the Class M-2 Principal Distribution Amount on such Distribution Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates (after taking into account the distribution of the Class M-3 Principal Distribution Amount on such Distribution Date), (v) the Certificate Principal Balance of the Class M-4 Certificates (after taking into account the distribution of the Class M-4 Principal Distribution Amount on such 10 Distribution Date) and (vi) the Certificate Principal Balance of the Class M-5 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. "Class M-6 Certificate": Any one of the Class M-6 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-2 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Mezzanine Cap Contract to the extent described herein. "Class M-6 Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the distribution of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates (after taking into account the distribution of the Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates (after taking into account the distribution of the Class M-2 Principal Distribution Amount on such Distribution Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates (after taking into account the distribution of the Class M-3 Principal Distribution Amount on such Distribution Date), (v) the Certificate Principal Balance of the Class M-4 Certificates (after taking into account the distribution of the Class M-4 Principal Distribution Amount on such Distribution Date), (vi) the Certificate Principal Balance of the Class M-5 Certificates (after taking into account the distribution of the Class M-5 Principal Distribution Amount on such Distribution Date) and (vii) the Certificate Principal Balance of the Class M-6 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. "Class M-7 Certificate": Any one of the Class M-7 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-2 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Mezzanine Cap Contract to the extent described herein. "Class M-7 Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the distribution of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates (after taking into account the distribution of the Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates (after taking into account the distribution of the Class M-2 Principal Distribution Amount on such Distribution Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates (after taking into account the distribution of the Class M-3 Principal Distribution Amount on such 11 Distribution Date), (v) the Certificate Principal Balance of the Class M-4 Certificates (after taking into account the distribution of the Class M-4 Principal Distribution Amount on such Distribution Date), (vi) the Certificate Principal Balance of the Class M-5 Certificates (after taking into account the distribution of the Class M-5 Principal Distribution Amount on such Distribution Date), (vii) the Certificate Principal Balance of the Class M-6 Certificates (after taking into account the distribution of the Class M-6 Principal Distribution Amount on such Distribution Date) and (viii) the Certificate Principal Balance of the Class M-7 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. "Class M-8 Certificate": Any one of the Class M-8 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-2 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Mezzanine Cap Contract to the extent described herein. "Class M-8 Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the distribution of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates (after taking into account the distribution of the Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates (after taking into account the distribution of the Class M-2 Principal Distribution Amount on such Distribution Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates (after taking into account the distribution of the Class M-3 Principal Distribution Amount on such Distribution Date), (v) the Certificate Principal Balance of the Class M-4 Certificates (after taking into account the distribution of the Class M-4 Principal Distribution Amount on such Distribution Date), (vi) the Certificate Principal Balance of the Class M-5 Certificates (after taking into account the distribution of the Class M-5 Principal Distribution Amount on such Distribution Date), (vii) the Certificate Principal Balance of the Class M-6 Certificates (after taking into account the distribution of the Class M-6 Principal Distribution Amount on such Distribution Date), (viii) the Certificate Principal Balance of the Class M-7 Certificates (after taking into account the distribution of the Class M-7 Principal Distribution Amount on such Distribution Date) and (ix) the Certificate Principal Balance of the Class M-8 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. "Class M-9 Certificate": Any one of the Class M-9 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-2 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Mezzanine Cap Contract to the extent described herein. 12 "Class M-9 Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the distribution of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates (after taking into account the distribution of the Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates (after taking into account the distribution of the Class M-2 Principal Distribution Amount on such Distribution Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates (after taking into account the distribution of the Class M-3 Principal Distribution Amount on such Distribution Date), (v) the Certificate Principal Balance of the Class M-4 Certificates (after taking into account the distribution of the Class M-4 Principal Distribution Amount on such Distribution Date), (vi) the Certificate Principal Balance of the Class M-5 Certificates (after taking into account the distribution of the Class M-5 Principal Distribution Amount on such Distribution Date), (vii) the Certificate Principal Balance of the Class M-6 Certificates (after taking into account the distribution of the Class M-6 Principal Distribution Amount on such Distribution Date), (viii) the Certificate Principal Balance of the Class M-7 Certificates (after taking into account the distribution of the Class M-7 Principal Distribution Amount on such Distribution Date), (ix) the Certificate Principal Balance of the Class M-8 Certificates (after taking into account the distribution of the Class M-8 Principal Distribution Amount on such Distribution Date) and (x) the Certificate Principal Balance of the Class M-9 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. "Class M-10 Certificate": Any one of the Class M-10 Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-2 and evidencing (i) a Regular Interest in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Mezzanine Cap Contract to the extent described herein. "Class M-10 Principal Distribution Amount": With respect to any Distribution Date, the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the distribution of the Class A Principal Distribution Amount on such Distribution Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates (after taking into account the distribution of the Class M-1 Principal Distribution Amount on such Distribution Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates (after taking into account the distribution of the Class M-2 Principal Distribution Amount on such Distribution Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates (after taking into account the distribution of the Class M-3 Principal Distribution Amount on such Distribution Date), (v) the Certificate Principal Balance of the Class M-4 Certificates (after taking into account the distribution of the Class M-4 Principal Distribution Amount on such Distribution Date), (vi) the Certificate Principal Balance of the Class M-5 Certificates (after taking into account the distribution of the Class M-5 Principal Distribution Amount on such Distribution Date), (vii) the Certificate Principal Balance of the Class M-6 Certificates (after 13 taking into account the distribution of the Class M-6 Principal Distribution Amount on such Distribution Date), (viii) the Certificate Principal Balance of the Class M-7 Certificates (after taking into account the distribution of the Class M-7 Principal Distribution Amount on such Distribution Date), (ix) the Certificate Principal Balance of the Class M-8 Certificates (after taking into account the distribution of the Class M-8 Principal Distribution Amount on such Distribution Date), (x) the Certificate Principal Balance of the Class M-9 Certificates (after taking into account the distribution of the Class M-9 Principal Distribution Amount on such Distribution Date) and (xi) the Certificate Principal Balance of the Class M-10 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) the applicable Subordination Percentage and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (B) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period over the Overcollateralization Floor Amount. "Class P Certificate": Any one of the Class P Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-4 and evidencing a Regular Interest in REMIC II for purposes of the REMIC Provisions. "Class Principal Distribution Amount": The Class A Principal Distribution Amount, Class M-1 Principal Distribution Amount, Class M-2 Principal Distribution Amount, Class M-3 Principal Distribution Amount, Class M-4 Principal Distribution Amount, Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, Class M-7 Principal Distribution Amount, Class M-8 Principal Distribution Amount, Class M-9 Principal Distribution Amount or Class M-10 Principal Distribution Amount Principal Distribution Amount. "Class R Certificate": Any one of the Class R Certificates executed, authenticated and delivered by the Trustee, substantially in the form annexed hereto as Exhibit A-5 and evidencing the ownership of the Class R-I Interest and the Class R-II Interest. "Class R-I Interest": The uncertificated Residual Interest in REMIC I. "Class R-II Interest": The uncertificated Residual Interest in REMIC II. "Closing Date": February 8, 2006. "Code": The Internal Revenue Code of 1986, as amended. "Commission": The Securities and Exchange Commission. "Controlling Person" means, with respect to any Person, any other Person who "controls" such Person within the meaning of the Securities Act. "Corporate Trust Office": The principal corporate trust office of the Trustee at which at any particular time its corporate trust business in connection with this Agreement shall be administered, which office at the date of the execution of this Agreement is located at (i) for purposes of the transfer and exchange of the certificates, Sixth Street and Marquette Avenue, 14 Minneapolis, Minnesota 55479-0113, Attention: Corporate Trust Services - Carrington 2006-NC1, and (ii) for all other purposes, 9062 Old Annapolis Road, Columbia, Maryland 21045, Attention: Client Manager - Carrington 2006-NC1.. "Corresponding Certificate": With respect to each REMIC I Regular Interest set forth below, the Regular Certificate set forth in the table below: REMIC I REGULAR INTEREST CERTIFICATE ------------------------------------------------ I-LTA1 Class A-1 I-LTA2 Class A-2 I-LTA3 Class A-3 I-LTA4 Class A-4 I-LTM1 Class M-1 I-LTM2 Class M-2 I-LTM3 Class M-3 I-LTM4 Class M-4 I-LTM5 Class M-5 I-LTM6 Class M-6 I-LTM7 Class M-7 I-LTM8 Class M-8 I-LTM9 Class M-9 I-LTM10 Class M-10 I-LTP Class P "Credit Enhancement Percentage": For any Distribution Date, the percentage equivalent of a fraction, the numerator of which is the sum of the aggregate Certificate Principal Balance of the Mezzanine Certificates and the Class CE Certificates, calculated after taking into account payments of principal on the Mortgage Loans and distribution of the Principal Distribution Amount to the Holders of the Certificates then entitled to distributions of principal on such Distribution Date, and the denominator of which is the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period. "Custodial Agreement": The custodial agreement dated as of the Closing Date, among the Servicer, the Trustee and the Custodian providing for the safekeeping of the Mortgage Files on behalf of the Trustee in accordance with this Agreement. "Custodial Account": The account or accounts created and maintained, or caused to be created and maintained, by the Servicer pursuant to Section 3.10(a), which shall be entitled "New Century Mortgage Corporation, as Servicer for Wells Fargo Bank, N.A., as Trustee, in trust for the registered holders of Carrington Mortgage Loan Trust, Series 2006-NC1, Asset-Backed Pass-Through Certificates." The Custodial Account must be an Eligible Account. "Custodian": A Custodian, which shall initially be Deutsche Bank National Trust Company pursuant to the Custodial Agreement. "Custodian Fee": The amount payable to the Custodian by the Trustee as compensation for all services rendered by it under the Custodial Agreement, as agreed upon by the Trustee and the Custodian. 15 "Cut-off Date": With respect to each Original Mortgage Loan, February 1, 2006. With respect to all Qualified Substitute Mortgage Loans, their respective dates of substitution. References herein to the "Cut-off Date," when used with respect to more than one Mortgage Loan, shall be to the respective Cut-off Dates for each such Mortgage Loan. "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 resulting from a Deficient Valuation. "Deficient Valuation": With respect to any Mortgage Loan, a valuation of the related Mortgaged Property by a court of competent jurisdiction in an amount less than the then outstanding Stated Principal Balance of the Mortgage Loan, which valuation results from a proceeding initiated under the Bankruptcy Code. "Definitive Certificates": As defined in Section 5.01(b). "Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced by a Qualified Substitute Mortgage Loan. "Delinquency Percentage": As of the last day of the related Due Period, the percentage equivalent of a fraction, the numerator of which is the aggregate unpaid principal balance of the Rolling Three-Month Delinquency Average of the Mortgage Loans plus the aggregate unpaid principal balance of the Mortgage Loans that, as of the last day of the previous calendar month, are in foreclosure, have been converted to REO Properties or have been discharged by reason of bankruptcy, and the denominator of which is the aggregate unpaid principal balance of the Mortgage Loans and REO Properties as of the last day of the previous calendar month; provided, however, that any Mortgage Loan purchased by the Servicer pursuant to Section 3.16(c) shall not be included in either the numerator or the denominator for purposes of calculating the Delinquency Percentage. "Depositor": Stanwich Asset Acceptance Company, L.L.C., a Delaware limited liability company, or its successor in interest. "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 Institution": Any depository institution or trust company, including the Trustee, that (a) is incorporated under the laws of the United States of America or any State thereof, (b) is subject to supervision and examination by federal or state banking authorities and (c) has outstanding unsecured commercial paper or other short-term unsecured debt obligations (or, in the case of a depository institution that is the principal subsidiary of a holding company, such holding company has unsecured commercial paper or other short-term unsecured debt 16 obligations) that are rated at least P-1 by Moody's, F-1 by Fitch (if rated by Fitch) and A-1+ by S&P. "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. "Determination Date": With respect to each Distribution Date, the 15th day of the calendar month in which such Distribution Date occurs or, if such 15th day is not a Business Day, the Business Day immediately preceding such 15th day. "Directly Operate": With respect to any REO Property, the furnishing or rendering of services to the tenants thereof, the management or operation of such REO Property, the holding of such REO Property primarily for sale to customers, the performance of any construction work thereon or any use of such REO Property in a trade or business conducted by REMIC I other than through an Independent Contractor; provided, however, that the Trustee (or the Servicer on behalf of the Trustee) shall not be considered to Directly Operate an REO Property solely because the Trustee (or the Servicer on behalf of the Trustee) establishes rental terms, chooses tenants, enters into or renews leases, makes payment on or otherwise discharges tax or insurance obligations, or makes decisions as to repairs or capital expenditures with respect to such REO Property. "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) any 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), (iv) rural electric and telephone cooperatives described in Section 1381(a)(2)(C) of the Code, (v) an "electing large partnership" and (vi) any other Person as set forth in an Opinion of Counsel delivered to the Trustee and the Depositor to the effect that the holding of an Ownership Interest in a Residual Certificate by such Person may cause any Trust 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 Residual 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, or if such 25th day is not a Business Day, the Business Day immediately following such 25th day, commencing in March 2006. 17 "Due Date": With respect to each Mortgage Loan and any Distribution Date, the first day of the calendar month in which such Distribution Date occurs on which the Monthly Payment for such Mortgage Loan was due (or, in the case of any Mortgage Loan under terms of which the Monthly Payment for such Mortgage Loan was due on a day other than the first day of the calendar month in which such Distribution Date occurs, the day during the related Due Period on which such Monthly Payment was due), in each case exclusive of any days of grace. "Due Period": With respect to any Distribution Date, the period commencing on the second day of the month immediately preceding the month in which such Distribution Date occurs and ending on the first day of the month of such Distribution Date. "EDGAR": As defined in Section 4.06. "Eligible Account": Any of (i) an account or accounts maintained with a Depository Institution, (ii) an account or accounts the deposits in which are fully insured by the FDIC or (iii) a segregated non-interest bearing trust account or accounts maintained with the corporate trust department of a federal depository institution or state-chartered depository institution subject to regulations regarding fiduciary funds on deposit similar to Title 12 of the Code of Federal Regulation Section 9.10(b), which, in either case, has corporate trust powers, acting in its fiduciary capacity. "ERISA": The Employee Retirement Income Security Act of 1974, as amended. "Excess Overcollateralized Amount": With respect to the Class A Certificates and the Mezzanine Certificates and any Distribution Date, the excess, if any, of (i) the Overcollateralization Amount for such Distribution Date (calculated for this purpose only after assuming that 100% of the Principal Remittance Amount on such Distribution Date has been distributed) over (ii) the Overcollateralization Target Amount for such Distribution Date. "Exchange Act": As defined in Section 4.06. "Expense Adjusted Mortgage Rate": With respect to any Mortgage Loan (or the related REO Property) and any Distribution Date, a per annum rate of interest equal to the then applicable Mortgage Rate thereon as of the first day of the related Due Period minus the sum of (i) the Trustee Fee Rate and (ii) the Servicing Fee Rate. "Extraordinary Trust Fund Expense": Any amounts reimbursable to the Trustee or any director, officer, employee or agent of the Trustee from the Trust Fund pursuant to Section 8.05 or Section 10.01(c) and any amounts payable from the Certificate Account in respect of taxes pursuant to Section 10.01(g)(iii) and any costs of the Trustee for the recording of the Assignments pursuant to Section 2.01 (to the extent the Seller is unable to pay such costs). "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. 18 "Final Recovery Determination": With respect to any defaulted Mortgage Loan or any REO Property (other than a Mortgage Loan or REO Property purchased by the Responsible Party, the Depositor or the Servicer pursuant to or as contemplated by Section 2.03, Section 3.16(c) or Section 9.01), a determination made by the Servicer that all Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which the Servicer, in its reasonable good faith judgment, expects to be finally recoverable in respect thereof have been so recovered. The Servicer shall maintain records, prepared by a Servicing Officer, of each Final Recovery Determination made thereby. "Fitch": Fitch Ratings, or its successor in interest. "Fixed-Rate Mortgage Loan": Each of the Mortgage Loans identified on the Mortgage Loan Schedule as having a fixed Mortgage Rate. "Formula Rate": For any Distribution Date and the Class A Certificates and the Mezzanine Certificates, One-Month LIBOR plus the related Margin. "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 that is added to the Index on each Adjustment Date in accordance with the terms of the related Mortgage Note used to determine the Mortgage Rate for such Adjustable-Rate Mortgage Loan. "Highest Priority": As of any date of determination, the Class of Mezzanine Certificates then outstanding with a Certificate Principal Balance greater than zero, with the highest priority for payments pursuant to Section 4.01, in the following order: Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates. "Indenture": An indenture relating to the issuance of notes secured by the Class CE Certificates, the Class P Certificates and/or the Class R Certificates (or any portion thereof). "Independent": When used with respect to any specified Person, any such Person who (i) is in fact independent of the Depositor, the Servicer, the Seller and their respective Affiliates, (ii) does not have any direct financial interest in or any material indirect financial interest in the Depositor, the Servicer, the Seller or any Affiliate thereof, and (iii) is not connected with the Depositor, the Servicer, the Seller or any Affiliate thereof as an officer, employee, promoter, underwriter, trustee, partner, director or Person performing similar functions; provided, however, that a Person shall not fail to be Independent of the Depositor, the Servicer, the Seller or any Affiliate thereof merely because such Person is the beneficial owner of 1% or less of any class of securities issued by the Depositor, the Servicer, the Seller or any Affiliate thereof, as the case may be. 19 "Independent Contractor": Either (i) any Person (other than the Servicer) that would be an "independent contractor" with respect to REMIC I within the meaning of Section 856(d)(3) of the Code if REMIC I were a real estate investment trust (except that the ownership tests set forth in that section shall be considered to be met by any Person that owns, directly or indirectly, 35% or more of any Class of Certificates), so long as REMIC I does not receive or derive any income from such Person and provided that the relationship between such Person and REMIC I is at arm's length, all within the meaning of Treasury Regulation Section 1.856-4(b)(5), or (ii) any other Person (including the Servicer) if the Trustee has received an Opinion of Counsel to the effect that the taking of any action in respect of any REO Property by such Person, subject to any conditions therein specified, that is otherwise herein contemplated to be taken by an Independent Contractor will not cause such REO Property to cease to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code (determined without regard to the exception applicable for purposes of Section 860D(a) of the Code), or cause any income realized in respect of such REO Property to fail to qualify as Rents from Real Property. "Index": With respect to each Adjustable-Rate Mortgage Loan and each related Adjustment Date, the index specified in the related Mortgage Note. "Insurance Proceeds": Proceeds of any title policy, hazard policy or other insurance policy covering a Mortgage Loan, to the extent such proceeds are not to be applied to the restoration of the related Mortgaged Property or released to the Mortgagor in accordance with the procedures that the Servicer would follow in servicing mortgage loans held for its own account, subject to the terms and conditions of the related Mortgage Note and Mortgage. "Interest Accrual Period": With respect to any Distribution Date and the Class A Certificates and the Mezzanine Certificates, the period commencing on the Distribution Date of the month immediately preceding the month in which such Distribution Date occurs (or, in the case of the first Distribution Date, commencing on the Closing Date) and ending on the day preceding such Distribution Date. With respect to any Distribution Date and the Class CE Certificates and the REMIC I Regular Interests, the one-month period ending on the last day of the calendar month preceding the month in which such Distribution Date occurs. "Interest Carry Forward Amount": With respect to any Distribution Date and the Class A Certificates or the Mezzanine Certificates, the sum of (i) the amount, if any, by which (a) the Interest Distribution Amount for such Class of Certificates as of the immediately preceding Distribution Date exceeded (b) the actual amount distributed on such Class of Certificates in respect of interest on such immediately preceding Distribution Date, (ii) the amount of any Interest Carry Forward Amount for such Class of Certificates remaining unpaid from the previous Distribution Date and (iii) accrued interest on the sum of (i) and (ii) above calculated at the related Pass-Through Rate for the most recently ended Interest Accrual Period. "Interest Determination Date": With respect to the Class A Certificates, the Mezzanine Certificates, REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular Interest I-LTA3, REMIC I Regular Interest I-LTA4, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, 20 REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9, REMIC I Regular Interest I-LTM10 and any Interest Accrual Period therefor, the second London Business Day preceding the commencement of such Interest Accrual Period. "Interest Distribution Amount": With respect to any Distribution Date and the Class A Certificates, the Mezzanine Certificates and the Class CE Certificates, the aggregate Accrued Certificate Interest on the Certificates of such Class for such Distribution Date. "Interest Remittance Amount": For any Distribution Date, that portion of the Available Distribution Amount for the related Distribution Date that represents interest received or advanced on the Mortgage Loans. "Investment Account": As defined in Section 3.12. "Late Collections": With respect to any Mortgage Loan and any Due Period, all amounts received subsequent to the Determination Date immediately following such Due Period, whether as late payments of Monthly Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which represent late payments or collections of principal and/or interest due (without regard to any acceleration of payments under the related Mortgage and Mortgage Note) but delinquent for such Due Period and not previously recovered. "Liquidation Event": With respect to any Mortgage Loan, any of the following events: (i) such Mortgage Loan is paid in full; (ii) a Final Recovery Determination is made as to such Mortgage Loan; or (iii) such Mortgage Loan is removed from REMIC I, by reason of its being purchased, sold or replaced pursuant to or as contemplated by Section 2.03, Section 3.16(c) or Section 9.01. With respect to any REO Property, either of the following events: (i) a Final Recovery Determination is made as to such REO Property; or (ii) such REO Property is removed from REMIC I by reason of its being purchased pursuant to Section 9.01. "Liquidation Proceeds": The amount (other than Insurance Proceeds or amounts received in respect of the rental of any REO Property prior to REO Disposition) received by the Servicer in connection with (i) the taking of all or a part of a Mortgaged Property by exercise of the power of eminent domain or condemnation, (ii) the liquidation of a defaulted Mortgage Loan through a trustee's sale, foreclosure sale or otherwise, or (iii) the repurchase, substitution or sale of a Mortgage Loan or an REO Property pursuant to or as contemplated by Section 2.03, Section 3.16(c), Section 3.23 or Section 9.01. "Loan-to-Value Ratio": As of any date of determination, the fraction, expressed as a percentage, the numerator of which is the principal balance of the related Mortgage Loan at such date and the denominator of which is the Value of the related Mortgaged Property. "London Business Day": Any day on which banks in the City of London and New York are open and conducting transactions in United States dollars. "Margin": With respect to each class of the Class A Certificates and Mezzanine Certificates and, for purposes of the Marker Rate and the Maximum I-LTZZ Uncertificated Interest Deferral Amount, the specified REMIC I Regular Interest, as follows: 21 Class REMIC I Regular Interest Margin ----- ------------------------ ---------------------- (1)(%) (2)(%) ------- ------- A-1 I-LTA1 0.080 0.160 A-2 I-LTA2 0.160 0.320 A-3 I-LTA3 0.210 0.420 A-4 I-LTA4 0.310 0.620 M-1 I-LTM1 0.400 0.600 M-2 I-LTM2 0.420 0.630 M-3 I-LTM3 0.450 0.675 M-4 I-LTM4 0.580 0.870 M-5 I-LTM5 0.600 0.900 M-6 I-LTM6 0.690 1.035 M-7 I-LTM7 1.350 2.025 M-8 I-LTM8 1.550 2.325 M-9 I-LTM9 2.650 3.975 M-10 I-LTM10 3.000 4.500 _______________ (1) For each Interest Accrual Period for each Distribution Date on or prior to the Optional Termination Date. (2) For each Interest Accrual Period thereafter. "Marker Rate": With respect to the Class CE Certificates or the REMIC II Regular Interest CE-IO and any Distribution Date, a per annum rate equal to two (2) multiplied by the weighted average of the REMIC I Remittance Rates for the REMIC I Regular Interests (other than REMIC I Regular Interest I-LTP and REMIC I Regular Interest I-LTAA), with the rate on each such REMIC I Regular Interest (other than REMIC I Regular Interest I-LTZZ) subject to a cap equal to the Pass-Through Rate for the related Corresponding Certificate and with the rate on REMIC I Regular Interest I-LTZZ subject to a cap of zero, in each case for purposes of this calculation; provided, however, each cap shall be multiplied by a fraction, the numerator of which is the actual number of days elapsed in the related Interest Accrual Period and the denominator of which is 30. "Maximum I-LTZZ Uncertificated Interest Deferral Amount": With respect to any Distribution Date, the excess of (i) accrued interest at the REMIC I Remittance Rate applicable to REMIC I Regular Interest I-LTZZ for such Distribution Date on a balance equal to the Uncertificated Balance of REMIC I Regular Interest I-LTZZ minus the REMIC I Overcollateralized Amount, in each case for such Distribution Date, over (ii) Uncertificated Interest on REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular Interest I-LTA3, REMIC I Regular Interest I-LTA4, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9 and REMIC I Regular Interest I-LTM10 for such Distribution Date, with the rate on each such REMIC I Regular Interest subject to a cap equal to the lesser of (i) One-Month LIBOR plus the related Margin for the related Corresponding Certificate and (ii) the Net WAC Pass-Through Rate for the related Corresponding Certificate; provided, however, each cap shall be multiplied by a fraction, the numerator of which is the actual number of days elapsed in the related Interest Accrual Period and the denominator of which is 30. 22 "Maximum Mortgage Rate": With respect to each Adjustable-Rate Mortgage Loan, the percentage set forth in the related Mortgage Note as the maximum Mortgage Rate thereunder. "Mezzanine Cap Contract": The cap contract between the Trustee on behalf of the Trust and the counterparty thereunder for the benefit of the Holders of the Mezzanine Certificates in the form attached hereto as Exhibit K. "Mezzanine Certificates": Collectively, the Class M-1 Certificates, the Class M-2 Certificates, the Class M-3 Certificates, the Class M-4 Certificates, the Class M-5 Certificates, the Class M-6 Certificates, the Class M-7 Certificates, the Class M-8 Certificates, the Class M-9 Certificates and the Class M-10 Certificates. "Minimum Mortgage Rate": With respect to each Adjustable-Rate Mortgage Loan, the percentage set forth in the related Mortgage Note as the minimum Mortgage Rate thereunder. "Monthly Payment": With respect to any Mortgage Loan, the scheduled monthly payment of principal and interest on such Mortgage Loan which is payable by the related Mortgagor from time to time under the related Mortgage Note, determined: (a) after giving effect to (i) any Deficient Valuation and/or Debt Service Reduction with respect to such Mortgage Loan and (ii) any reduction in the amount of interest collectible from the related Mortgagor pursuant to the Relief Act; (b) without giving effect to any extension granted or agreed to by the Servicer pursuant to Section 3.07 and (c) on the assumption that all other amounts, if any, due under such Mortgage Loan are paid when due. "Moody's": Moody's Investors Service, Inc., or its successor in interest. "Mortgage": With respect to each Mortgage Note, the mortgage, deed of trust or other instrument creating a first lien or second lien on, or first or second priority security interest in, a Mortgaged 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 Loan": Each mortgage loan transferred and assigned to the Trustee and delivered to the Custodian on behalf of the Trustee pursuant to Section 2.01 or Section 2.03(b) of this Agreement, as held from time to time as a part of the Trust Fund, the Mortgage Loans so held being identified in the Mortgage Loan Schedule. "Mortgage Loan Purchase Agreement": The agreement among the Seller, the Responsible Party and the Depositor, regarding the sale of the Mortgage Loans by the Seller to the Depositor, substantially in the form of Exhibit D annexed hereto. "Mortgage Loan Schedule": As of any date, the list of Mortgage Loans included in REMIC I on such date, attached hereto as Schedule 1. The Mortgage Loan Schedule shall set forth the following information with respect to each Mortgage Loan: 23 (i) the Mortgage Loan identifying number; (ii) the state and zip code of the Mortgaged Property; (iii) a code indicating whether the Mortgaged Property is owner-occupied; (iv) the type of Residential Dwelling constituting the Mortgaged Property; (v) the original months to maturity; (vi) the stated remaining months to maturity from the Cut-off Date based on the original amortization schedule; (vii) the Loan-to-Value Ratio at origination; (viii) the Mortgage Rate in effect immediately following the Cut-off Date; (ix) (A) the date on which the first Monthly Payment was due on the Mortgage Loan and (B) if such date is not consistent with the Due Date currently in effect, such Due Date; (x) the stated maturity date; (xi) the amount of the Monthly Payment at origination; (xii) the amount of the Monthly Payment due on the first Due Date after the Cut-off Date; (xiii) the last Due Date on which a Monthly Payment was actually applied to the unpaid Stated Principal Balance; (xiv) the original principal amount of the Mortgage Loan; (xv) the Stated Principal Balance of the Mortgage Loan as of the close of business on the Cut-off Date; (xvi) with respect to each Adjustable-Rate Mortgage Loan, the Adjustment Dates, the Gross Margin, the Maximum Mortgage Rate, the Minimum Mortgage Rate, the Periodic Rate Cap, the maximum first Adjustment Date Mortgage Rate adjustment, the first Adjustment Date immediately following the origination date and the rounding code (i.e., nearest 0.125%, next highest 0.125%); (xvii) a code indicating the purpose of the Mortgage Loan (i.e., purchase financing, Rate/Term Refinancing, Cash-Out Refinancing); (xviii) the Mortgage Rate at origination; 24 (xix) a code indicating the documentation program (i.e., Full Documentation, Limited Documentation, Stated Income Documentation); (xx) the risk grade; (xxi) the Value of the Mortgaged Property; (xxii) the sale price of the Mortgaged Property, if applicable; (xxiii) the actual unpaid principal balance of the Mortgage Loan as of the Cut-off Date; (xxiv) the type and term of the related Prepayment Charge; (xxv) the program code; and (xxvi) the total amount of points and fees charged such Mortgage Loan. The Mortgage Loan Schedule shall set forth the following information with respect to the Mortgage Loans in the aggregate as of the Cut-off Date: (1) the number of Mortgage Loans; (2) the current Stated Principal Balance of the Mortgage Loans; (3) the weighted average Mortgage Rate of the Mortgage Loans and (4) weighted average maturity of the Mortgage Loans. The Mortgage Loan Schedule shall be amended from time to time by the Depositor in accordance with the provisions of this Agreement. With respect to any Qualified Substitute Mortgage Loan, the Cut-off Date shall refer to the related Cut-off Date for such Mortgage Loan, determined in accordance with the definition of Cut-off Date herein. "Mortgage Note": The original executed note or other evidence of the indebtedness of a Mortgagor under a Mortgage Loan. "Mortgage Pool": The pool of Mortgage Loans, identified on Schedule 1 and existing from time to time thereafter, and any REO Properties acquired in respect thereof. "Mortgage Rate": With respect to each Mortgage Loan, the annual rate at which interest accrues on such Mortgage Loan from time to time in accordance with the provisions of the related Mortgage Note, which rate (i) with respect to each Fixed-Rate Mortgage Loan shall remain constant at the rate set forth in the Mortgage Loan Schedule as the Mortgage Rate in effect immediately following the Cut-off Date and (ii) with respect to the Adjustable-Rate Mortgage Loans, (A) as of any date of determination until the first Adjustment Date following the Cut-off Date shall be the rate set forth in the Mortgage Loan Schedule as the Mortgage Rate in effect immediately following the Cut-off Date and (B) as of any date of determination 25 thereafter shall be the rate as adjusted on the most recent Adjustment Date equal to the sum, rounded as provided in the Mortgage Note, of the Index, as most recently available as of a date prior to the Adjustment Date as set forth in the related Mortgage Note, plus the related Gross Margin; provided that the Mortgage Rate on such Adjustable-Rate Mortgage Loan on any Adjustment Date shall never be more than the lesser of (i) the sum of the Mortgage Rate in effect immediately prior to the Adjustment Date plus the related Periodic Rate Cap, if any, and (ii) the related Maximum Mortgage Rate, and shall never be less than the greater of (i) the Mortgage Rate in effect immediately prior to the Adjustment Date less the Periodic Rate Cap, if any, and (ii) the related Minimum Mortgage Rate. With respect to each Mortgage Loan that becomes an REO Property, as of any date of determination, the annual rate determined in accordance with the immediately preceding sentence as of the date such Mortgage Loan became an REO Property. "Mortgaged Property": The underlying property securing a Mortgage Loan, including any REO Property, consisting of a fee simple estate in a parcel of land improved by a Residential Dwelling. "Mortgagor": The obligor on a Mortgage Note. "Net Monthly Excess Cashflow": With respect to any Distribution Date, the sum of (i) any Overcollateralization Reduction Amount and (ii) the excess of (x) the Available Distribution Amount for such Distribution Date over (y) the sum for such Distribution Date of (A) the Senior Interest Distribution Amount distributable to the holders of the Class A Certificates, (B) the Interest Distribution Amount distributable to the holders of the Mezzanine Certificates and (C) the Principal Remittance Amount. "Net WAC Pass-Through Rate": With respect to the Class A Certificates and the Mezzanine Certificates and any Distribution Date, a rate per annum (adjusted for the actual number of days in the related Interest Accrual Period) equal to the weighted average of the Expense Adjusted Mortgage Rates of the Mortgage Loans, weighted on the basis of the respective Stated Principal Balances of the Mortgage Loans as of the first day of the related Due Period. For federal income tax purposes, the Net WAC Pass-Through Rate calculated pursuant to the immediately preceding sentence shall be the equivalent of that which is provided in such immediately preceding sentence expressed as a per annum rate equal to the weighted average of the aggregate REMIC I Remittance Rates on the REMIC I Regular Interests, weighted on the basis of the Uncertificated Balance of such REMIC I Regular Interests. "Net WAC Rate Carryover Amount": With respect to any Class of the Class A Certificates and the Mezzanine Certificates and any Distribution Date, the sum of (A) the positive excess of (i) the amount of interest that would have accrued on such Class of Certificates for such Distribution Date had the Pass-Through Rate been calculated at the related Formula Rate over (ii) the amount of interest accrued on such Class of Certificates at the Net WAC Pass-Through Rate for such Distribution Date and (B) the related Net WAC Rate Carryover Amount for the previous Distribution Date not previously distributed, together with interest thereon at a rate equal to the related Formula Rate for such Class of Certificates for such Distribution Date. 26 "Net WAC Rate Carryover Reserve Account": As defined in Section 3.27. "New Lease": Any lease of REO Property entered into on behalf of REMIC I, including any lease renewed or extended on behalf of REMIC I, if REMIC I has the right to renegotiate the terms of such lease. "Nonrecoverable Advance": Any Advance previously made or proposed to be made in respect of a Mortgage Loan or REO Property that, in the good faith business judgment of the Servicer, will not or, in the case of a proposed Advance, would not be ultimately recoverable from related Late Collections, Insurance Proceeds or Liquidation Proceeds on such Mortgage Loan or REO Property as provided herein. "Nonrecoverable Servicing Advance": Any Servicing Advance previously made or proposed to be made in respect of a Mortgage Loan or REO Property that, in the good faith business judgment of the Servicer, will not or, in the case of a proposed Servicing Advance, would not be ultimately recoverable from related Late Collections, Insurance Proceeds or Liquidation Proceeds on such Mortgage Loan or REO Property as provided herein. "Non-United States Person": Any Person other than a United States Person. "Notional Amount": With respect to the Class CE Certificates and any Distribution Date, the aggregate Uncertificated Balance of the REMIC I Regular Interests for such Distribution Date. "Officers' Certificate": A certificate signed by the Chairman of the Board, the Vice Chairman of the Board, the President or a vice president (however denominated), and by the Treasurer, the Secretary, or one of the assistant treasurers or assistant secretaries of the Servicer, the Seller or the Depositor, as applicable. "One-Month LIBOR": With respect to the Class A Certificates, the Mezzanine Certificates and for purposes of the Marker Rate and Maximum I-LTZZ Uncertificated Interest Deferral Amount, REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular Interest I-LTA3, REMIC I Regular Interest I-LTA4, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9 and REMIC I Regular Interest I-LTM10 and any Interest Accrual Period therefor, the rate determined by the Trustee on the related Interest Determination Date on the basis of the offered rate for one-month U.S. dollar deposits, as such rate appears on Telerate Page 3750 as of 11:00 a.m. (London time) on such Interest Determination Date; provided that if such rate does not appear on Telerate Page 3750, the rate for such date will be determined on the basis of the offered rates of the Reference Banks for one-month U.S. dollar deposits, as of 11:00 a.m. (London time) on such Interest Determination Date. In such event, the Trustee will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If on such Interest Determination Date, two or more Reference Banks provide such offered quotations, One-Month LIBOR for the related Interest Accrual Period shall be the arithmetic 27 mean of such offered quotations (rounded upwards if necessary to the nearest whole multiple of 1/16%). If on such Interest Determination Date, fewer than two Reference Banks provide such offered quotations, One-Month LIBOR for the related Interest Accrual Period shall be the higher of (i) LIBOR as determined on the previous Interest Determination Date and (ii) the Reserve Interest Rate. Notwithstanding the foregoing, if, under the priorities described above, LIBOR for an Interest Determination Date would be based on LIBOR for the previous Interest Determination Date for the third consecutive Interest Determination Date, the Trustee, after consultation with the Depositor, 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 One-Month LIBOR by the Trustee and the Trustee's subsequent calculation of the interest rates applicable to the Certificates for the relevant Interest Accrual Period, in the absence of manifest error, shall be final and binding. "Opinion of Counsel": A written opinion of counsel, who may, without limitation, be salaried counsel for the Depositor or the Servicer, acceptable to the Trustee, if such opinion is delivered to the Trustee, except that any opinion of counsel relating to (a) the qualification of any Trust REMIC as a REMIC or (b) compliance with the REMIC Provisions must be an opinion of Independent counsel. "Original Mortgage Loan": Any of the Mortgage Loans included in REMIC I as of the Closing Date. "Originator": New Century Mortgage Corporation, a California corporation, or its successor in interest. "Overcollateralization Amount": With respect to any Distribution Date, the excess, if any, of (a) the aggregate Stated Principal Balances of the Mortgage Loans and REO Properties as of the last day of the related Due Period over (b) the sum of the aggregate Certificate Principal Balance of the Class A Certificates, the Mezzanine Certificates and the Class P Certificates. "Overcollateralization Deficiency Amount": With respect to any Distribution Date, the excess, if any, of (a) the Overcollateralization Target Amount applicable to such Distribution Date over (b) the Overcollateralization Amount applicable to such Distribution Date (calculated for this purpose only after assuming that 100% of the Principal Remittance Amount on such Distribution Date has been distributed). "Overcollateralization Floor Amount": With respect to any Distribution Date, the amount equal to 0.50% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. "Overcollateralization Increase Amount": With respect to any Distribution Date, the lesser of (a) the Overcollateralization Deficiency Amount as of such Distribution Date (calculated for this purpose only after assuming that 100% of the Principal Remittance Amount on such Distribution Date has been distributed) and (b) the amount of Accrued Certificate 28 Interest payable on the Class CE Certificates on such Distribution Date as reduced by Realized Losses allocated thereto with respect to such Distribution Date pursuant to Section 4.04. "Overcollateralization Reduction Amount": With respect to any Distribution Date, an amount equal to the lesser of (a) the Principal Remittance Amount on such Distribution Date and (b) the Excess Overcollateralized Amount. "Overcollateralization Target Amount": With respect to any Distribution Date, (i) prior to the Stepdown Date, an amount equal to 4.80% of the aggregate outstanding Stated Principal Balance of the Mortgage Loans as of the Cut-off Date, (ii) on or after the Stepdown Date provided a Trigger Event is not in effect, the greater of (x) 9.60% of the then current aggregate outstanding Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period and (y) the Overcollateralization Floor Amount, or (iii) on or after the Stepdown Date and if a Trigger Event is in effect, the Overcollateralization Target Amount for the immediately preceding Distribution Date. Notwithstanding the foregoing, on and after any Distribution Date following the reduction of the aggregate Certificate Principal Balance of the Class A Certificates and the Mezzanine Certificates to zero, the Overcollateralization Target Amount shall be zero. "Ownership Interest": As 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 the Class A Certificates and the Mezzanine Certificates and any Distribution Date, the lesser of (x) the related Formula Rate for such Distribution Date and (y) the Net WAC Pass-Through Rate for such Distribution Date. With respect to the Class CE Certificates and any Distribution Date, (i) a per annum rate equal to the percentage equivalent of a fraction, the numerator of which is (x) the interest on the Uncertificated Balance of each REMIC I Regular Interest described in clause (y) below computed at a rate equal to the related REMIC I Remittance Rate minus the Marker Rate and the denominator of which is (y) the aggregate Uncertificated Balance of REMIC I Regular Interest I-LTAA, I-LTA1, I-LTA2, I-LTA3, I-LTA4, I-LTM1, I-LTM2, I-LTM3, I-LTM4, I-LTM5, I-LTM6, I-LTM7, I-LTM8, I-LTM9, I-LTM10 and I-LTZZ and (ii) 100% of the interest on REMIC I Regular Interest I-LTP, expressed as a per annum rate. "Percentage Interest": With respect to any Class of Certificates (other than the Residual Certificates), the undivided percentage ownership in such Class evidenced by such Certificate, expressed as a percentage, the numerator of which is the initial Certificate Principal Balance or Notional Amount represented by such Certificate and the denominator of which is the aggregate initial Certificate Principal Balance or initial Notional Amount of all of the Certificates of such Class. The Class A Certificates and the Class M-1 Certificates are issuable only in minimum Percentage Interests corresponding to minimum initial Certificate Principal Balances of $25,000 and integral multiples of $1.00 in excess thereof. The Mezzanine Certificates (other than the Class M-1 Certificates) are issuable only in minimum Percentage Interests corresponding to minimum initial Certificate Principal Balances of $250,000 and integral multiples of $1 in excess thereof. The Class P Certificates are issuable only in Percentage Interests corresponding to initial Certificate Principal Balances of $20 and integral multiples thereof. The Class CE 29 Certificates are issuable only in minimum Percentage Interests corresponding to minimum initial Certificate Principal Balances of $100,000 and integral multiples of $1.00 in excess thereof; provided, however, that a single Certificate of each such Class of Certificates may be issued having a Percentage Interest corresponding to the remainder of the aggregate initial Certificate Principal Balance or Notional Amount of such Class or to an otherwise authorized denomination for such Class plus such remainder. With respect to any Residual Certificate, the undivided percentage ownership in such Class evidenced by such Certificate, as set forth on the face of such Certificate. The Residual Certificates are issuable in Percentage Interests of 20% and multiples thereof. "Perfection Representations": The representations, warranties and covenants set forth in Schedule 3 attached hereto. "Periodic Rate Cap": With respect to each Adjustable-Rate Mortgage Loan and any Adjustment Date therefor, the fixed percentage set forth in the related Mortgage Note, which is the maximum amount by which the Mortgage Rate for such Mortgage Loan may increase or decrease (without regard to the Maximum Mortgage Rate or the Minimum Mortgage Rate) on such Adjustment Date from the Mortgage Rate in effect immediately prior to such Adjustment Date. "Permitted Investments": Any one or more of the following obligations or securities acquired at a purchase price of not greater than par, regardless of whether issued or managed by the Depositor, the Servicer, the Trustee or any of their respective Affiliates: (i) direct obligations of, or obligations fully guaranteed as to timely payment of principal and interest by, the United States or any agency or instrumentality thereof, provided such obligations are backed by the full faith and credit of the United States; (ii) demand and time deposits in, certificates of deposit of, or bankers' acceptances issued by, any Depository Institution; (iii) repurchase obligations with respect to any security described in clause (i) above entered into with a Depository Institution (acting as principal); (iv) securities bearing interest or sold at a discount that are issued by any corporation incorporated under the laws of the United States of America or any state thereof and that are rated by each Rating Agency that rates such securities in its highest long-term unsecured rating categories at the time of such investment or contractual commitment providing for such investment; (v) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than 30 days after the date of acquisition thereof) that is rated by each Rating Agency that rates such securities in its highest short-term unsecured debt rating available at the time of such investment; 30 (vi) units of money market funds, including those managed or advised by the Trustee or its Affiliates, that have been rated "AAA" by Fitch (if rated by Fitch) and "AAAm" or "AAAm-G" by S&P and "Aaa" by Moody's; and (vii) if previously confirmed in writing to the Trustee, any other demand, money market or time deposit, or any other obligation, security or investment, as may be acceptable to the Rating Agencies as a permitted investment of funds backing securities having ratings equivalent to its highest initial rating of the Class A Certificates; provided, however, that no instrument described hereunder shall evidence either the right to receive (a) only interest with respect to the obligations underlying such instrument or (b) both principal and interest payments derived from obligations underlying such instrument and the interest and principal payments with respect to such instrument provide a yield to maturity at par greater than 120% of the yield to maturity at par of the underlying obligations. "Permitted Transferee": Any Transferee of a Residual Certificate other than a Disqualified Organization or Non-United States Person. "Person": Any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Plan": Any "employee benefit plan" as defined in Section 3(3) of ERISA that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Code that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing. "Prepayment Assumption": As defined in the Prospectus Supplement. "Prepayment Charge": With respect to any Prepayment Period, any prepayment premium, penalty or charge payable by a Mortgagor in connection with any Principal Prepayment on a Mortgage Loan pursuant to the terms of the related Mortgage Note (other than any Servicer Prepayment Charge Payment Amount). "Prepayment Charge Schedule": As of any date, the list of Prepayment Charges included in the Trust Fund on such date, attached hereto as Schedule 2 (including the prepayment charge summary attached thereto). The Prepayment Charge Schedule shall set forth the following information with respect to each Prepayment Charge: (i) the Mortgage Loan identifying number; (ii) a code indicating the type of Prepayment Charge; (iii) the date on which the first Monthly Payment was due on the related Mortgage Loan; (iv) the term of the related Prepayment Charge; 31 (v) the original Stated Principal Balance of the related Mortgage Loan; and (vi) remaining prepayment term in months. "Prepayment Interest Shortfall": With respect to any Principal Prepayments in full on the Mortgage Loans and any Distribution Date, any interest shortfall resulting from Principal Prepayments occurring between the first day of the related Prepayment Period and the last day of the prior calendar month. The obligations of the Servicer in respect of any Prepayment Interest Shortfall are set forth in Section 3.24. "Prepayment Period": With respect to any Distribution Date the calendar month immediately preceding the calendar month in which such Distribution Date occurs. "Principal Distribution Amount": With respect to any Distribution Date, an amount, not less than zero, equal to the sum of: (i) the principal portion of each Monthly Payment on the Mortgage Loans due during the related Due Period, received on or prior to the related Determination Date or Advanced on or prior to the related Determination Date; (ii) the Stated Principal Balance of any Mortgage Loan that was purchased during the related Prepayment Period pursuant to or as contemplated by Section 2.03, Section 3.16(c) or Section 9.01 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 during the related Prepayment Period; (iii) the principal portion of all other unscheduled collections (including, without limitation, Principal Prepayments, Insurance Proceeds, Liquidation Proceeds, Subsequent Recoveries and REO Principal Amortization) received during the related Prepayment Period, net of any portion thereof that represents a recovery of principal for which an Advance was made by the Servicer pursuant to Section 4.03 in respect of a preceding Distribution Date; and (iv) the amount of any Overcollateralization Increase Amount for such Distribution Date; minus (v) the amount of any Overcollateralization Reduction Amount for such Distribution Date. "Principal Prepayment": Any payment of principal made by the Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due Date and which is not accompanied by an amount of interest representing the full amount of scheduled interest due on any Due Date in any month or months subsequent to the month of prepayment. "Principal Remittance Amount": With respect to any Distribution Date, the sum of the amounts set forth in (i) through (iii) of the definition of Principal Distribution Amount. 32 "Private Certificates": As defined in Section 5.02(b). "Prospectus Supplement": The Prospectus Supplement, dated February 6, 2006, relating to the public offering of the Class A Certificates and the Mezzanine Certificates (other than the Class M-10 Certificates). "PTCE": A Prohibited Transaction Class Exemption issued by the United States Department of Labor which provides that exemptive relief is available to any party to any transaction which satisfies the conditions of the exemption. "Purchase Price": With respect to any Mortgage Loan or REO Property to be purchased pursuant to or as contemplated by Section 2.03, Section 3.16(c) or Section 9.01, and as confirmed by a certification from a Servicing Officer to the Trustee, an amount equal to the sum of (i) 100% of the Stated Principal Balance thereof as of the date of purchase (or such other price as provided in Section 9.01), (ii) in the case of (x) a Mortgage Loan, accrued interest on such Stated Principal Balance at the applicable Expense Adjusted Mortgage Rate in effect from time to time from the Due Date as to which interest was last covered by a payment by the Mortgagor or an Advance by the Servicer, which payment or Advance had as of the date of purchase been distributed pursuant to Section 4.01, through the end of the calendar month in which the purchase is to be effected plus and (y) an REO Property, the sum of (1) accrued interest on such Stated Principal Balance at the applicable Expense Adjusted Mortgage Rate in effect from time to time from the Due Date as to which interest was last covered by a payment by the Mortgagor or an Advance by the Servicer through the end of the calendar month immediately preceding the calendar month in which such REO Property was acquired, plus (2) REO Imputed Interest for such REO Property for each calendar month commencing with the calendar month in which such REO Property was acquired and ending with the calendar month in which such purchase is to be effected, net of the total of all net rental income, Insurance Proceeds, Liquidation Proceeds and Advances that as of the date of purchase had been distributed as or to cover REO Imputed Interest pursuant to Section 4.01, (iii) any unreimbursed Servicing Advances and Advances (including Nonrecoverable Advances and Nonrecoverable Servicing Advances) and any unpaid Servicing Fees allocable to such Mortgage Loan or REO Property, (iv) any amounts previously withdrawn from the Custodial Account in respect of such Mortgage Loan or REO Property pursuant to Section 3.11(a)(ix) and Section 3.16(b), and (v) in the case of a Mortgage Loan required to be purchased pursuant to Section 2.03, expenses reasonably incurred or to be incurred by the Servicer or the Trustee in respect of the breach or defect giving rise to the purchase obligation including any costs and damages incurred by the Trust Fund in connection with any violation by such loan of any predatory or abusive lending law. "Qualified Correspondent": Any Person from which the Servicer purchased Mortgage Loans, provided that the following conditions are satisfied: (i) such Mortgage Loans were originated pursuant to an agreement between the Servicer and such Person that contemplated that such Person would underwrite mortgage loans from time to time, for sale to the Servicer, in accordance with underwriting guidelines designated by the Servicer ("Designated Guidelines") or guidelines that do not vary materially from such Designated Guidelines; (ii) such Mortgage Loans were in fact underwritten as described in clause (i) above and were acquired by the Servicer within 180 days after origination; (iii) either (x) the Designated Guidelines were, at the 33 time such Mortgage Loans were originated, used by the Servicer in origination of mortgage loans of the same type as the Mortgage Loans for the Servicer's own account or (y) the Designated Guidelines were, at the time such Mortgage Loans were underwritten, designated by the Servicer on a consistent basis for use by lenders in originating mortgage loans to be purchased by the Servicer; and (iv) the Servicer employed, at the time such Mortgage Loans were acquired by the Servicer, pre-purchase or post-purchase quality assurance procedures (which may involve, among other things, review of a sample of mortgage loans purchased during a particular time period or through particular channels) designed to ensure that Persons from which it purchased mortgage loans properly applied the underwriting criteria designated by the Servicer. "Qualified Substitute Mortgage Loan": A mortgage loan substituted for a Deleted Mortgage Loan pursuant to the terms of this Agreement which must, on the date of such substitution, (i) have an outstanding Stated Principal Balance, after application of all scheduled payments of principal and interest due during or prior to the month of substitution, not in excess of the Stated Principal Balance of the Deleted Mortgage Loan as of the Due Date in the calendar month during which the substitution occurs, (ii) have a Mortgage Rate not less than (and not more than one percentage point in excess of) the Mortgage Rate of the Deleted Mortgage Loan, (iii) with respect to any Adjustable-Rate Mortgage Loan, have a Maximum Mortgage Rate not less than the Maximum Mortgage Rate on the Deleted Mortgage Loan, (iv) with respect to any Adjustable-Rate Mortgage Loan, have a Minimum Mortgage Rate not less than the Minimum Mortgage Rate of the Deleted Mortgage Loan, (v) with respect to any Adjustable-Rate Mortgage Loan, have a Gross Margin equal to the Gross Margin of the Deleted Mortgage Loan, (vi) with respect to any Adjustable-Rate Mortgage Loan, have a next Adjustment Date not more than two months later than the next Adjustment Date on the Deleted Mortgage Loan, (vii) have a remaining term to maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan, (viii) have the same Due Date as the Due Date on the Deleted Mortgage Loan, (ix) have a Loan-to-Value Ratio as of the date of substitution equal to or lower than the Loan-to-Value Ratio of the Deleted Mortgage Loan as of such date, (x) have a risk grading determined by the Originator at least equal to the risk grading assigned on the Deleted Mortgage Loan and (xi) conform to each representation and warranty set forth in Section 6 of the Mortgage Loan Purchase Agreement applicable to the Deleted Mortgage Loan. In the event that one or more mortgage loans are substituted for one or more Deleted Mortgage Loans, the amounts described in clause (i) hereof shall be determined on the basis of aggregate principal balances, the Mortgage Rates described in clause (ii) hereof shall be determined on the basis of weighted average Mortgage Rates, the terms described in clause (vii) hereof shall be determined on the basis of weighted average remaining term to maturity, the Loan-to-Value Ratios described in clause (ix) hereof shall be satisfied as to each such mortgage loan, the risk gradings described in clause (x) hereof shall be satisfied as to each such mortgage loan and, except to the extent otherwise provided in this sentence, the representations and warranties described in clause (xi) hereof must be satisfied as to each Qualified Substitute Mortgage Loan or in the aggregate, as the case may be. "Rate/Term Refinancing": A Refinanced Mortgage Loan, the proceeds of which are not more than a nominal amount in excess of the existing first mortgage loan and any subordinate mortgage loan on the related Mortgaged Property and related closing costs, and were used exclusively (except for such nominal amount) to satisfy the then existing first mortgage loan and 34 any subordinate mortgage loan of the Mortgagor on the related Mortgaged Property and to pay related closing costs. "Rating Agency or Rating Agencies": Fitch, Moody's and S&P or their successors. If such agencies or their successors are no longer in existence, "Rating Agencies" shall be such nationally recognized statistical rating agencies, or other comparable Persons, designated by the Depositor, notice of which designation shall be given to the Trustee and the Servicer. "Realized Loss": With respect to each Mortgage Loan as to which a Final Recovery Determination has been made, an amount (not less than zero) equal to (i) the unpaid principal balance of such Mortgage Loan as of the commencement of the calendar month in which the Final Recovery Determination was made, plus (ii) accrued interest from the Due Date as to which interest was last paid by the Mortgagor through the end of the calendar month in which such Final Recovery Determination was made, calculated in the case of each calendar month during such period (A) at an annual rate equal to the annual rate at which interest was then accruing on such Mortgage Loan and (B) on a principal amount equal to the Stated Principal Balance of such Mortgage Loan as of the close of business on the Distribution Date during such calendar month, plus (iii) any amounts previously withdrawn from the Custodial Account in respect of such Mortgage Loan pursuant to Section 3.11(a)(ix) and Section 3.16(b), minus (iv) the proceeds, if any, received in respect of such Mortgage Loan during the calendar month in which such Final Recovery Determination was made, net of amounts that are payable therefrom to the Servicer with respect to such Mortgage Loan pursuant to Section 3.11(a)(iii). With respect to any REO Property as to which a Final Recovery Determination has been made, an amount (not less than zero) equal to (i) the unpaid principal balance of the related Mortgage Loan as of the date of acquisition of such REO Property on behalf of REMIC I, plus (ii) accrued interest from the Due Date as to which interest was last paid by the Mortgagor in respect of the related Mortgage Loan through the end of the calendar month immediately preceding the calendar month in which such REO Property was acquired, calculated in the case of each calendar month during such period (A) at an annual rate equal to the annual rate at which interest was then accruing on the related Mortgage Loan and (B) on a principal amount equal to the Stated Principal Balance of the related Mortgage Loan as of the close of business on the Distribution Date during such calendar month, plus (iii) REO Imputed Interest for such REO Property for each calendar month commencing with the calendar month in which such REO Property was acquired and ending with the calendar month in which such Final Recovery Determination was made, plus (iv) any amounts previously withdrawn from the Custodial Account in respect of the related Mortgage Loan pursuant to Section 3.11(a)(ix) and Section 3.16(b), minus (v) the aggregate of all Advances and Servicing Advances (in the case of Servicing Advances, without duplication of amounts netted out of the rental income, Insurance Proceeds and Liquidation Proceeds described in clause (vi) below) made by the Servicer in respect of such REO Property or the related Mortgage Loan for which the Servicer has been or, in connection with such Final Recovery Determination, will be reimbursed pursuant to Section 3.23 out of rental income, Insurance Proceeds and Liquidation Proceeds received in respect of such REO Property, minus (vi) the total of all net rental income, Insurance Proceeds and Liquidation Proceeds received in respect of such REO Property that has been, or in connection 35 with such Final Recovery Determination, will be transferred to the Certificate Account pursuant to Section 3.23. 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 subject of a Debt Service Reduction, the portion, if any, of the reduction in each affected Monthly Payment attributable to a reduction in the Mortgage Rate imposed by a court of competent jurisdiction. Each such Realized Loss shall be deemed to have been incurred on the Due Date for each affected Monthly Payment. If the 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 principal distributions on any Distribution Date. Realized Losses allocated to the Class CE Certificates shall be allocated first to the REMIC II Regular Interest CE-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 CE-PO in reduction of the Principal Balance thereof. "Record Date": With respect to each Distribution Date and any Book-Entry Certificate, the Business Day immediately preceding such Distribution Date. With respect to each Distribution Date and any other Certificates, including any Definitive Certificates, the last Business Day of the month immediately preceding the month in which such Distribution Date occurs, except in the case of the first Record Date which shall be the Closing Date. "Reference Banks": Deutsche Bank AG, Barclays' Bank PLC, The Tokyo Mitsubishi Bank and National Westminster Bank PLC and their successors in interest; provided, however, that if any of the foregoing banks are not suitable to serve as a Reference Bank, then any leading banks selected by the Trustee, after consultation with the Depositor, which are engaged in transactions in Eurodollar deposits in the international Eurocurrency market (i) with an established place of business in London and (ii) not controlling, under the control of or under common control with the Depositor or any Affiliate thereof. "Refinanced Mortgage Loan": A Mortgage Loan the proceeds of which were not used to purchase the related Mortgaged Property. "Regular Certificate": Any Class A Certificate, Mezzanine Certificate, Class CE Certificate or Class P Certificate. "Regular Interest": A "regular interest" in a REMIC within the meaning of Section 860G(a)(1) of the Code. 36 "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 (Jan. 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. "Relief Act Interest Shortfall": With respect to any Distribution Date and any Mortgage Loan, any reduction in the amount of interest collectible on such Mortgage Loan for the most recently ended calendar month as a result of the application of the Relief Act. "REMIC": A "real estate mortgage investment conduit" within the meaning of Section 860D of the Code. "REMIC I": The segregated pool of assets subject hereto, constituting the primary trust created hereby and to be administered hereunder, with respect to which a REMIC election is to be made, consisting of: (i) such Mortgage Loans and Prepayment Charges related thereto as from time to time are subject to this Agreement, together with the Mortgage Files relating thereto, and together with all collections thereon and proceeds thereof; (ii) any REO Property, together with all collections thereon and proceeds thereof; (iii) the Trustee's rights with respect to the Mortgage Loans under all insurance policies required to be maintained pursuant to this Agreement and any proceeds thereof; (iv) the Depositor's rights under the Mortgage Loan Purchase Agreement (including any security interest created thereby); and (v) the Custodial Account (other than any amounts representing any Servicer Prepayment Charge Payment Amount), the Certificate Account (other than any amounts representing any Servicer Prepayment Charge Payment Amount) and any REO Account, and such assets that are deposited therein from time to time and any investments thereof, together with any and all income, proceeds and payments with respect thereto. Notwithstanding the foregoing, however, REMIC I specifically excludes all payments and other collections of principal and interest due on the Mortgage Loans on or before the Cut-off Date, all Prepayment Charges payable in connection with Principal Prepayments on the Mortgage Loans made before the Cut-off Date, the Net WAC Rate Carryover Reserve Account and the Cap Contracts. "REMIC I Interest Loss Allocation Amount": With respect to any Distribution Date, an amount equal to (a) the product of (i) the aggregate Stated Principal Balance of the Mortgage Loans and REO Properties then outstanding and (ii) the REMIC I Remittance Rate for REMIC I Regular Interest I-LTAA minus the Marker Rate, divided by (b) 12. "REMIC I Overcollateralized Amount": With respect to any date of determination, (i) 1% of the aggregate Uncertificated Balance of the REMIC I Regular Interests (other than REMIC I Regular Interest I-LTP) minus (ii) the aggregate Uncertificated Balance of REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular Interest I-LTA3, REMIC I Regular Interest I-LTA4, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, 37 REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9, REMIC I Regular Interest I-LTM10, in each case as of such date of determination. "REMIC I Principal Loss Allocation Amount": With respect to any Distribution Date, an amount equal to the product of (i) the aggregate Stated Principal Balance of the Mortgage Loans and REO Properties then outstanding and (ii) 1 minus a fraction, the numerator of which is two times the aggregate Uncertificated Balance of REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular Interest I-LTA3, REMIC I Regular Interest I-LTA4, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9 and REMIC I Regular Interest I-LTM10 and the denominator of which is the aggregate Uncertificated Balance of REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular Interest I-LTA3, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9, REMIC I Regular Interest I-LTM10 and REMIC I Regular Interest I-LTZZ. "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 REMIC I Remittance Rate in effect from time to time or shall otherwise be entitled to interest as set forth herein, and shall be entitled to distributions of principal, subject to the terms and conditions hereof, in an aggregate amount equal to its initial Uncertificated Balance as set forth in the Preliminary Statement hereto. The REMIC I Regular Interests are as follows: REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular Interest I-LTA3, REMIC I Regular Interest I-LTA4, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9, REMIC I Regular Interest I-LTM10, REMIC I Regular Interest I-LTZZ and REMIC I Regular Interest I-LTP. "REMIC I Remittance Rate": With respect to each REMIC I Regular Interest and any Distribution Date, the weighted average of the Expense Adjusted Mortgage Rates of the Mortgage Loans, weighted based on their Stated Principal Balances as of the first day of the related Due Period. "REMIC I Required Overcollateralized Amount": 1% of the Overcollateralization Target Amount. "REMIC II": The segregated pool of assets consisting of all of the REMIC I Regular Interests conveyed in trust to the Trustee, for the benefit of the Class A Certificates, the 38 Mezzanine Certificates, the Class CE Certificates, the Class P Certificates and the Class R-II Interest and all amounts deposited therein, with respect to which a separate REMIC election is to be made. "REMIC II Regular Interests": Any Regular Interest issued by REMIC II, the ownership of which is evidenced by a Class A Certificate, Class M Certificate or Class CE Certificate. "REMIC II Regular Interest CE-IO": A separate non-certificated regular interest of REMIC II designated as a REMIC II Regular Interest. REMIC II Regular Interest CE-IO shall have no entitlement to principal and shall be entitled to distributions of interest subject to the terms and conditions hereof, in an aggregate amount equal to interest distributable with respect to the Class CE Certificates pursuant to the terms and conditions hereof. "REMIC II Regular Interest CE-PO": A separate non-certificated regular interest of REMIC II designated as a REMIC II Regular Interest. REMIC II Regular Interest CE-PO shall have no entitlement to interest and shall be entitled to distributions of principal subject to the terms and conditions hereof, in an aggregate amount equal to principal distributable with respect to the Class CE Certificates pursuant to the terms and conditions hereof. "REMIC Provisions": Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Section 860A through 860G of the Code, and related provisions, and proposed, temporary and final regulations and published rulings, notices and announcements promulgated thereunder, as the foregoing may be in effect from time to time. "Remittance Report": A report in form and substance acceptable to the Trustee on an electronic data file or tape prepared by the Servicer pursuant to Section 4.03 containing the date elements specified on Schedule 4, hereto, with such additions, deletions and modifications as agreed to by the Trustee and the Servicer. "Rents from Real Property": With respect to any REO Property, gross income of the character described in Section 856(d) of the Code as being included in the term "rents from real property." "REO Account": The account or accounts maintained, or caused to be maintained, by the Servicer in respect of an REO Property pursuant to Section 3.23. "REO Disposition": The sale or other disposition of an REO Property on behalf of REMIC I. "REO Imputed Interest": As to any REO Property, for any calendar month during which such REO Property was at any time part of REMIC I, one month's interest at the applicable Expense Adjusted Mortgage Rate on the Stated Principal Balance of such REO Property (or, in the case of the first such calendar month, of the related Mortgage Loan, if appropriate) as of the close of business on the Distribution Date in such calendar month. "REO Principal Amortization": With respect to any REO Property, for any calendar month, the excess, if any, of (a) the aggregate of all amounts received in respect of such REO 39 Property during such calendar month, whether in the form of rental income, sale proceeds (including, without limitation, that portion of the Termination Price paid in connection with a purchase of all of the Mortgage Loans and REO Properties pursuant to Section 9.01 that is allocable to such REO Property) or otherwise, net of any portion of such amounts (i) payable pursuant to Section 3.23(c) in respect of the proper operation, management and maintenance of such REO Property or (ii) payable or reimbursable to the Servicer pursuant to Section 3.23(d) for unpaid Servicing Fees in respect of the related Mortgage Loan and unreimbursed Servicing Advances and Advances in respect of such REO Property or the related Mortgage Loan, over (b) the REO Imputed Interest in respect of such REO Property for such calendar month. "REO Property": A Mortgaged Property acquired by the Servicer on behalf of REMIC I through foreclosure or deed-in-lieu of foreclosure, as described in Section 3.23. "Request for Release": A release signed by a Servicing Officer, in the form of Exhibit 3 to the Custodial Agreement. "Reserve Interest Rate": With respect to any Interest Determination Date, the rate per annum that the Trustee determines to be either (i) the arithmetic mean (rounded upwards if necessary to the nearest whole multiple of 1/16%) of the one-month U.S. dollar lending rates which New York City banks selected by the Trustee, after consultation with the Depositor, are quoting on the relevant Interest Determination Date to the principal London offices of leading banks in the London interbank market or (ii) in the event that the Trustee can determine no such arithmetic mean, the lowest one-month U.S. dollar lending rate which New York City banks selected by the Trustee, after consultation with the Depositor, are quoting on such Interest Determination Date to leading European banks. "Residential Dwelling": Any one of the following: (i) an attached, detached or semi-detached one-family dwelling, (ii) an attached, detached or semi-detached two-to four-family dwelling, (iii) a one-family dwelling unit in a Fannie Mae eligible condominium project, or (iv) an attached, detached or semi-detached one-family dwelling in a planned unit development, none of which is a co-operative or mobile home (as defined in 42 United States Code, Section 5402(6)). "Residual Certificates": The Class R Certificates. "Residual Interest": The sole class of "residual interests" in a REMIC within the meaning of Section 860G(a)(2) of the Code. "Responsible Officer": When used with respect to the Trustee, any vice president, managing director, director, any assistant vice president, the Secretary, any assistant secretary, the Treasurer, any assistant treasurer, any associate, any trust officer or assistant trust officer or any other officer of the Trustee having direct responsibility over this Agreement or otherwise engaged in performing functions similar to those performed by any of the above designated officers and, with respect to a particular matter, to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. 40 "Responsible Party": NC Capital Corporation, a California corporation, or its successor in interest, in its capacity as responsible party under the Mortgage Loan Purchase Agreement. "Rolling Three-Month Delinquency Average": With respect to any Distribution Date, the average aggregate unpaid principal balance of the Mortgage Loans delinquent 60 days or more for each of the three (or one and two, in the case of the Distribution Dates in March 2006 and April 2006, respectively) immediately preceding months. "S&P": Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc., or its successor in interest. "Securitization Transaction": Any transaction involving either (1) a sale or other transfer of some or all of the 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 or (2) an issuance of publicly offered or privately placed, rated or unrated securities, the payments on which are determined primarily by reference to one or more portfolios of residential mortgage loans consisting, in whole or in part, of some or all of the Mortgage Loans. "Seller": Carrington Securities, LP, a Delaware limited partnership, or its successor in interest, in its capacity as seller under the Mortgage Loan Purchase Agreement. "Senior Interest Distribution Amount": With respect to any Distribution Date, an amount equal to the sum of (i) the Interest Distribution Amount for such Distribution Date for the Class A Certificates and (ii) the Interest Carry Forward Amount, if any, for such Distribution Date for the Class A Certificates. "Servicer": New Century Mortgage Corporation, a California corporation, or any successor servicer appointed as herein provided, in its capacity as Servicer hereunder. "Servicer Certification": As defined in Section 4.06. "Servicer Event of Default": One or more of the events described in Section 7.01. "Servicer Information": As defined in Section 12.07(a)(i). "Servicer Prepayment Charge Payment Amount": The amounts payable by the Servicer in respect of any waived Prepayment Charges pursuant to Section 3.01. "Servicer Remittance Date": With respect to any Distribution Date, by 1:00 p.m. New York time on the Business Day preceding the related Distribution Date. "Servicer Termination Test": The Servicer Termination Test will be failed with respect to any Distribution Date if the aggregate amount of Realized Losses incurred since the Cut-off Date through the last day of the related Due Period (reduced by the aggregate amount of Subsequent Recoveries received from the Cut-off Date through the last day of the related Due Period) divided by aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date exceeds the applicable percentages set forth below with respect to such Distribution Date: 41 PAYMENT DATE OCCURRING IN PERCENTAGE -------------------------------- ---------- March 2009 through February 2010 3.00% March 2010 through February 2111 4.75% March 2011 through 2012 6.10% March 2012 and thereafter 6.85% "Servicing Account": The account or accounts created and maintained pursuant to Section 3.09. "Servicing Advances": The reasonable "out-of-pocket" costs and expenses (including legal fees) incurred by the Servicer in connection with a default, delinquency or other unanticipated event by the Servicer in the performance of its servicing obligations, including, but not limited to, the cost of (i) the preservation, restoration, inspection and protection of a Mortgaged Property, (ii) any enforcement or judicial proceedings, including but not limited to foreclosures and litigation, in respect of a particular Mortgage Loan, (iii) the management (including reasonable fees in connection therewith) and liquidation of any REO Property and (iv) the performance of its obligations under Section 3.01, Section 3.09, Section 3.14, Section 3.16 and Section 3.23. The Servicer shall not be required to make any Nonrecoverable Servicing Advances. "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 each Mortgage Loan and for any calendar month, an amount equal to the Servicing Fee Rate accrued for one month (or in the event of any payment of interest which accompanies a Principal Prepayment in full made by the Mortgagor during such calendar month, interest for the number of days covered by such payment of interest) on the same principal amount on which interest on such Mortgage Loan accrues for such calendar month, calculated on the basis of a 360-day year consisting of twelve 30-day months. A portion of such Servicing Fee may be retained by any Sub-Servicer as its servicing compensation. "Servicing Fee Rate": 0.500% per annum. "Servicing Officer": Any officer of the Servicer involved in, or responsible for, the administration and servicing of Mortgage Loans, whose name and specimen signature appear on a list of Servicing Officers furnished by the Servicer to the Trustee and the Depositor on the Closing Date, as such list may from time to time be amended. "Servicing Transfer Costs": Shall mean all reasonable costs and expenses incurred by the Trustee in connection with the transfer of servicing from a predecessor servicer, including, without limitation, any reasonable costs or expenses associated with the complete transfer of all servicing data and the completion, correction or manipulation of such servicing data as may be required by the Trustee to correct any errors or insufficiencies in the servicing data or otherwise to enable the Trustee (or any successor servicer appointed pursuant to Section 7.02) to service the Mortgage Loans properly and effectively. 42 "Single Certificate": With respect to any Class of Certificates (other than the Class P Certificates and the Residual Certificates), a hypothetical Certificate of such Class evidencing a Percentage Interest for such Class corresponding to an initial Certificate Principal Balance of $1,000. With respect to the Class P Certificates and the Residual Certificates, a hypothetical Certificate of such Class evidencing a 100% Percentage Interest in such Class. "Startup Day": With respect to each Trust REMIC, the day designated as such pursuant to Section 10.01(b) hereof. "Stated Principal Balance": With respect to any Mortgage Loan: (a) as of any date of determination up to but not including the Distribution Date on which the proceeds, if any, of a Liquidation Event with respect to such Mortgage Loan would be distributed, the principal balance of such Mortgage Loan as of the Cut-off Date, as shown on the Mortgage Loan Schedule, minus the sum of (i) the principal portion of each Monthly Payment due on a Due Date subsequent to the Cut-off Date, to the extent received from the Mortgagor or advanced by the Servicer and distributed pursuant to Section 4.01 on or before such date of determination, (ii) all Principal Prepayments received after the Cut-off Date, to the extent distributed pursuant to Section 4.01 on or before such date of determination, (iii) all Liquidation Proceeds and Insurance Proceeds applied by the Servicer as recoveries of principal in accordance with the provisions of Section 3.16, to the extent distributed pursuant to Section 4.01 on or before such date of determination, and (iv) any Realized Loss incurred with respect thereto as a result of a Deficient Valuation made during or prior to the Prepayment Period for the most recent Distribution Date coinciding with or preceding such date of determination; and (b) as of any date of determination coinciding with or subsequent to the Distribution Date on which the proceeds, if any, of a Liquidation Event with respect to such Mortgage Loan would be distributed, zero. With respect to any REO Property: (a) as of any date of determination up to but not including the Distribution Date on which the proceeds, if any, of a Liquidation Event with respect to such REO Property would be distributed, an amount (not less than zero) equal to the Stated Principal Balance of the related Mortgage Loan as of the date on which such REO Property was acquired on behalf of REMIC I, minus the sum of (i) if such REO Property was acquired before the Distribution Date in any calendar month, the principal portion of the Monthly Payment due on the Due Date in the calendar month of acquisition, to the extent advanced by the Servicer and distributed pursuant to Section 4.01 on or before such date of determination, and (ii) the aggregate amount of REO Principal Amortization in respect of such REO Property for all previously ended calendar months, to the extent distributed pursuant to Section 4.01 on or before such date of determination; and (b) as of any date of determination coinciding with or subsequent to the Distribution Date on which the proceeds, if any, of a Liquidation Event with respect to such REO Property would be distributed, zero. "Static Pool Information": Static pool information as described in Item 1105(a)(1)-(3) and 1105(c) of Regulation AB. "Stepdown Date": The later to occur of (a) the Distribution Date occurring in March 2009 and (b) the first Distribution Date on which the Credit Enhancement Percentage (calculated for this purpose only prior to any distribution of the Principal Distribution Amount to the holders 43 of the Certificates then entitled to distributions of principal on such Distribution Date) is equal to or greater than 46.90%. "Subcontractor": Any vendor, subcontractor or other Person (but not including the Trustee, except to the extent described in Article XI) that is not responsible for the overall servicing (as "servicing" is commonly understood by participants in the mortgage-backed securities market) of Mortgage Loans but performs one or more discrete functions identified in Item 1122(d) of Regulation AB with respect to Mortgage Loans under the direction or authority of the Servicer or a Sub-Servicer. "Subordination Percentage": With respect to each class of Class A and Class M Certificates, the applicable approximate percentage set forth in the table below. CLASS PERCENTAGE CLASS PERCENTAGE A 53.10% M-7 84.20% M-1 60.40% M-8 86.40% M-2 67.20% M-9 88.40% M-3 71.20% M-10 90.40% M-4 74.90% M-5 78.30% M-6 81.40% "Sub-Servicer": Any Person with which the Servicer has entered into a Sub-Servicing Agreement and which meets the qualifications of a Sub-Servicer pursuant to Section 3.02. "Sub-Servicing Account": As defined in Section 3.08. "Sub-Servicing Agreement": The written contract between the Servicer and a Sub-Servicer relating to servicing and administration of certain Mortgage Loans as provided in Section 3.02. "Subsequent Recoveries": As of any Distribution Date, unexpected amounts received by the Servicer (net of any related expenses permitted to be reimbursed to the Servicer) specifically related to a Mortgage Loan that was the subject of a liquidation or an REO Disposition prior to the related Prepayment Period that resulted in a Realized Loss. If Subsequent Recoveries are received, they will be included as part of the Principal Remittance Amount for the following Distribution Date. In addition, after giving effect to all distributions on a Distribution Date, the amount of such Subsequent Recoveries will increase the Certificate Principal Balance first, of the Class A Certificates then outstanding, if a Realized Loss had been allocated to the Class A Certificates, on a pro rata basis by the amount of such Subsequent Recoveries, and second, of the class of Mezzanine Certificates then outstanding with the highest distribution priority to which a Realized Loss was allocated. Thereafter, such class of Class A and Class M Certificates will accrue interest on the increased Certificate Principal Balance. "Substitution Shortfall Amount": As defined in Section 2.03(b). "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 44 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 the Trust Fund due to the classification of portions thereof as REMICs 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 Page 3750": The display designated as page "3750" on the Dow Jones Telerate Capital Markets Report (or such other page as may replace page 3750 on that report for the purpose of displaying London interbank offered rates of major banks). "Termination Price": As defined in Section 9.01. "Terminator": As defined in Section 9.01. "Third-Party Originator": Each Person, other than a Qualified Correspondent, that originated Mortgage Loans acquired by the Servicer. "Transaction Party": As defined in Section 11.02. "Transfer": Any direct or indirect transfer, sale, pledge, hypothecation, or other form of assignment of any Ownership Interest in a Certificate. "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 on any Distribution Date on or after the Stepdown Date if: (a) the Delinquency Percentage exceeds 34.12% of the then current Credit Enhancement Percentage for the prior Distribution Date; or (b) the aggregate amount of Realized Losses incurred since the Cut-off Date through the last day of the related Due Period (reduced by the aggregate amount of Subsequent Recoveries received since the Cut-off Date through the last day of the related Due Period) divided by aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date exceeds the applicable percentages set forth below with respect to such Distribution Date: DISTRIBUTION DATE OCCURRING IN PERCENTAGE ---------------------------------- ------------ March 2009 through February 2010 3.00% March 2010 through February 2111 4.75% March 2011 through 2012 6.10% March 2012 and thereafter 6.85% 45 "Trust Fund": Collectively, all of the assets of each Trust REMIC, the Net WAC Rate Carryover Reserve Account, the Cap Contracts and the other assets conveyed by the Depositor to the Trustee pursuant to Section 2.01. "Trust REMIC": Any of REMIC I or REMIC II. "Trustee": Wells Fargo Bank, N.A., a national banking association, or its successor in interest, or any successor trustee appointed as herein provided. "Trustee Information": As defined in Section 11.05. "Trustee Fee": The amount payable to the Trustee on each Distribution Date pursuant to Section 8.05 as compensation for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any of the powers and duties of the Trustee hereunder, which amount shall equal the Trustee Fee Rate accrued for one month on the aggregate Stated Principal Balance of the Mortgage Loans and any REO Properties as of the first day of the related Due Period (or, in the case of the initial Distribution Date, as of the Cut-off Date), calculated on the basis of a 360-day year consisting of twelve 30-day months. "Trustee Fee Rate": 0.0025% per annum. "Uncertificated Balance": The amount of any REMIC I Regular Interest outstanding as of any date of determination. As of the Closing Date, the Uncertificated Balance of each REMIC I Regular Interest shall equal the amount set forth in the Preliminary Statement hereto as its initial uncertificated balance. On each Distribution Date, the Uncertificated Balance of each REMIC I Regular Interest shall be reduced by all distributions of principal made on such REMIC I Regular Interest on such Distribution Date pursuant to Section 4.01 and, if and to the extent necessary and appropriate, shall be further reduced on such Distribution Date by Realized Losses as provided in Section 4.04. The Uncertificated Balance of REMIC I Regular Interest I-LTZZ shall be increased by interest deferrals as provided in Section 4.01(a)(1)(i)(A). The Uncertificated Balance of each REMIC I Regular Interest shall never be less than zero. "Uncertificated Interest": With respect to any REMIC I Regular Interest for any Distribution Date, one month's interest at the REMIC I Remittance Rate applicable to such REMIC I Regular Interest for such Distribution Date, accrued on the Uncertificated Balance thereof immediately prior to such Distribution Date. Uncertificated Interest in respect of any REMIC I Regular Interest shall accrue on the basis of a 360-day year consisting of twelve 30-day months. Uncertificated Interest with respect to each Distribution Date, as to any REMIC I Regular Interest, shall be reduced by an amount equal to the sum of (a) the aggregate Prepayment Interest Shortfall, if any, for such Distribution Date to the extent not covered by payments pursuant to Section 3.24 and (b) the aggregate amount of any Relief Act Interest Shortfall, if any allocated, in each case, to such REMIC I Regular Interest pursuant to Section 1.02. In addition, Uncertificated Interest with respect to each Distribution Date, as to 46 any REMIC I Regular Interest shall be reduced by Realized Losses, if any, allocated to such REMIC I Regular Interest pursuant to Section 1.02 and Section 4.04. "Underwriters' Exemption": An individual exemption issued by the United States Department of Labor, Prohibited Transaction Exemption 91-23 (56 Fed. Reg. 15936, April 19, 1991), as amended, to Citigroup Global Markets Inc.(formerly known as Salomon Smith Barney Inc.), for specific offerings in which Citigroup Global Markets Inc. or any person directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with Citigroup Global Markets Inc. is an underwriter, placement agent or a manager or co-manager of the underwriting syndicate or selling group where the trust and the offered certificates meet specified conditions. The Underwriters' Exemption, as amended, provides a partial exemption for transactions involving certificates representing a beneficial interest in a trust and entitling the holder to pass-through payments of principal, interest and/or other payments with respect to the trust's assets. "Uninsured Cause": Any cause of damage to a Mortgaged Property such that the complete restoration of such property is not fully reimbursable by the hazard insurance policies required to be maintained pursuant to Section 3.14. "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 the income of which from sources without the United States is includible in gross income for United States federal income tax purposes regardless of its connection with the conduct of a trade or business within the United States, or a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have authority to control all substantial decisions of the trust. The term "United States" shall have the meaning set forth in Section 7701 of the Code or successor provisions. "Value": With respect to any Mortgaged Property, the lesser of (i) the lesser of (a) the value thereof as determined by an appraisal made for the Originator of the Mortgage Loan at the time of origination of the Mortgage Loan by an appraiser who met the minimum requirements of Fannie Mae and Freddie Mac and (b) the value thereof as determined by a review appraisal conducted by the Originator in accordance with the Originator's underwriting guidelines, and (ii) the purchase price paid for the related Mortgaged Property by the Mortgagor with the proceeds of the Mortgage Loan; provided, however, (A) in the case of a Refinanced Mortgage Loan, such value of the Mortgaged Property is based solely upon the lesser of (1) the value determined by an appraisal made for the Originator of such Refinanced Mortgage Loan at the time of origination of such Refinanced Mortgage Loan by an appraiser who met the minimum requirements of 47 Fannie Mae and Freddie Mac and (2) the value thereof as determined by a review appraisal conducted by the Originator in accordance with the Originator's underwriting guidelines, and (B) in the case of a Mortgage Loan originated in connection with a "lease-option purchase," such value of the Mortgaged Property is based on the lower of the value determined by an appraisal made for the Originator of such Mortgage Loan at the time of origination or the sale price of such Mortgaged Property if the "lease option purchase price" was set less than 12 months prior to origination, and is based on the value determined by an appraisal made for the Originator of such Mortgage Loan at the time of origination if the "lease option purchase price" was set 12 months or more prior to origination. "Voting Rights": The portion of the voting rights of all of the Certificates which is allocated to any Certificate. With respect to any date of determination, 98% of all Voting Rights will be allocated among the holders of the Class A Certificates, the Mezzanine Certificates and the Class CE Certificates in proportion to the then outstanding Certificate Principal Balances of their respective Certificates, 1% of all Voting Rights will be allocated to the holders of the Class P Certificates and 1% of all Voting Rights will be allocated among the holders of the Residual Certificates. The Voting Rights allocated to each Class of Certificate shall be allocated among Holders of each such Class in accordance with their respective Percentage Interests as of the most recent Record Date. SECTION 1.02 Allocation of Certain Interest Shortfalls. For purposes of calculating the amount of Accrued Certificate Interest and the amount of the Interest Distribution Amount for the Class A Certificates, the Mezzanine Certificates and the Class CE Certificates for any Distribution Date, (1) the aggregate amount of any Prepayment Interest Shortfalls (to the extent not covered by payments by the Servicer pursuant to Section 3.24) and any Relief Act Interest Shortfall incurred in respect of the Mortgage Loans for any Distribution Date shall be allocated first, to the Class CE Certificates based on, and to the extent of, one month's interest at the then applicable Pass-Through Rate on the Notional Amount of the Class CE Certificates and, thereafter, among the Class A Certificates and the Mezzanine Certificates on a pro rata basis based on, and to the extent of, one month's interest at the then applicable respective Pass-Through Rate on the respective Certificate Principal Balance of each such Certificate and (2) the aggregate amount of any Realized Losses incurred for any Distribution Date shall be allocated to the Class CE Certificates based on, and to the extent of, one month's interest at the then applicable Pass-Through Rate on the Notional Amount of the Class CE Certificates. For purposes of calculating the amount of Uncertificated Interest for the REMIC I Regular Interests for any Distribution Date, the aggregate amount of any Prepayment Interest Shortfalls (to the extent not covered by payments by the Servicer pursuant to Section 3.24) and any Relief Act Interest Shortfalls incurred in respect of the Mortgage Loans for any Distribution Date shall be allocated among REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular Interest I-LTA3, REMIC I Regular Interest I-LTA4, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9, REMIC I Regular Interest I-LTM10 and REMIC I Regular Interest I-LTZZ pro rata based on, and to the extent of, one 48 month's interest at the then applicable respective Pass-Through Rate on the respective Uncertificated Balance of each such REMIC I Regular Interest. ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES SECTION 2.01 Conveyance of the Mortgage Loans. On the Closing Date, the Depositor will transfer, assign, set over and otherwise convey to the Trustee without recourse, for the benefit of the Certificateholders, all the right, title and interest of the Depositor, including any security interest therein for the benefit of the Depositor, in and to the Mortgage Loans identified on the Mortgage Loan Schedule, the rights of the Depositor under the Mortgage Loan Purchase Agreement, and all other assets included or to be included in REMIC I. Such assignment includes all interest and principal received by the Depositor or the Servicer on or with respect to the Mortgage Loans (other than payments of principal and interest due on such Mortgage Loans on or before the Cut-off Date). The Depositor herewith delivers to the Trustee an executed copy of the Mortgage Loan Purchase Agreement. In connection with such transfer and assignment, the Depositor shall deliver to and deposit with the Custodian on behalf of the Trustee the following documents or instruments with respect to each Mortgage Loan so transferred and assigned (in each case, a "Mortgage File"): (i) the original Mortgage Note, endorsed in blank or in the following form "Pay to the order of Wells Fargo Bank, N.A., as Trustee under the applicable agreement, without recourse," with all prior and intervening endorsements showing a complete chain of endorsement from the originator to the Person so endorsing to the Trustee; (ii) the original Mortgage with evidence of recording thereon, and the original recorded power of attorney, if the Mortgage was executed pursuant to a power of attorney, with evidence of recording thereon; (iii) an original Assignment in blank; (iv) the original recorded Assignment or Assignments showing a complete chain of assignment from the originator to the Person assigning the Mortgage to the Trustee as contemplated by the immediately preceding clause (iii); (v) the original or copies of each assumption, modification or substitution agreement, if any; and (vi) the original lender's title insurance policy or, if the original title policy has not been issued, the irrevocable commitment to issue the same. With respect to a maximum of approximately 2.0% of the Original Mortgage Loans by outstanding Stated Principal Balance of the Original Mortgage Loans as of the Cut-off Date, if any original Mortgage Note referred to in Section 2.01(i) above cannot be located, the 49 obligations of the Depositor to deliver such documents shall be deemed to be satisfied upon delivery to the Custodian on behalf of the Trustee of a photocopy of such Mortgage Note, if available, with a lost note affidavit substantially in the form of Exhibit H attached hereto. If any of the original Mortgage Notes for which a lost note affidavit was delivered to the Custodian on behalf of the Trustee is subsequently located, such original Mortgage Note shall be delivered to the Custodian on behalf of the Trustee within three Business Days. If any of the documents referred to in Sections 2.01(ii), (iii) or (iv) above has, as of the Closing Date, been submitted for recording but either (x) has not been returned from the applicable public recording office or (y) has been lost or such public recording office has retained the original of such document, the obligations of the Depositor to deliver such documents shall be deemed to be satisfied upon (1) delivery to the Custodian on behalf of the Trustee of a copy of each such document certified by the Originator in the case of (x) above or the applicable public recording office in the case of (y) above to be a true and complete copy of the original that was submitted for recording and (2) if such copy is certified by the Originator, delivery to the Custodian on behalf of the Trustee, promptly upon receipt thereof of either the original or a copy of such document certified by the applicable public recording office to be a true and complete copy of the original. Notice shall be provided to the Trustee and the Rating Agencies by the Depositor if delivery pursuant to clause (2) above will be made more than 180 days after the Closing Date. If the original lender's title insurance policy was not delivered pursuant to Section 2.01(vi) above, the Depositor shall deliver or cause to be delivered to the Custodian on behalf of the Trustee, promptly after receipt thereof, the original lender's title insurance policy. The Depositor shall deliver or cause to be delivered to the Custodian on behalf of the Trustee promptly upon receipt thereof any other original documents constituting a part of a Mortgage File received with respect to any Mortgage Loan, including, but not limited to, any original documents evidencing an assumption or modification of any Mortgage Loan. The Trustee shall enforce the obligations of the Seller under the Mortgage Loan Purchase Agreement to promptly (within sixty Business Days following the later of the Closing Date and the date of receipt by the Trustee of the recording information for a Mortgage, but in no event later than ninety days following the Closing Date) submit or cause to be submitted for recording, at the expense of the Responsible Party and at no expense to the Trust Fund, the Trustee or the Depositor, in the appropriate public office for real property records, each Assignment referred to in Sections 2.01(iii) and (iv) above and the Depositor shall execute each original Assignment or cause each original Assignment to be executed in the following form: "Wells Fargo Bank, N.A., as Trustee under the applicable agreement." In the event that any such Assignment is lost or returned unrecorded because of a defect therein, the Seller shall promptly prepare or cause to be prepared (at the expense of the Responsible Party) a substitute Assignment or cure or cause to be cured such defect, as the case may be, and thereafter cause each such Assignment to be duly recorded. If the Responsible Party is unable to pay the cost of recording the Assignments, such expense will be paid by the Trustee and shall be reimbursable to the Trustee as an Extraordinary Trust Fund Expense. Notwithstanding the foregoing, the Trustee shall not be responsible for determining whether any Assignment delivered by the Depositor hereunder is in recordable form. 50 Notwithstanding the foregoing, however, for administrative convenience and facilitation of servicing and to reduce closing costs, the Assignments shall not be required to be submitted for recording (except with respect to any Mortgage Loan located in Maryland) unless the Trustee or the Depositor receives written notice that failure to record would result in a withdrawal or a downgrading by any Rating Agency of the rating on any Class of Certificates; provided, however, the Trustee shall enforce the obligations of the Seller under the Mortgage Loan Purchase Agreement to submit or cause to be submitted each Assignment for recording in the manner described above, at no expense to the Trust Fund or the Trustee, upon the earliest to occur of: (i) reasonable direction by Holders of Certificates entitled to at least 25% of the Voting Rights, (ii) the occurrence of a Servicer Event of Default, (iii) the occurrence of a bankruptcy, insolvency or foreclosure relating to the Servicer, (iv) the occurrence of a servicing transfer as described in Section 7.02 hereof, (v) with respect to any one Assignment, the occurrence of a bankruptcy, insolvency or foreclosure relating to the Mortgagor under the related Mortgage and (vi) any Mortgage Loan that is 90 days or more delinquent. Upon receipt of written notice by the Trustee from the Servicer that recording of the Assignments is required pursuant to one or more of the conditions set forth in the preceding sentence, the Depositor shall be required to deliver such Assignments or shall cause such Assignments to be delivered within 30 days following receipt of such notice. All original documents relating to the Mortgage Loans that are not delivered to the Custodian on behalf of the Trustee are and shall be held by or on behalf of the Seller, the Depositor or the Servicer, as the case may be, in trust for the benefit of the Trustee on behalf of the Certificateholders. In the event that any such original document is required pursuant to the terms of this Section 2.01 to be a part of a Mortgage File, such document shall be delivered promptly to the Custodian on behalf of the Trustee. Any such original document delivered to or held by the Depositor that is not required pursuant to the terms of this Section to be a part of a Mortgage File, shall be delivered promptly to the Servicer. The parties hereto understand and agree that it is not intended that any Mortgage Loans be included in the Trust that are (a) "high cost" loans under the Home Ownership and Equity Protection Act of 1994 or (b) "high cost," "threshold," "covered" or "predatory" loans under any other applicable federal, state or local law (including without limitation any regulation or ordinance) (or a similarly classified loan using different terminology under a law imposing heightened regulatory scrutiny or additional legal liability for residential mortgage loans having high interest rates, points and/or fees). SECTION 2.02 Acceptance of REMIC I by Trustee. The Trustee acknowledges receipt by the Custodian subject to the provisions of Section 2.01 above and subject to any exceptions noted on the exception report described in the next paragraph below, of the documents referred to in Section 2.01 (other than such documents described in Section 2.01(v)) and all other assets included in the definition of "REMIC I" under clauses (i), (iii), (iv) and (v) (to the extent of amounts attributable thereto deposited into the Certificate Account) and declares that it holds and will hold such documents and the other documents delivered to it constituting a Mortgage File, and that it holds or will hold all such assets and such other assets included in the definition of "REMIC I" in trust for the exclusive use and benefit of all present and future Certificateholders. 51 The Trustee, for the benefit of the Certificateholders, shall cause the Custodian to review each Mortgage File in accordance with the Custodial Agreement, on or before the Closing Date, and the Trustee shall cause the Custodian to certify in substantially the form attached to the Custodial Agreement as Exhibit 1 that, as to each Mortgage Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any Mortgage Loan specifically identified in the exception report annexed thereto as not being covered by such certification), (i) all documents constituting part of such Mortgage File (other than such documents described in Section 2.01(v)) required to be delivered to it pursuant to this Agreement are in its possession, (ii) such documents have been reviewed by the Custodian and appear regular on their face and relate to such Mortgage Loan and (iii) based on the Custodian's examination and only as to the foregoing, the information set forth in the Mortgage Loan Schedule that corresponds to items (i), (ii), (x), (xi) and (xiv) of the definition of "Mortgage Loan Schedule" accurately reflects information set forth in the Mortgage File. It is herein acknowledged that, in conducting such review, the Trustee (or the Custodian, as applicable) is under no duty or obligation (i) to inspect, review or examine any such documents, instruments, certificates or other papers to determine whether they are genuine, enforceable, valid, legally binding, effective or appropriate for the represented purpose or whether they have actually been recorded or are in recordable form or that they are other than what they purport to be on their face, (ii) to determine whether any Mortgage File should include any of the documents specified in clause (v) of Section 2.01 or (iii) to determine the perfection or priority of any security interest in any such documents or instruments. Notwithstanding the foregoing, in conducting the review described in this Section 2.02, the Trustee (or the Custodian, if applicable, shall not be responsible for determining (i) if an Assignment is sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the sale of the Mortgage or (ii) if a Mortgage creates a first or second lien on, or first or second priority security interest in, a Mortgaged Property. Prior to the first anniversary date of this Agreement, the Trustee shall cause the Custodian to deliver as required under the Custodial Agreement to the Depositor, the Trustee and the Servicer a final certification in the form attached to the Custodial Agreement as Exhibit 2 evidencing the completeness of the Mortgage Files, with any applicable exceptions noted thereon, and the Servicer shall forward a copy thereof to any Sub-Servicer. If in the process of reviewing the Mortgage Files and making or preparing, as the case may be, the certifications referred to above, the Custodian, on behalf of the Trustee, finds any document or documents constituting a part of a Mortgage File to be missing or defective in any material respect, at the conclusion of its review the Custodian, on behalf of the Trustee, shall so notify the Depositor and the Servicer. In addition, upon the discovery by the Depositor, the Servicer, the Custodian or the Trustee of a breach of any of the representations and warranties made by either the Responsible Party or the Seller in the related Mortgage Loan Purchase Agreement in respect of any Mortgage Loan which materially adversely affects such Mortgage Loan or the interests of the Certificateholders in such Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties. The Trustee shall, at the written request and expense of any Certificateholder, cause the Custodian to provide a written report to the Trustee for forwarding to such Certificateholder of all Mortgage Files released to the Servicer for servicing purposes. 52 The Depositor and the Trustee intend that the assignment and transfer herein contemplated is absolute and constitutes a sale of the Mortgage Loans, the related Mortgage Notes and the related documents, conveying good title thereto free and clear of any liens and encumbrances, from the Depositor to the Trustee in trust for the benefit of the Certificateholders and that such property not be part of the Depositor's estate or property of the Depositor in the event of any insolvency by the Depositor. In the event that such conveyance is deemed to be, or to be made as security for, a loan, the parties intend that the Depositor shall be deemed to have granted and does hereby grant to the Trustee a first priority perfected security interest in all of the Depositor's right, title and interest in and to the Mortgage Loans, the related Mortgage Notes and the related documents, and that this Agreement shall constitute a security agreement under applicable law. SECTION 2.03 Repurchase or Substitution of Mortgage Loans by the Responsible Party and the Seller. (a) Upon discovery or receipt of notice of any materially defective document in, or that a document is missing from, a Mortgage File or of the breach by the Responsible Party or the Seller of any representation, warranty or covenant under the Mortgage Loan Purchase Agreement in respect of any Mortgage Loan that materially adversely affects the value of such Mortgage Loan or the interest therein of the Certificateholders, the Trustee shall promptly notify the Seller, the Responsible Party and the Servicer of such defect, missing document or breach and request that the Responsible Party or the Seller, as applicable, deliver such missing document or cure such defect or breach within 60 days from the date the Responsible Party or the Seller, as applicable, was notified of such missing document, defect or breach, and if the Responsible Party or the Seller, as applicable, does not deliver such missing document or cure such defect or breach in all material respects during such period, the Trustee shall enforce the obligations of the Responsible Party or the Seller, as applicable, under the Mortgage Loan Purchase Agreement to repurchase such Mortgage Loan from REMIC I at the Purchase Price within 90 days after the date on which the Responsible Party or the Seller, as applicable, was notified (subject to Section 2.03(c)) of such missing document, defect or breach, if and to the extent that the Responsible Party or the Seller, as applicable, is obligated to do so under the Mortgage Loan Purchase Agreement. The Purchase Price for the repurchased Mortgage Loan shall be remitted to the Servicer for deposit in the Custodial Account and the Trustee, or the Custodian on behalf of the Trustee, upon receipt of written certification from the Servicer of such deposit, shall release to the Responsible Party or the Seller, as applicable, the related Mortgage File and the Trustee shall execute and deliver such instruments of transfer or assignment, in each case without recourse, as the Responsible Party or the Seller, as applicable, shall furnish to it and as shall be necessary to vest in the Responsible Party or the Seller, as applicable, any Mortgage Loan released pursuant hereto. The Trustee shall not have any further responsibility with regard to such Mortgage File. In lieu of repurchasing any such Mortgage Loan as provided above, if so provided in the Mortgage Loan Purchase Agreement, the Responsible Party or the Seller, as applicable, may cause such Mortgage Loan to be removed from REMIC I (in which case it shall become a Deleted Mortgage Loan) and substitute one or more Qualified Substitute Mortgage Loans in the manner and subject to the limitations set forth in Section 2.03(b); provided, however, the Responsible Party may not substitute a Qualified Substitute Mortgage Loan for any Deleted Mortgage Loan that violates any predatory or abusive lending law. It is understood and agreed that the obligation of the Responsible Party and the Seller to cure or to repurchase (or to substitute for) any Mortgage Loan as to which a document is missing, a material defect in a 53 constituent document exists or as to which such a breach has occurred and is continuing shall constitute the sole remedy respecting such omission, defect or breach available to the Trustee and the Certificateholders. (b) Any substitution of Qualified Substitute Mortgage Loans for Deleted Mortgage Loans made pursuant to Section 2.03(a) must be effected prior to the date which is two years after the Startup Day for REMIC I. As to any Deleted Mortgage Loan for which the Responsible Party or the Seller, as applicable, substitutes a Qualified Substitute Mortgage Loan or Loans, such substitution shall be effected by the Responsible Party or the Seller, as applicable, delivering to the Custodian, on behalf of the Trustee, for such Qualified Substitute Mortgage Loan or Loans, the Mortgage Note, the Mortgage, the Assignment to the Trustee, and such other documents and agreements, with all necessary endorsements thereon, as are required by Section 2.01, together with an Officers' Certificate providing that each such Qualified Substitute Mortgage Loan satisfies the definition thereof and specifying the Substitution Shortfall Amount (as described below), if any, in connection with such substitution. In accordance with the Custodial Agreement, the Trustee shall cause the Custodian to acknowledge receipt for such Qualified Substitute Mortgage Loan or Loans and, within ten Business Days thereafter, shall review such documents as specified in Section 2.02 and cause the Custodian to deliver to the Depositor, the Trustee and the Servicer, with respect to such Qualified Substitute Mortgage Loan or Loans, a certification substantially in the form attached to the Custodial Agreement as Exhibit 1, with any applicable exceptions noted thereon. Within one year of the date of substitution, in accordance with the Custodial Agreement, the Trustee shall cause the Custodian to deliver to the Depositor, the Trustee and the Servicer a certification substantially in the form attached to the Custodial Agreement as Exhibit 2 with respect to such Qualified Substitute Mortgage Loan or Loans, with any applicable exceptions noted thereon. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution are not part of REMIC I and will be retained by the Responsible Party or the Seller, as applicable. For the month of substitution, distributions to Certificateholders will reflect the Monthly Payment due on such Deleted Mortgage Loan on or before the Due Date in the month of substitution, and the Responsible Party or the Seller, as applicable, shall thereafter be entitled to retain all amounts subsequently received in respect of such Deleted Mortgage Loan. The Depositor shall give or cause to be given written notice to the Certificateholders that such substitution has taken place, shall amend the Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan from the terms of this Agreement and the substitution of the Qualified Substitute Mortgage Loan or Loans and shall deliver a copy of such amended Mortgage Loan Schedule to the Trustee and the Custodian. Upon such substitution, such Qualified Substitute Mortgage Loan or Loans shall constitute part of the Mortgage Pool and shall be subject in all respects to the terms of this Agreement and the Mortgage Loan Purchase Agreement, including, all applicable representations and warranties thereof included in the Mortgage Loan Purchase Agreement. For any month in which the Responsible Party or the Seller, as applicable, substitutes one or more Qualified Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer will determine the amount (the "Substitution Shortfall Amount"), if any, by which the aggregate Purchase Price of all such Deleted Mortgage Loans exceeds the aggregate of, as to 54 each such Qualified Substitute Mortgage Loan, the Stated Principal Balance thereof as of the date of substitution, together with one month's interest on such Stated Principal Balance at the applicable Expense Adjusted Mortgage Rate, plus all outstanding Advances and Servicing Advances (including Nonrecoverable Advances and Nonrecoverable Servicing Advances) related thereto. On the date of such substitution, the Responsible Party or the Seller, as applicable, will deliver or cause to be delivered to the Servicer for deposit in the Custodial Account an amount equal to the Substitution Shortfall Amount, if any, and upon receipt by the Custodian, on behalf of the Trustee, of the related Qualified Substitute Mortgage Loan or Loans and certification by the Servicer to the Trustee of such deposit, the Trustee shall cause the Custodian to release, as required by the Custodial Agreement, to the Responsible Party or the Seller, as applicable, the related Mortgage File or Files and the Trustee shall execute and deliver such instruments of transfer or assignment, in each case without recourse, the Responsible Party or the Seller, as applicable, shall deliver to it and as shall be necessary to vest therein any Deleted Mortgage Loan released pursuant hereto. In addition, the Responsible Party or the Seller, as applicable, shall obtain at its own expense and deliver to the Trustee an Opinion of Counsel to the effect that such substitution will not cause (a) any federal tax to be imposed on any Trust REMIC, 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 Trust REMIC to fail to qualify as a REMIC at any time that any Certificate is outstanding. (c) Upon discovery by the Depositor, the Servicer or the Trustee that any Mortgage Loan does not constitute a "qualified mortgage" within the meaning of Section 860G(a)(3) of the Code, the party discovering such fact shall within two Business Days give written notice thereof to the other parties. In connection therewith, the Responsible Party shall repurchase or, subject to the limitations set forth in Section 2.03(b), substitute one or more Qualified Substitute Mortgage Loans for the affected Mortgage Loan within 90 days of the earlier of discovery or receipt of such notice with respect to such affected Mortgage Loan. Such repurchase or substitution shall be made by (i) the Responsible Party or the Seller, as the case may be, if the affected Mortgage Loan's status as a non-qualified mortgage is or results from a breach of any representation, warranty or covenant made by the Responsible Party or the Seller, as the case may be, under the Mortgage Loan Purchase Agreement, or (ii) the Depositor, if the affected Mortgage Loan's status as a non-qualified mortgage is a breach of no representation or warranty. Any such repurchase or substitution shall be made in the same manner as set forth in Section 2.03(a). The Trustee shall reconvey to the Responsible Party the Mortgage Loan to be released pursuant hereto in the same manner, and on the same terms and conditions, as it would a Mortgage Loan repurchased for breach of a representation or warranty. SECTION 2.04 Capital Contribution. On or prior to the Closing Date, Carrington Securities, LP shall transfer to the Custodial Account, on behalf of the Depositor, the amount of $232,000.00. SECTION 2.05 Representations, Warranties and Covenants of the Servicer. The Servicer hereby represents, warrants and covenants to the Trustee, for the benefit of the 55 Certificateholders and to the Depositor that as of the Closing Date or as of such date specifically provided herein: (i) The Servicer is a corporation duly organized and validly existing under the laws of the State of California and is duly authorized and qualified to transact any and all business contemplated by this Agreement to be conducted by the Servicer in any state in which a Mortgaged Property is located or is otherwise not required under applicable law to effect such qualification and, in any event, is in compliance with the doing business laws of any such State, to the extent necessary to ensure its ability to enforce each Mortgage Loan and to service the Mortgage Loans in accordance with the terms of this Agreement; (ii) The Servicer has the full power and authority to conduct its business as presently conducted by it and to execute, deliver and perform, and to enter into and consummate, all transactions contemplated by this Agreement. The Servicer has duly authorized the execution, delivery and performance of this Agreement, has duly executed and delivered this Agreement, and this Agreement, assuming due authorization, execution and delivery by the Depositor and the Trustee, constitutes a legal, valid and binding obligation of the Servicer, enforceable against it in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity; (iii) The execution and delivery of this Agreement by the Servicer, the servicing of the Mortgage Loans by the Servicer hereunder, the consummation by the Servicer of any other of the transactions herein contemplated, and the fulfillment of or compliance with the terms hereof are in the ordinary course of business of the Servicer and will not (A) result in a breach of any term or provision of the charter or by-laws of the Servicer or (B) conflict with, result in a breach, violation or acceleration of, or result in a default under, the terms of any other material agreement or instrument to which the Servicer is a party or by which it may be bound, or any statute, order or regulation applicable to the Servicer of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Servicer; and the Servicer is not a party to, bound by, or in breach or violation of any indenture or other agreement or instrument, or subject to or in violation of any statute, order or regulation of any court, regulatory body, administrative agency or governmental body having jurisdiction over it, which materially and adversely affects or, to the Servicer's knowledge, would in the future materially and adversely affect, (x) the ability of the Servicer to perform its obligations under this Agreement or (y) the business, operations, financial condition, properties or assets of the Servicer taken as a whole; (iv) The Servicer is a HUD-approved servicer. No event has occurred, including but not limited to a change in insurance coverage, that would make the Servicer unable to comply with HUD eligibility requirements or that would require notification to HUD; 56 (v) The Servicer does not believe, nor does it have any reason or cause to believe, that it cannot perform each and every covenant made by it and contained in this Agreement; (vi) No litigation is pending against the Servicer that would materially and adversely affect the execution, delivery or enforceability of this Agreement or the ability of the Servicer to service the Mortgage Loans or to perform any of its other obligations hereunder in accordance with the terms hereof; (vii) There are no actions or proceedings against, or investigations known to it of, the Servicer before any court, administrative or other tribunal (A) that might prohibit its entering into this Agreement, (B) seeking to prevent the consummation of the transactions contemplated by this Agreement or (C) that might prohibit or materially and adversely affect the performance by the Servicer of its obligations under, or validity or enforceability of, this Agreement; (viii) No consent, approval, authorization or order of or registration or filing with or notice to any court or governmental agency or body is required for the execution, delivery and performance by the Servicer of, or compliance by the Servicer with, this Agreement or the consummation by it of the transactions contemplated by this Agreement, except for such consents, approvals, authorizations or orders, if any, that have been obtained prior to the Closing Date; (ix) The Servicer will not waive any Prepayment Charge unless it is waived in accordance with the standard set forth in Section 3.01; (x) The Servicer has fully furnished and will continue to fully furnish, in accordance with the Fair Credit Reporting Act and its implementing regulations, accurate and complete information (e.g., favorable and unfavorable) on its borrower credit files to Equifax, Experian and Trans Union Credit Information Company or their successors on a monthly basis; and (xi) No information, certificate of an officer, statement furnished or to be furnished in writing or report delivered to the Depositor, any Affiliate of the Depositor or the Trustee by the Servicer will, to the knowledge of the 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. It is understood and agreed that the representations, warranties and covenants set forth in this Section 2.05 shall survive delivery of the Mortgage Files to the Trustee and shall inure to the benefit of the Trustee, the Depositor and the Certificateholders. Upon discovery by any of the Depositor, the Servicer or the Trustee of a breach of any of the foregoing representations, warranties and covenants which materially and adversely affects the value of any Mortgage Loan or the interests therein of the Certificateholders, the party discovering such breach shall give prompt written notice (but in no event later than two Business Days following such discovery) to the Trustee. Subject to Section 7.01, unless such breach shall not be susceptible of cure within 57 90 days, the obligation of the Servicer set forth in this Section 2.05 to cure breaches shall constitute the sole remedy against the Servicer available to the Certificateholders, the Depositor and the Trustee on behalf of the Certificateholders respecting a breach of the representations, warranties and covenants contained in this Section 2.05. Notwithstanding the foregoing, within 90 days of the earlier of discovery by the Servicer or receipt of notice by the Servicer of the breach of the representation or covenant of the Servicer set forth in Section 2.05(ix) above, which breach materially and adversely affects the interests of the Holders of the Class P Certificates in any Prepayment Charge, the Servicer shall pay the amount of such waived Prepayment Charge, for the benefit of the Holders of the Class P Certificates, by depositing such amount into the Custodial Account. SECTION 2.06 Issuance of the REMIC I Regular Interests and the Class R-I Interest. The Trustee acknowledges the assignment to it of the Mortgage Loans and the delivery to it of the Mortgage Files, subject to the provisions of Section 2.01 and Section 2.02, together with the assignment to it of all other assets included in REMIC I, the receipt of which is hereby acknowledged. Concurrently with such assignment and delivery and in exchange therefor, the Trustee, pursuant to the written request of the Depositor executed by an officer of the Depositor, has executed, authenticated and delivered to or upon the order of the Depositor, the Class R Certificates (in respect of the Class R-I Interest) in authorized denominations. The interests evidenced by the Class R-I Interest, together with the REMIC I Regular Interests, constitute the entire beneficial ownership interest in REMIC I. The rights of the Class R-I Interest and REMIC II (as holder of the REMIC I Regular Interest) to receive distributions from the proceeds of REMIC I in respect of the Class R-I Interest and the REMIC I Regular Interests, and all ownership interests evidenced or constituted by the Class R-I Interest and the REMIC I Regular Interests, shall be as set forth in this Agreement. SECTION 2.07 Conveyance of the REMIC I Regular Interests; Acceptance of REMIC II by the Trustee. The Depositor, concurrently with the execution and delivery hereof, does hereby transfer, assign, set over and otherwise convey 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 Class R-II Interest and REMIC II (as holder of the REMIC I Regular Interests). The Trustee acknowledges receipt of the REMIC I Regular Interests and declares that it holds and will hold the same in trust for the exclusive use and benefit of all present and future holders of the Class R-II Interest and REMIC II (as holder of the REMIC I Regular Interests). The rights of the holders of the Class R-II Interest and REMIC II (as holder of the REMIC I Regular Interests) to receive distributions from the proceeds of REMIC II in respect of the Class R-II Interest and REMIC II Regular Interests, respectively, and all ownership interests evidenced or constituted by the Class R-II Interest and the REMIC II Regular Interests, shall be as set forth in this Agreement. SECTION 2.08 Issuance of Class R Certificates. The Trustee acknowledges the assignment to it of the REMIC Regular Interests and, concurrently therewith and in exchange therefor, pursuant to the written request of the Depositor executed by an officer of the Depositor, the Trustee has executed, authenticated and delivered to or upon the order of the Depositor, the Class R Certificates in authorized denominations. 58 ARTICLE III ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS SECTION 3.01 Servicer to Act as Servicer. The Servicer shall service and administer the Mortgage Loans on behalf of the Trust Fund and in the best interests of and for the benefit of the Certificateholders (as determined by the Servicer in its reasonable judgment) in accordance with the terms of this Agreement and the respective Mortgage Loans and, to the extent consistent with such terms, in the same manner in which it services and administers similar mortgage loans for its own portfolio, and in accordance with customary and usual standards of practice of mortgage lenders and loan servicers administering similar mortgage loans but without regard to: (i) any relationship that the Servicer, any Sub-Servicer or any Affiliate of the Servicer or any Sub-Servicer may have with the related Mortgagor; (ii) the ownership or non-ownership of any Certificate by the Servicer or any Affiliate of the Servicer; (iii) the Servicer's obligation to make Advances or Servicing Advances; or (iv) the Servicer's or any Sub-Servicer's right to receive compensation for its services hereunder or with respect to any particular transaction. To the extent consistent with the foregoing, the Servicer (a) shall seek to maximize the timely and complete recovery of principal and interest on the Mortgage Notes and (b) shall waive (or permit a Sub-Servicer to waive) a Prepayment Charge only under the following circumstances: (i) such waiver is standard and customary in servicing similar Mortgage Loans and (ii) such waiver would, in the reasonable judgment of the Servicer, maximize recovery of total proceeds taking into account the value of such Prepayment Charge and the related Mortgage Loan and, if such waiver is made in connection with a refinancing of the related Mortgage Loan, such refinancing is related to a default or a reasonably foreseeable default or (iii) collection of the related Prepayment Charge would violate applicable law. If a Prepayment Charge is waived as permitted by meeting both of the standards described in clauses (i) and (ii) above, then the Servicer is required to pay the amount of such waived Prepayment Charge, for the benefit of the Holders of the Class P Certificates, by depositing such amount into the Custodial Account together with and at the time that the amount prepaid on the related Mortgage Loan is required to be deposited into the Custodial Account. Notwithstanding any other provisions of this Agreement, any payments made by the Servicer in respect of any waived Prepayment Charges pursuant to clauses (i) and (ii) shall be deemed to be paid outside of the Trust Fund. Subject only to the above-described servicing standards and the terms of this Agreement and of the respective Mortgage Loans, the Servicer shall have full power and authority, acting alone or through Sub-Servicers as provided in Section 3.02, to do or cause to be done any and all things in connection with such servicing and administration which it may deem necessary or desirable. Without limiting the generality of the foregoing, the Servicer in its own name or in the 59 name of a Sub-Servicer is hereby authorized and empowered by the Trustee when the Servicer believes it appropriate in its best judgment, for the benefit of the Certificateholders, in accordance with the servicing standards set forth above, to execute and deliver, on behalf of the Trust Fund, the Certificateholders and the Trustee or any of them, and upon written notice to the Trustee, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Mortgage Loans and the Mortgaged Properties and to institute foreclosure proceedings or obtain a deed-in-lieu of foreclosure so as to convert the ownership of such properties, and to hold or cause to be held title to such properties, on behalf of the Trustee and Certificateholders. The Servicer shall service and administer the Mortgage Loans in accordance with applicable state and federal law and shall provide to the Mortgagors any reports required to be provided to them thereby. The Servicer shall also comply in the performance of this Agreement with all reasonable rules and requirements of each insurer under any standard hazard insurance policy. Subject to Section 3.17, the Trustee shall execute, at the written request of the Servicer, and furnish to the Servicer and any Sub-Servicer any special or limited powers of attorney and other documents necessary or appropriate to enable the Servicer or any Sub-Servicer to carry out their servicing and administrative duties hereunder and the Trustee shall not be liable for the actions of the Servicer or any Sub-Servicers under such powers of attorney. Subject to Section 3.09 hereof, in accordance with the standards of the preceding paragraph, the Servicer shall advance or cause to be advanced funds as necessary for the purpose of effecting the timely payment of taxes and assessments on the Mortgaged Properties, which advances shall be Servicing Advances reimbursable in the first instance from related collections from the Mortgagors pursuant to Section 3.09, and further as provided in Section 3.11. Any cost incurred by the Servicer or by Sub-Servicers in effecting the timely payment of taxes and assessments on a Mortgaged Property shall not, for the purpose of calculating distributions to Certificateholders, be added to the unpaid principal balance of the related Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit. Notwithstanding anything in this Agreement to the contrary, the Servicer may not make any future advances with respect to a Mortgage Loan (except as provided in Section 4.03) and the Servicer shall not (i) permit any modification with respect to any Mortgage Loan that would change the Mortgage Rate, reduce or increase the principal balance (except for reductions resulting from actual payments of principal) or change the final maturity date on such Mortgage Loan (unless, as provided in Section 3.07, the Mortgagor is in default with respect to the Mortgage Loan or such default is, in the judgment of the Servicer, reasonably foreseeable) or (ii) permit any modification, waiver or amendment of any term of any Mortgage Loan that would both (A) effect an exchange or reissuance of such Mortgage Loan under Section 1001 of the Code (or Treasury regulations promulgated thereunder) and (B) cause any Trust REMIC 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 Servicer may delegate its responsibilities under this Agreement; provided, however, that no such delegation shall release the Servicer from the responsibilities or liabilities arising under this Agreement. 60 SECTION 3.02 Sub-Servicing Agreements Between Servicer and Sub-Servicers. (a)Subject to Section 14.01(d), the Servicer may enter into Sub-Servicing Agreements with Sub-Servicers for the servicing and administration of the Mortgage Loans; provided, however, that such agreements would not result in a withdrawal or a downgrading by any Rating Agency of the rating on any Class of Certificates. The Trustee is hereby authorized to acknowledge, at the request of the Servicer, any Sub-Servicing Agreement that, based on an Officers' Certificate of the Servicer delivered to the Trustee (upon which the Trustee can conclusively rely), meets the requirements applicable to Sub-Servicing Agreements set forth in this Agreement and that is otherwise permitted under this Agreement. Each Sub-Servicer shall be (i) authorized to transact business in the state or states where the related Mortgaged Properties it is to service are situated, if and to the extent required by applicable law to enable the Sub-Servicer to perform its obligations hereunder and under the Sub-Servicing Agreement and (ii) a Freddie Mac or Fannie Mae approved mortgage servicer. Each Sub-Servicing Agreement must impose on the Sub-Servicer requirements conforming to the provisions set forth in Section 3.08 and provide for servicing of the Mortgage Loans consistent with the terms of this Agreement. The Servicer will examine each Sub-Servicing Agreement and will be familiar with the terms thereof. The terms of any Sub-Servicing Agreement will not be inconsistent with any of the provisions of this Agreement. The Servicer and the Sub-Servicers may enter into and make amendments to the Sub-Servicing Agreements or enter into different forms of Sub-Servicing Agreements; provided, however, that any such amendments or different forms shall be consistent with and not violate the provisions of this Agreement, and that no such amendment or different form shall be made or entered into which could be reasonably expected to be materially adverse to the interests of the Certificateholders without the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights; provided, further, that the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights shall not be required (i) to cure any ambiguity or defect in a Sub-Servicing Agreement, (ii) to correct, modify or supplement any provisions of a Sub-Servicing Agreement, or (iii) to make any other provisions with respect to matters or questions arising under a Sub-Servicing Agreement, which, in each case, shall not be inconsistent with the provisions of this Agreement. Any variation without the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights from the provisions set forth in Section 3.08 relating to insurance or priority requirements of Sub-Servicing Accounts, or credits and charges to the Sub-Servicing Accounts or the timing and amount of remittances by the Sub-Servicers to the Servicer, are conclusively deemed to be inconsistent with this Agreement and therefore prohibited. The Servicer shall deliver to the Trustee, upon its request, copies of all Sub-Servicing Agreements, and any amendments or modifications thereof, promptly upon the Servicer's execution and delivery of such instruments. (b) As part of its servicing activities hereunder, the Servicer, for the benefit of the Trustee and the Certificateholders, shall enforce the obligations of each Sub-Servicer under the related Sub-Servicing Agreement, including, without limitation, any obligation of a Sub-Servicer to make advances in respect of delinquent payments as required by a Sub-Servicing Agreement. Such enforcement, including, without limitation, the legal prosecution of claims, termination of Sub-Servicing Agreements, 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 Servicer, in its good faith business 61 judgment, would require were it the owner of the related Mortgage Loans. The Servicer shall pay the costs of enforcing the obligations of a Sub-Servicer 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 Loans, or (ii) from a specific recovery of costs, expenses or attorneys' fees against the party against whom such enforcement is directed. SECTION 3.03 Successor Sub-Servicers. The Servicer shall be entitled to terminate any Sub-Servicing Agreement and the rights and obligations of any Sub-Servicer pursuant to any Sub-Servicing Agreement in accordance with the terms and conditions of such Sub-Servicing Agreement. In the event of termination of any Sub-Servicer, all servicing obligations of such Sub-Servicer shall be assumed simultaneously by the Servicer without any act or deed on the part of such Sub-Servicer or the Servicer, and the Servicer either shall service directly the related Mortgage Loans or shall enter into a Sub-Servicing Agreement with a successor Sub-Servicer which qualifies under Section 3.02. Any Sub-Servicing Agreement shall include the provision that such agreement may be immediately terminated by the Trustee without fee, in accordance with the terms of this Agreement, in the event that the Servicer (or the Trustee, if it is then acting as Servicer) shall, for any reason, no longer be the Servicer (including termination due to a Servicer Event of Default). SECTION 3.04 Liability of the Servicer. Notwithstanding any Sub-Servicing Agreement or the provisions of this Agreement relating to agreements or arrangements between the Servicer and a Sub-Servicer or reference to actions taken through a Sub-Servicer or otherwise, the Servicer shall remain obligated and primarily liable to the Trustee and the 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 Sub-Servicing Agreements or arrangements or by virtue of indemnification from the Sub-Servicer and to the same extent and under the same terms and conditions as if the Servicer alone were servicing and administering the Mortgage Loans. The Servicer shall be entitled to enter into any agreement with a Sub-Servicer for indemnification of the Servicer by such Sub-Servicer and nothing contained in this Agreement shall be deemed to limit or modify such indemnification. SECTION 3.05 No Contractual Relationship Between Sub-Servicers, the Trustee or the Certificateholders. Any Sub-Servicing Agreement that may be entered into and any other transactions or services relating to the Mortgage Loans involving a Sub-Servicer in its capacity as such shall be deemed to be between the Sub-Servicer and the Servicer alone, and the Trustee and the Certificateholders shall not be deemed parties thereto and shall have no claims, rights, obligations, duties or liabilities with respect to the Sub-Servicer except as set forth in Section 3.06. The Servicer shall be solely liable for all fees owed by it to any Sub-Servicer, irrespective of whether the Servicer's compensation pursuant to this Agreement is sufficient to pay such fees. The foregoing provision shall not in any way limit a Sub-Servicer's obligation to cure an omission or defect. 62 SECTION 3.06 Assumption or Termination of Sub-Servicing Agreements by the Trustee. In the event the Servicer shall for any reason no longer be the Servicer (including by reason of the occurrence of a Servicer Event of Default), the Trustee, its designee or other successor Servicer shall thereupon assume all of the rights and obligations of the Servicer under each Sub-Servicing Agreement that the Servicer may have entered into, unless the Trustee, such designee or other successor Servicer elects to terminate any Sub-Servicing Agreement in accordance with its terms as provided in Section 3.03. Upon such assumption, the Trustee, its designee or the successor Servicer for the Trustee appointed pursuant to Section 7.02 shall be deemed, subject to Section 3.03, to have assumed all of the Servicer's interest therein and to have replaced the Servicer as a party to each Sub-Servicing Agreement to the same extent as if each Sub-Servicing Agreement had been assigned to the assuming party, except that (i) the Servicer shall not thereby be relieved of any liability or obligations under any Sub-Servicing Agreement that arose before it ceased to be the Servicer and (ii) none of the Trustee, its designee or any successor Servicer shall be deemed to have assumed any liability or obligation of the Servicer that arose before it ceased to be the Servicer. The Servicer at its expense shall, upon request of the Trustee, deliver to the assuming party all documents and records relating to each Sub-Servicing Agreement and the Mortgage Loans then being serviced and an accounting of amounts collected and held by or on behalf of it, and otherwise use its best efforts to effect the orderly and efficient transfer of each Sub-Servicing Agreement to the assuming party. The Servicing Fee payable to the Trustee as successor Servicer or other successor Servicer shall be payable from payments received on the Mortgage Loans in the amount and in the manner set forth in this Agreement. SECTION 3.07 Collection of Certain Mortgage Loan Payments. The 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 applicable insurance policies, follow such collection procedures as it would follow with respect to mortgage loans comparable to the Mortgage Loans and held for its own account. Consistent with the foregoing, the Servicer may in its discretion (i) waive any late payment charge or, if applicable, any penalty interest, or (ii) extend the due dates for the Monthly Payments due on a Mortgage Note for a period of not greater than 180 days; provided, however, that any extension pursuant to clause (ii) above shall not affect the amortization schedule of any Mortgage Loan for purposes of any computation hereunder, except as provided below. In the event of any such arrangement pursuant to clause (ii) above, the Servicer shall make timely advances on such Mortgage Loan during such extension pursuant to Section 4.03 and in accordance with the amortization schedule of such Mortgage Loan without modification thereof by reason of such arrangement. Notwithstanding the foregoing, in the event that any Mortgage Loan is in default or, in the judgment of the Servicer, such default is reasonably foreseeable, the Servicer, consistent with the standards set forth in Section 3.01, may also waive, modify or vary any term of such Mortgage Loan (including modifications that would change the Mortgage Rate, forgive the payment of principal or interest or extend the final maturity date of such Mortgage Loan), accept payment from the related Mortgagor of an amount less than the Stated Principal Balance in final satisfaction of such Mortgage Loan (such payment, 63 a "Short Pay-off"), or consent to the postponement of strict compliance with any such term or otherwise grant indulgence to any Mortgagor. SECTION 3.08 Sub-Servicing Accounts. In those cases where a Sub-Servicer is servicing a Mortgage Loan pursuant to a Sub-Servicing Agreement, the Sub-Servicer will be required to establish and maintain one or more accounts (collectively, the "Sub-Servicing Account"). The Sub-Servicing Account shall be an Eligible Account and shall comply with all requirements of this Agreement relating to the Custodial Account. The Sub-Servicer shall deposit in the clearing account in which it customarily deposits payments and collections on mortgage loans in connection with its mortgage loan servicing activities on a daily basis, and in no event more than one Business Day after the Sub-Servicer's receipt thereof, all proceeds of Mortgage Loans received by the Sub-Servicer less its servicing compensation to the extent permitted by the Sub-Servicing Agreement, and shall thereafter deposit such amounts in the Sub-Servicing Account, in no event more than two Business Days after the receipt of such amounts. The Sub-Servicer shall thereafter deposit such proceeds in the Custodial Account or remit such proceeds to the Servicer for deposit in the Custodial Account not later than two Business Days after the deposit of such amounts in the Sub-Servicing Account. For purposes of this Agreement, the Servicer shall be deemed to have received payments on the Mortgage Loans when the Sub-Servicer receives such payments. SECTION 3.09 Collection of Taxes, Assessments and Similar Items; Servicing Accounts. The Servicer shall establish and maintain, or cause to be established and maintained, one or more accounts (the "Servicing Accounts"), into which all collections from the Mortgagors (or related advances from Sub-Servicers) for the payment of taxes, assessments, hazard insurance premiums and comparable items for the account of the Mortgagors ("Escrow Payments") shall be deposited and retained. Servicing Accounts shall be Eligible Accounts. The Servicer shall deposit in the clearing account in which it customarily deposits payments and collections on mortgage loans in connection with its mortgage loan servicing activities on a daily basis, and in no event more than one Business Day after the Servicer's receipt thereof, all Escrow Payments collected on account of the Mortgage Loans and shall thereafter deposit such Escrow Payments in the Servicing Accounts, in no event more than two Business Days after the receipt of such Escrow Payments, all Escrow Payments collected on account of the Mortgage Loans for the purpose of effecting the payment of any such items as required under the terms of this Agreement. Withdrawals of amounts from a Servicing Account may be made only to (i) effect payment of taxes, assessments, hazard insurance premiums, and comparable items in a manner and at a time that assures that the lien priority of the Mortgage is not jeopardized (or, with respect to the payment of taxes, in a manner and at a time that avoids the loss of the Mortgaged Property due to a tax sale or the foreclosure as a result of a tax lien); (ii) reimburse the Servicer (or a Sub-Servicer to the extent provided in the related Sub-Servicing Agreement) out of related collections for any advances made pursuant to Section 3.01 (with respect to taxes and assessments) and Section 3.14 (with respect to hazard insurance); (iii) refund to Mortgagors any sums as may be determined to be overages; (iv) pay interest, if required and as described below, to Mortgagors on balances in the Servicing Account; or (v) clear and terminate the Servicing Account at the termination of the Servicer's obligations and responsibilities in respect of the Mortgage Loans under this Agreement in accordance with Article IX. As part of its servicing duties, the Servicer or Sub-Servicers shall pay to the Mortgagors interest on funds in the 64 Servicing Accounts, to the extent required by law and, to the extent that interest earned on funds in the Servicing Accounts is insufficient, to pay such interest from its or their own funds, without any reimbursement therefor. SECTION 3.10 Custodial Account and Certificate Account. (a) On behalf of the Trust Fund, the Servicer shall establish and maintain, or cause to be established and maintained, one or more accounts (such account or accounts, the "Custodial Account"), held in trust for the benefit of the Trustee and the Certificateholders. On behalf of the Trust Fund, the Servicer shall deposit or cause to be deposited in the clearing account in which it customarily deposits payments and collections on mortgage loans in connection with its mortgage loan servicing activities on a daily basis, and in no event more than one Business Day after the Servicer's receipt thereof, and shall thereafter deposit in the Custodial Account, in no event more than two Business Days after the Servicer's receipt thereof, as and when received or as otherwise required hereunder, the following payments and collections received or made by it subsequent to the Cut-off Date (other than in respect of principal or interest on the related Mortgage Loans due on or before the Cut-off Date), or payments (other than Principal Prepayments) received by it on or prior to the Cut-off Date but allocable to a Due Period subsequent thereto: (i) all payments on account of principal, including Principal Prepayments, on the Mortgage Loans; (ii) all payments on account of interest (net of the related Servicing Fee) on each Mortgage Loan; (iii) all Insurance Proceeds, Liquidation Proceeds (other than proceeds collected in respect of any particular REO Property and amounts paid in connection with a purchase of Mortgage Loans and REO Properties pursuant to Section 9.01) and Subsequent Recoveries; (iv) any amounts required to be deposited pursuant to Section 3.12 in connection with any losses realized on Permitted Investments with respect to funds held in the Custodial Account; (v) any amounts required to be deposited by the Servicer pursuant to the second paragraph of Section 3.14(a) in respect of any blanket policy deductibles; (vi) all proceeds of any Mortgage Loan repurchased or purchased in accordance with Section 2.03, Section 3.16 or Section 9.01; (vii) all amounts required to be deposited in connection with shortfalls in principal amount of Qualified Substitute Mortgage Loans pursuant to Section 2.03; and (viii) all Prepayment Charges collected by the Servicer in connection with the Principal Prepayment of any of the Mortgage Loans. 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 in 65 the nature of late payment charges, modification or assumption fees, or insufficient funds charges need not be deposited by the Servicer in the Custodial Account and may be retained by the Servicer as additional compensation. In the event the Servicer shall deposit in the Custodial Account any amount not required to be deposited therein, it may at any time withdraw such amount from the Custodial Account, any provision herein to the contrary notwithstanding. (b) On behalf of the Trust Fund, the Trustee shall establish and maintain one or more accounts (such account or accounts, the "Certificate Account"), held in trust for the benefit of the Trustee, the Trust Fund and the Certificateholders. On behalf of the Trust Fund, the Servicer shall deliver to the Trustee in immediately available funds for deposit in the Certificate Account by 1:00 p.m. New York time (i) on the Servicer Remittance Date, that portion of the Available Distribution Amount (calculated without regard to the references in clause (2) of the definition thereof to amounts that may be withdrawn from the Certificate Account) for the related Distribution Date then on deposit in the Custodial Account and the amount of all Prepayment Charges collected by the Servicer in connection with the Principal Prepayment of any of the Mortgage Loans then on deposit in the Custodial Account and the amount of any funds reimbursable to an Advancing Person pursuant to Section 3.26 and (ii) on each Business Day as of the commencement of which the balance on deposit in the Custodial Account exceeds $75,000 following any withdrawals pursuant to the next succeeding sentence, the amount of such excess, but only if the Custodial Account constitutes an Eligible Account solely pursuant to clause (ii) of the definition of "Eligible Account." If the balance on deposit in the Custodial Account exceeds $75,000 as of the commencement of business on any Business Day and the Custodial Account constitutes an Eligible Account solely pursuant to clause (ii) of the definition of "Eligible Account," the Servicer shall, by 3:00 p.m. New York time on such Business Day, withdraw from the Custodial Account any and all amounts payable or reimbursable to the Depositor, the Servicer, the Trustee, the Responsible Party, the Seller or any Sub-Servicer pursuant to Section 3.11 and shall pay such amounts to the Persons entitled thereto. (c) Funds in the Custodial Account and the Certificate Account may be invested in Permitted Investments in accordance with the provisions set forth in Section 3.12. The Servicer shall give notice to the Trustee of the location of the Custodial Account maintained by it when established and prior to any change thereof. The Trustee shall give notice to the Servicer and the Depositor of the location of the Certificate Account when established and prior to any change thereof. (d) Funds held in the Custodial Account at any time may be delivered by the Servicer to the Trustee for deposit in an account (which may be the Certificate Account and must satisfy the standards for the Certificate Account as set forth in the definition thereof) and for all purposes of this Agreement shall be deemed to be a part of the Custodial Account (and in such event, the Servicer shall provide the Trustee with written instructions regarding the investment of such funds); provided, however, that the Trustee shall have the sole authority to withdraw any funds held pursuant to this subsection (d). In the event the Servicer shall deliver to the Trustee for deposit in the Certificate Account any amount not required to be deposited therein, it may at any time request in writing that the Trustee withdraw such amount from the Certificate Account and remit to it any such amount, any provision herein to the contrary notwithstanding. In no event shall the Trustee incur liability as a result of withdrawals from the Certificate Account at 66 the direction of the Servicer in accordance with the immediately preceding sentence. In addition, the Servicer shall deliver to the Trustee from time to time for deposit, and the Trustee shall so deposit, in the Certificate Account: (i) any Advances, as required pursuant to Section 4.03; (ii) any amounts required to be deposited pursuant to Section 3.23(d) or (f) in connection with any REO Property; (iii) any amounts to be paid in connection with a purchase of Mortgage Loans and REO Properties pursuant to Section 9.01; and (iv) any amounts required to be deposited pursuant to Section 3.24 in connection with any Prepayment Interest Shortfall. (e) The Servicer shall deposit in the Custodial Account any amounts required to be deposited pursuant to Section 3.12(b) in connection with losses realized on Permitted Investments with respect to funds held in the Custodial Account (and the Certificate Account to the extent that funds therein are deemed to be part of the Custodial Account). SECTION 3.11 Withdrawals from the Custodial Account and Certificate Account. (a) The Servicer shall, from time to time, make withdrawals from the Custodial Account for any of the following purposes or as described in Section 4.03: (i) to remit to the Trustee for deposit in the Certificate Account the amounts required to be so remitted pursuant to Section 3.10(b) or permitted to be so remitted pursuant to the first sentence of Section 3.10(d); (ii) subject to Section 3.16(d), to reimburse the Servicer for Advances, but only to the extent of amounts received which represent Late Collections (net of the related Servicing Fees) of Monthly Payments on Mortgage Loans with respect to which such Advances were made in accordance with the provisions of Section 4.03; (iii) subject to Section 3.16(d), to pay the Servicer or any Sub-Servicer, as applicable, (a) any unpaid Servicing Fees, (b) any unreimbursed Servicing Advances with respect to each Mortgage Loan, but only to the extent of any Late Collections, Liquidation Proceeds, Insurance Proceeds and Subsequent Recoveries received with respect to such Mortgage Loan and (c) any Nonrecoverable Servicing Advances with respect to the final liquidation of a Mortgage Loan, but only to the extent that Late Collections, Liquidation Proceeds, Insurance Proceeds and Subsequent Recoveries received with respect to such Mortgage Loan are insufficient to reimburse the Servicer or any Sub-Servicer for Servicing Advances; (iv) to pay to the Servicer as servicing compensation (in addition to the Servicing Fee) on the Servicer Remittance Date any interest or investment income earned on funds deposited in the Custodial Account; 67 (v) to pay to the Servicer, the Depositor, the Responsible Party or the Seller, as the case may be, with respect to each Mortgage Loan that has previously been purchased or replaced pursuant to Section 2.03 or Section 3.16(c) all amounts received thereon subsequent to the date of purchase or substitution, as the case may be; (vi) to reimburse the Servicer for any Advance previously made which the Servicer has determined to be a Nonrecoverable Advance in accordance with the provisions of Section 4.03; (vii) to reimburse the Servicer or the Depositor for expenses incurred by or reimbursable to the Servicer or the Depositor, as the case may be, pursuant to Section 3.02(b) and Section 6.03; (viii) to reimburse the Servicer or Trustee for expenses reasonably incurred in connection with any breach or defect giving rise to the purchase obligation under Section 2.03 of this Agreement, including any expenses arising out of the enforcement of the purchase obligation; (ix) to pay, or to reimburse the Servicer for Servicing Advances in respect of, expenses incurred in connection with any Mortgage Loan pursuant to Section 3.16(b); and (x) to clear and terminate the Custodial Account pursuant to Section 9.01. The 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, to the extent held by or on behalf of it, pursuant to subclauses (ii), (iii), (iv), (v), (vi), (viii) and (ix) above. The Servicer shall provide written notification to the Trustee, on or prior to the next succeeding Servicer Remittance Date, upon making any withdrawals from the Custodial Account pursuant to subclauses (vi) and (vii) above; provided that an Officers' Certificate in the form described under Section 4.03(d) shall suffice for such written notification to the Trustee in respect of clause (vi) hereof. (b) The Trustee shall, from time to time, make withdrawals from the Certificate Account, for any of the following purposes, without priority: (i) to make distributions to Certificateholders in accordance with Section 4.01; (ii) to pay to itself amounts to which it is entitled pursuant to Section 8.05 or for Extraordinary Trust Fund Expenses; (iii) to reimburse itself pursuant to Section 7.02; (iv) to pay any amounts in respect of taxes pursuant to Section 10.01(g)(iii); 68 (v) to pay to an Advancing Person reimbursements for Advances and/or Servicing Advances pursuant to Section 3.26; and (vi) to clear and terminate the Certificate Account pursuant to Section 9.01. SECTION 3.12 Investment of Funds in the Custodial Account and the Certificate Account. (a) The Servicer may direct any depository institution maintaining the Custodial Account (for purposes of this Section 3.12, an "Investment Account") to invest the funds in such Investment Account in one or more Permitted Investments bearing interest or sold at a discount, and maturing, unless payable on demand, (i) no later than the Business Day immediately preceding the date on which such funds are required to be withdrawn from such account pursuant to this Agreement, if a Person other than the Trustee is the obligor thereon, and (ii) no later than the date on which such funds are required to be withdrawn from such account pursuant to this Agreement, if the Trustee is the obligor thereon. Amounts in the Certificate Account shall be held uninvested. All such Permitted Investments shall be held to maturity, unless payable on demand. Any investment of funds in an Investment Account shall be made in the name of the Trustee for the benefit of the Certificateholders. The Trustee shall be entitled to sole possession (except with respect to investment direction of funds held in the Custodial Account and any income and gain realized thereon) over each such investment, and any certificate or other instrument evidencing any such investment shall be delivered directly to the Trustee or its agent, together with any document of transfer necessary to transfer title to such investment to the Trustee or its nominee. In the event amounts on deposit in an Investment Account are at any time invested in a Permitted Investment payable on demand, the party with investment discretion over such Investment Account shall: (x) consistent with any notice required to be given thereunder, demand that payment thereon be made on the last day such Permitted Investment may otherwise mature hereunder in an amount equal to the lesser of (1) all amounts then payable thereunder and (2) the amount required to be withdrawn on such date; and (y) demand payment of all amounts due thereunder promptly upon determination by a Responsible Officer of the Trustee that such Permitted Investment would not constitute a Permitted Investment in respect of funds thereafter on deposit in the Investment Account. (b) All income and gain realized from the investment of funds deposited in the Custodial Account and any REO Account held by or on behalf of the Servicer, shall be for the benefit of the Servicer and shall be subject to its withdrawal in accordance with Section 3.11 or Section 3.23, as applicable. The Servicer shall deposit in the Custodial Account or any REO Account, as applicable, the amount of any loss of principal incurred in respect of any such Permitted Investment made with funds in such accounts immediately upon realization of such loss. (c) Except as otherwise expressly provided in this Agreement, if any default occurs in the making of a payment due under any Permitted Investment, or if a default occurs in any other performance required under any Permitted Investment (of which a Responsible Officer of the 69 Trustee obtains actual knowledge), the Trustee may and, subject to Section 8.01 and Section 8.02(v), upon the request of the Holders of Certificates representing more than 50% of the Voting Rights allocated to any Class of Certificates, shall take such action as may be appropriate to enforce such payment or performance, including the institution and prosecution of appropriate proceedings. (d) The Trustee or its Affiliates are permitted to receive additional compensation that could be deemed to be in the Trustee's economic self-interest for (i) serving as investment adviser, administrator, shareholder servicing agent, custodian or sub-custodian with respect to certain of the Permitted Investments and (ii) effecting or using Affiliates to effect transactions in certain Permitted Investments. Such compensation shall not be considered an amount that is reimbursable or payable to the Trustee pursuant to Section 3.11 or 3.12 or otherwise payable in respect of Extraordinary Trust Fund Expenses. SECTION 3.13 [Reserved]. SECTION 3.14 Maintenance of Hazard Insurance and Errors and Omissions and Fidelity Coverage. (a) The Servicer shall cause to be maintained for each Mortgage Loan fire insurance with extended coverage on the related Mortgaged Property in an amount which is at least equal to the lesser of the current principal balance of such Mortgage Loan and the amount necessary to fully compensate for any damage or loss to the improvements that are a part of such property on a replacement cost basis, in each case in an amount not less than such amount as is necessary to avoid the application of any coinsurance clause contained in the related hazard insurance policy. The Servicer shall also cause to be maintained fire insurance with extended coverage on each REO Property in an amount which is at least equal to the lesser of (i) the maximum insurable value of the improvements which are a part of such property and (ii) the outstanding principal balance of the related Mortgage Loan at the time it became an REO Property, plus accrued interest at the Mortgage Rate and related Servicing Advances. The Servicer will comply in the performance of this Agreement with all reasonable rules and requirements of each insurer under any such hazard policies. Any amounts to be collected by the Servicer under any such policies (other than amounts to be applied to the restoration or repair of the property subject to the related Mortgage or amounts to be released to the Mortgagor in accordance with the procedures that the Servicer would follow in servicing loans held for its own account, subject to the terms and conditions of the related Mortgage and Mortgage Note) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.11, if received in respect of a Mortgage Loan, or in the REO Account, subject to withdrawal pursuant to Section 3.23, if received in respect of an REO Property. Any cost incurred by the Servicer in maintaining any such insurance shall not, for the purpose of calculating distributions to Certificateholders, be added to the unpaid principal balance of the related Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit. It is understood and agreed that no earthquake or other additional insurance is to be required of any Mortgagor other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. If the Mortgaged Property or REO Property is at any time in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards and flood insurance has been made available, the Servicer will cause to be maintained a flood insurance policy in respect thereof. Such flood insurance shall be in an amount equal to the 70 lesser of (i) the unpaid principal balance of the related Mortgage Loan 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 Servicer shall obtain and maintain a blanket policy with an insurer having a General Policy Rating of A:X or better in Best's Key Rating Guide (or such other rating that is comparable to such rating) 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 two sentences of this Section 3.14, it being understood and agreed that such policy may contain a deductible clause, in which case the Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property or REO Property a policy complying with the first two sentences of this Section 3.14, and there shall have been one or more losses which would have been covered by such policy, deposit to the Custodial Account from its own funds the amount not otherwise payable under the blanket policy because of such deductible clause. In connection with its activities as administrator and servicer of the Mortgage Loans, the Servicer agrees to prepare and present, on behalf of itself, the Trustee and Certificateholders, claims under any such blanket policy in a timely fashion in accordance with the terms of such policy. (b) The Servicer shall keep in force during the term of this Agreement a policy or policies of insurance covering errors and omissions for failure in the performance of the Servicer's obligations under this Agreement, which policy or policies shall be in such form and amount that would meet the requirements of Fannie Mae or Freddie Mac if it were the purchaser of the Mortgage Loans, unless the Servicer has obtained a waiver of such requirements from Fannie Mae or Freddie Mac. The Servicer shall also maintain a fidelity bond in the form and amount that would meet the requirements of Fannie Mae or Freddie Mac, unless the Servicer has obtained a waiver of such requirements from Fannie Mae or Freddie Mac. The Servicer shall be deemed to have complied with this provision if an Affiliate of the Servicer has such errors and omissions and fidelity bond coverage and, by the terms of such insurance policy or fidelity bond, the coverage afforded thereunder extends to the Servicer. Any such errors and omissions policy and fidelity bond shall by its terms not be cancelable without thirty days prior written notice to the Trustee. The Servicer shall also cause each Sub-Servicer to maintain a policy of insurance covering errors and omissions and a fidelity bond which would meet such requirements. SECTION 3.15 Enforcement of Due-On-Sale Clauses; Assumption Agreements. The Servicer will, to the extent it has knowledge of any conveyance or prospective conveyance of any Mortgaged Property by any Mortgagor (whether by absolute conveyance or by contract of sale, and whether or not the Mortgagor remains or is to remain liable under the Mortgage Note and/or the Mortgage), exercise its rights to accelerate the maturity of such Mortgage Loan under the "due-on-sale" clause, if any, applicable thereto; provided, however, that the Servicer shall not be required to take such action if in its sole business judgment the Servicer believes it is not in the best interests of the Trust Fund and shall not exercise any such rights if prohibited by law from doing so. If the Servicer reasonably believes it is unable under applicable law to enforce such "due-on-sale" clause, or if any of the other conditions set forth in the proviso to the preceding sentence apply, the Servicer will enter into an assumption and modification agreement from or with the person to whom such property has been conveyed or is proposed to be 71 conveyed, pursuant to which such person becomes liable under the Mortgage Note and, to the extent permitted by applicable state law, the Mortgagor remains liable thereon. The Servicer is also authorized to enter into a substitution of liability agreement with such person, pursuant to which the original Mortgagor is released from liability and such person is substituted as the Mortgagor and becomes liable under the Mortgage Note, provided that no such substitution shall be effective unless such person satisfies the underwriting criteria of the Originator and has a credit risk rating at least equal to that of the original Mortgagor. In connection with any assumption or substitution, the Servicer shall apply the Originator's underwriting standards and follow such practices and procedures as shall be normal and usual in its general mortgage servicing activities and as it applies to other mortgage loans owned solely by it. The Servicer shall not take or enter into any assumption and modification agreement, however, unless (to the extent practicable in the circumstances) it shall have received confirmation, in writing, of the continued effectiveness of any applicable hazard insurance policy. Any fee collected by the Servicer in respect of an assumption, modification or substitution of liability agreement shall be retained by the Servicer as additional servicing compensation. In connection with any such assumption, no material term of the Mortgage Note (including but not limited to the related Mortgage Rate and the amount of the Monthly Payment) may be amended or modified, except as otherwise required pursuant to the terms thereof. The Servicer shall notify the Trustee that any such substitution, modification or assumption agreement has been completed by forwarding to the Trustee the executed original of such substitution, modification or assumption agreement, which document shall be added to the related Mortgage File and shall, for all purposes, be considered a part of such Mortgage File to the same extent as all other documents and instruments constituting a part thereof. Notwithstanding the foregoing paragraph or any other provision of this Agreement, the Servicer shall not be deemed to be in default, breach or any other violation of its obligations hereunder by reason of any assumption of a Mortgage Loan by operation of law or by the terms of the Mortgage Note or any assumption which the Servicer may be restricted by law from preventing, for any reason whatever. For purposes of this Section 3.15, the term "assumption" is deemed to also include a sale (of the Mortgaged Property) subject to the Mortgage that is not accompanied by an assumption or substitution of liability agreement. SECTION 3.16 Realization Upon Defaulted Mortgage Loans. (a) The Servicer shall exercise its discretion, consistent with customary servicing procedures and the terms of this Agreement, with respect to the enforcement and servicing of defaulted Mortgage Loans in such manner as will maximize the receipt of principal and interest with respect thereto, including, but not limited to, the modification of such Mortgage Loan, or foreclosure upon the related Mortgaged Property and disposition thereof. In furtherance of the foregoing, the Servicer shall use its best efforts, consistent with Accepted Servicing Practices, to foreclose upon or otherwise comparably convert 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. The Servicer shall be responsible for all costs and expenses incurred by it in any such proceedings; provided, however, that such costs and expenses will be recoverable as Servicing Advances by the Servicer as contemplated in Section 3.11 and Section 3.23. The 72 foregoing is subject to the provision that, in any case in which Mortgaged Property shall have suffered damage from an Uninsured Cause, the Servicer shall not be required to expend its own funds toward the restoration of such property unless it shall determine in its discretion that such restoration will increase the proceeds of liquidation of the related Mortgage Loan after reimbursement to itself for such expenses. (b) Notwithstanding the foregoing provisions of this Section 3.16 or any other provision of this Agreement, with respect to any Mortgage Loan as to which the Servicer has received actual notice of, or has actual knowledge of, the presence of any toxic or hazardous substance on the related Mortgaged Property, the Servicer shall not, on behalf of the Trust Fund either (i) obtain title to such Mortgaged Property as a result of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession of, or take any other action with respect to, such Mortgaged Property, if, as a result of any such action, the Trustee, the Trust Fund or the Certificateholders would be considered to hold title to, to be a "mortgagee-in-possession" of, or to be an "owner" or "operator" of such Mortgaged Property within the meaning of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, or any comparable law, unless the Servicer has also previously determined, based on its reasonable judgment and a report prepared by an Independent Person who regularly conducts environmental audits using customary industry standards, that: (1) such Mortgaged Property is in compliance with applicable environmental laws or, if not, that it would be in the best economic interest of the Trust Fund to take such actions as are necessary to bring the Mortgaged Property into compliance therewith; and (2) there are no circumstances present at such Mortgaged Property relating to the use, management or disposal of any hazardous substances, hazardous materials, hazardous wastes, or petroleum-based materials for which investigation, testing, monitoring, containment, clean-up or remediation could be required under any federal, state or local law or regulation, or that if any such materials are present for which such action could be required, that it would be in the best economic interest of the Trust Fund to take such actions with respect to the affected Mortgaged Property. The cost of the environmental audit report contemplated by this Section 3.16 shall be advanced by the Servicer, subject to the Servicer's right to be reimbursed therefor from the Custodial Account as provided in Section 3.11(a)(ix), such right of reimbursement being prior to the rights of Certificateholders to receive any amount in the Custodial Account received in respect of the affected Mortgage Loan or other Mortgage Loans. If the Servicer determines, as described above, that it is in the best economic interest of the Trust Fund to take such actions as are necessary to bring any such Mortgaged Property into compliance with applicable environmental laws, or to take such action with respect to the containment, clean-up or remediation of hazardous substances, hazardous materials, hazardous wastes or petroleum-based materials affecting any such Mortgaged Property, then the Servicer shall take such action as it deems to be in the best economic interest of the Trust Fund; provided that any amounts disbursed by the Servicer pursuant to this Section 3.16(b) shall constitute 73 Servicing Advances, subject to Section 4.03(d). The cost of any such compliance, containment, cleanup or remediation shall be advanced by the Servicer, subject to the Servicer's right to be reimbursed therefor from the Custodial Account as provided in Section 3.11(a)(iii) and (a)(ix), such right of reimbursement being prior to the rights of Certificateholders to receive any amount in the Custodial Account received in respect of the affected Mortgage Loan or other Mortgage Loans. (c) The Servicer may at its option purchase from REMIC I any Mortgage Loan or related REO Property that is 90 days or more delinquent, which the Servicer determines in good faith will otherwise become subject to foreclosure proceedings (evidence of such determination to be delivered in writing to the Trustee, in form and substance satisfactory to the Trustee prior to purchase), at a price equal to the Purchase Price; provided, however, that the Servicer shall purchase any such Mortgage Loans or related REO Properties on the basis of delinquency, purchasing the most delinquent Mortgage Loans or related REO Properties first. The Purchase Price for any Mortgage Loan or related REO Property purchased hereunder shall be deposited in the Custodial Account, and the Trustee, upon receipt of written certification from the Servicer of such deposit, shall release or cause to be released to the Servicer the related Mortgage File and the Trustee shall execute and deliver such instruments of transfer or assignment, in each case without recourse, as the Servicer shall furnish and as shall be necessary to vest in the Servicer title to any Mortgage Loan or related REO Property released pursuant hereto. (d) Proceeds received in connection with any Final Recovery Determination, as well as any recovery resulting from a partial collection of Insurance Proceeds, Liquidation Proceeds or Subsequent Recoveries, in respect of any Mortgage Loan, will be applied in the following order of priority: first, to reimburse the Servicer or any Sub-Servicer for any related unreimbursed Servicing Advances and Advances, pursuant to Section 3.11(a)(ii) or (a)(iii); second, to accrued and unpaid interest on the Mortgage Loan, to the date of the Final Recovery Determination, or to the Due Date prior to the Distribution Date on which such amounts are to be distributed if not in connection with a Final Recovery Determination; and third, as a recovery of principal of the Mortgage Loan. If the amount of the recovery so allocated to interest is less than the full amount of accrued and unpaid interest due on such Mortgage Loan, the amount of such recovery will be allocated by the Servicer as follows: first, to unpaid Servicing Fees; and second, to the balance of the interest then due and owing. The portion of the recovery so allocated to unpaid Servicing Fees shall be reimbursed to the Servicer or any Sub-Servicer pursuant to Section 3.11(a)(iii). SECTION 3.17 Trustee and Custodian to Cooperate; Release of Mortgage Files. (a) Upon the payment in full of any Mortgage Loan, or upon the receipt by the Servicer of a notification that payment in full shall be escrowed in a manner customary for such purposes, the Servicer shall immediately notify or cause to be notified the Custodian by a certification in the form of Exhibit E (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 3.10 have been or will be so deposited) of a Servicing Officer and shall request delivery to it of the Mortgage File. Upon receipt of such certification and request, the Custodian on behalf of the Trustee shall promptly release the related Mortgage File to the Servicer at no cost to the Trustee, the Custodian or the Trust Fund. No expenses 74 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 and as appropriate for the servicing or foreclosure of any Mortgage Loan, including, for this purpose, collection under any insurance policy relating to the Mortgage Loans, the Trustee (or the Custodian on behalf of the Trustee) shall, upon any request made by or on behalf of the Servicer and delivery to the Custodian of a Request for Release in the form of Exhibit E, release the related Mortgage File to the Servicer, and the Trustee shall, at the direction of the Servicer, execute such documents as shall be necessary to the prosecution of any such proceedings. Such Request for Release shall obligate the Servicer to return each and every document previously requested from the Mortgage File to Custodian on behalf of the Trustee when the need therefor by the 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 Servicer has delivered, or caused to be delivered, to the Custodian an additional Request for Release certifying as to such liquidation or action or proceedings. Upon the request of the Trustee (or the Custodian on behalf of the Trustee), the Servicer shall provide notice to the Trustee (or the Custodian on behalf of the Trustee) of 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. Upon receipt of a certificate of a Servicing Officer stating that such Mortgage Loan was liquidated and that all amounts received or to be received in connection with such liquidation that are required to be deposited into the Custodial Account have been so deposited, or that such Mortgage Loan has become an REO Property, any outstanding Requests for Release with respect to such Mortgage Loan shall be released by the Trustee (or the Custodian on behalf of the Trustee) to the Servicer or its designee. (c) Upon written certification of a Servicing Officer, the Trustee shall execute and deliver to the Servicer or the Sub-Servicer, as the case may be, 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. Each such certification shall include a request that such pleadings or documents be executed by the Trustee and a statement as to the reason such documents or pleadings are required and that the execution and delivery thereof by the Trustee will not 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 3.18 Servicing Compensation. As compensation for the activities of the Servicer hereunder, the Servicer shall be entitled to the Servicing Fee with respect to each Mortgage Loan payable solely from payments of interest in respect of such Mortgage Loan, subject to Section 3.24. In addition, the Servicer shall be entitled to recover unpaid Servicing Fees out of Insurance Proceeds, Liquidation Proceeds or Subsequent Recoveries to the extent permitted by Section 3.11(a)(iii) and out of amounts derived from the operation and sale of an 75 REO Property to the extent permitted by Section 3.23. Except as provided in Sections 3.26, the right to receive the Servicing Fee may not be transferred in whole or in part except in connection with the transfer of all of the Servicer's responsibilities and obligations under this Agreement; provided, however, that the Servicer may pay from the Servicing Fee any amounts due to a Sub-Servicer pursuant to a Sub-Servicing Agreement entered into under Section 3.02. Additional servicing compensation in the form of assumption fees, late payment charges, insufficient funds charges or otherwise (subject to Section 3.24 and other than Prepayment Charges) shall be retained by the Servicer only to the extent such fees or charges are received by the Servicer. The Servicer shall also be entitled pursuant to Section 3.11(a)(iv) to withdraw from the Custodial Account and pursuant to Section 3.23(b) to withdraw from any REO Account, as additional servicing compensation, interest or other income earned on deposits therein, subject to Section 3.12 and Section 3.24. The Servicer shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder (including premiums for the insurance required by Section 3.14, to the extent such premiums are not paid by the related Mortgagors or by a Sub-Servicer, servicing compensation of each Sub-Servicer, and to the extent provided herein in Section 8.05, the expenses of the Trustee) and shall not be entitled to reimbursement therefor except as specifically provided herein. SECTION 3.19 Reports to the Trustee and Others; Custodial Account Statements. Not later than twenty days after each Distribution Date, the Servicer shall forward to the Trustee (upon the Trustee's request) and the Depositor the most current available bank statement for the Custodial Account. Copies of such statement shall be provided by the Trustee to any Certificateholder and to any Person identified to the Trustee as a prospective transferee of a Certificate, upon request at the expense of the requesting party, provided such statement is delivered by the Servicer to the Trustee. SECTION 3.20 [Reserved]. SECTION 3.21 [Reserved]. SECTION 3.22 Access to Certain Documentation. The Servicer shall provide to the Office of Thrift Supervision, the FDIC, and any other federal or state banking or insurance regulatory authority that may exercise authority over any Certificateholder or Certificate Owner, access to the documentation in the Servicer's possession regarding the Mortgage Loans required by applicable laws and regulations. Such access shall be afforded without charge, but only upon reasonable request and during normal business hours at the offices of the Servicer designated by it. In addition, access to the documentation in the Servicer's possession regarding the Mortgage Loans will be provided to any Certificateholder or Certificate Owner, the Trustee and to any Person identified to the Servicer as a prospective transferee of a Certificate; provided, however, that providing access to such Person will not violate any applicable laws, upon reasonable request during normal business hours at the offices of the Servicer designated by it at the expense of the Person requesting such access. SECTION 3.23 Title, Management and Disposition of REO Property. (a) The deed or certificate of sale of any REO Property shall be taken in the name of the Trustee, or its nominee, 76 on behalf of the Trust Fund and for the benefit of the Certificateholders. The Servicer, on behalf of REMIC I, shall either sell any REO Property prior to the end of the third taxable year after REMIC I acquires ownership of such REO Property for purposes of Section 860G(a)(8) of the Code or request from the Internal Revenue Service, no later than 60 days before the day on which the three-year grace period would otherwise expire, an extension of the three-year grace period, unless the Servicer shall have delivered to the Trustee an Opinion of Counsel, addressed to the Trustee and the Depositor, to the effect that the holding by REMIC I of such REO Property subsequent to three years after its acquisition will not result in the imposition on any Trust REMIC of taxes on "prohibited transactions" thereof, as defined in Section 860F of the Code, or cause any Trust REMIC to fail to qualify as a REMIC under Federal law at any time that any Certificates are outstanding. The Servicer shall manage, conserve, protect and operate each REO Property for the Certificateholders solely for the purpose of its prompt disposition and sale in a manner which does not cause such REO Property to fail to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code or result in the receipt by any Trust REMIC of any "income from non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code, or any "net income from foreclosure property" which is subject to taxation under the REMIC Provisions. (b) The Servicer shall segregate and hold all funds collected and received in connection with the operation of any REO Property separate and apart from its own funds and general assets and shall establish and maintain, or cause to be established and maintained, with respect to REO Properties, an account held in trust for the Trustee for the benefit of the Certificateholders (the "REO Account"), which shall be an Eligible Account. The Servicer shall be permitted to allow the Custodial Account to serve as the REO Account, subject to separate ledgers for each REO Property. The Servicer shall be entitled to retain or withdraw any interest income paid on funds deposited in the REO Account. (c) The Servicer shall have the sole discretion to determine whether an immediate sale of an REO Property or continued management of such REO Property is in the best interests of the Certificateholders. In furtherance of the foregoing, the Servicer shall have full power and authority, subject only to the specific requirements and prohibitions of this Agreement, to do any and all things in connection with any REO Property as are consistent with the manner in which the Servicer manages and operates similar property owned by the Servicer or any of its Affiliates, all on such terms and for such period as the Servicer deems to be in the best interests of Certificateholders. In connection therewith, the Servicer shall deposit, or cause to be deposited in the clearing account in which it customarily deposits payments and collections on mortgage loans in connection with its mortgage loan servicing activities on a daily basis, and in no event more than one Business Day after the Servicer's receipt thereof, and shall thereafter deposit in the REO Account, in no event more than two Business Days after the Servicer's receipt thereof, all revenues received by it with respect to an REO Property and shall withdraw therefrom funds necessary for the proper operation, management and maintenance of such REO Property including, without limitation: (i) all insurance premiums due and payable in respect of such REO Property; 77 (ii) all real estate taxes and assessments in respect of such REO Property that may result in the imposition of a lien thereon; and (iii) all costs and expenses necessary to maintain such REO Property. To the extent that amounts on deposit in the REO Account with respect to an REO Property are insufficient for the purposes set forth in clauses (i) through (iii) above with respect to such REO Property, the Servicer shall advance from its own funds such amount as is necessary for such purposes if, but only if, the Servicer would make such advances if the Servicer owned the REO Property and if in the Servicer's judgment, the payment of such amounts will be recoverable from the rental or sale of the REO Property. Notwithstanding the foregoing, the Servicer shall not and the Trustee shall not knowingly authorize the Servicer to: (i) authorize the Trust Fund to enter into, renew or extend any New Lease with respect to any REO Property, if the New Lease by its terms will give rise to any income that does not constitute Rents from Real Property; (ii) authorize any amount to be received or accrued under any New Lease other than amounts that will constitute Rents from Real Property; (iii) authorize any construction on any REO Property, other than the completion of a building or other improvement thereon, and then only if more than ten percent of the construction of such building or other improvement was completed before default on the related Mortgage Loan became imminent, all within the meaning of Section 856(e)(4)(B) of the Code; or (iv) authorize any Person to Directly Operate any REO Property on any date more than 90 days after its date of acquisition by the Trust Fund; unless, in any such case, the Servicer has obtained an Opinion of Counsel, provided to the Servicer and the Trustee, to the effect that such action will not cause such REO Property to fail to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code at any time that it is held by REMIC I, in which case the Servicer may take such actions as are specified in such Opinion of Counsel. The Servicer may contract with any Independent Contractor for the operation and management of any REO Property, provided that: (i) the terms and conditions of any such contract shall not be inconsistent herewith; (ii) any such contract shall require, or shall be administered to require, that the Independent Contractor pay all costs and expenses incurred in connection with the operation and management of such REO Property, including those listed above and remit all related revenues (net of such costs and expenses) to the Servicer as soon as 78 practicable, but in no event later than thirty days following the receipt thereof by such Independent Contractor; (iii) none of the provisions of this Section 3.23(c) relating to any such contract or to actions taken through any such Independent Contractor shall be deemed to relieve the Servicer of any of its duties and obligations to the Trustee on behalf of the Certificateholders with respect to the operation and management of any such REO Property; and (iv) the Servicer shall be obligated with respect thereto to the same extent as if it alone were performing all duties and obligations in connection with the operation and management of such REO Property. The Servicer shall be entitled to enter into any agreement with any Independent Contractor performing services for it related to its duties and obligations hereunder for indemnification of the Servicer by such Independent Contractor, and nothing in this Agreement shall be deemed to limit or modify such indemnification. The Servicer shall be solely liable for all fees owed by it to any such Independent Contractor, irrespective of whether the Servicer's compensation pursuant to Section 3.18 is sufficient to pay such fees; provided, however, that to the extent that any payments made by such Independent Contractor would constitute Servicing Advances if made by the Servicer, such amounts shall be reimbursable as Servicing Advances made by the Servicer. (d) In addition to the withdrawals permitted under Section 3.23(c), the Servicer may from time to time make withdrawals from the REO Account for any REO Property: (i) to pay itself or any Sub-Servicer unpaid Servicing Fees in respect of the related Mortgage Loan; and (ii) to reimburse itself or any Sub-Servicer for unreimbursed Servicing Advances and Advances made in respect of such REO Property or the related Mortgage Loan. On the Servicer Remittance Date, the Servicer shall withdraw from each REO Account maintained by it and deposit into the Certificate Account in accordance with Section 3.10(d)(ii), for distribution on the related Distribution Date in accordance with Section 4.01, the income from the related REO Property received during the prior calendar month, net of any withdrawals made pursuant to Section 3.23(c) or this Section 3.23(d). (e) Subject to the time constraints set forth in Section 3.23(a), each REO Disposition shall be carried out by the Servicer at such price and upon such terms and conditions as the Servicer shall deem necessary or advisable, as shall be normal and usual in its Accepted Servicing Practices. (f) The proceeds from the REO Disposition, net of any amount required by law to be remitted to the Mortgagor under the related Mortgage Loan and net of any payment or reimbursement to the Servicer or any Sub-Servicer as provided above, shall be deposited in the Certificate Account in accordance with Section 3.10(d)(ii) on the Servicer Remittance Date in the month following the receipt thereof for distribution on the related Distribution Date in accordance with Section 4.01. Any REO Disposition shall be for cash only (unless changes in the REMIC Provisions made subsequent to the Startup Day allow a sale for other consideration). 79 (g) The Servicer shall file information returns with respect to the receipt of mortgage interest received in a trade or business, reports of foreclosures and abandonments of any Mortgaged Property and cancellation of indebtedness income with respect to any Mortgaged Property as required by Sections 6050H, 6050J and 6050P of the Code, respectively. 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 3.24 Obligations of the Servicer in Respect of Prepayment Interest Shortfalls. The Servicer shall deliver to the Trustee for deposit into the Certificate Account by 1:00 p.m. New York time on the Servicer Remittance Date from its own funds an amount equal to the lesser of (i) the aggregate of the Prepayment Interest Shortfalls for the related Distribution Date resulting from full Principal Prepayments during the related Prepayment Period and (ii) the aggregate Servicing Fee for the related Prepayment Period. Any amounts paid by the Servicer pursuant to this Section 3.24 shall not be reimbursed by any Trust REMIC or the Trust Fund. SECTION 3.25 Obligations of the Servicer in Respect of Mortgage Rates and Monthly Payments. In the event that a shortfall in any collection on or liability with respect to any Mortgage Loan results from or is attributable to adjustments to Mortgage Rates, Monthly Payments or Stated Principal Balances that were made by the Servicer in a manner not consistent with the terms of the related Mortgage Note applicable laws, regulations and rulings and this Agreement, the Servicer, upon discovery or receipt of notice thereof, shall immediately deliver to the Trustee for deposit in the Certificate Account from its own funds the amount of any such shortfall and shall indemnify and hold harmless the Trust Fund, the Trustee, the Depositor and any successor Servicer in respect of any such liability. Such indemnities shall survive the termination or discharge of this Agreement. Notwithstanding the foregoing, this Section 3.25 shall not limit the ability of the Servicer to seek recovery of any such amounts from the related Mortgagor under the terms of the related Mortgage Note, as permitted by law. SECTION 3.26 Advance Facility. (a) The Servicer is hereby authorized to enter into a financing or other facility (any such arrangement an "Advance Facility") with any Person which provides that such Person (an "Advancing Person") may fund Advances and/or Servicing Advances to the Trust Fund under this Agreement, although no such facility shall reduce or otherwise affect the Servicer's obligation to fund such Advances and/or Servicing Advances. If the Servicer enters into such an Advance Facility pursuant to this Section 3.26, upon reasonable request of the Advancing Person, the Trustee shall execute a letter of acknowledgment, confirming its receipt of notice of the existence of such Advance Facility. To the extent that an Advancing Person funds any Advance or any Servicing Advance and the Servicer provides the Trustee with an Officers' Certificate that such Advancing Person is entitled to reimbursement, such Advancing Person shall be entitled to receive reimbursement pursuant to this Agreement for such amount to the extent provided in Section 3.26(b). Such Officers' Certificate must specify the amount of the reimbursement, the Section of this Agreement that permits the applicable Advance or Servicing Advance to be reimbursed and the section(s) of the Advance Facility that entitle the Advancing Person to request reimbursement from the Trustee, rather than the Servicer or proof of an Event of Default under the Advance Facility. The Trustee shall have no duty or liability with respect to any calculation of any reimbursement to be paid to an Advancing Person and shall be entitled to rely without independent investigation on the Advancing Person's notice 80 provided pursuant to this Section 3.26. The Trustee shall have no responsibility to track or monitor the administration of the Advance Facility. 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 the Servicer or a Sub-Servicer pursuant to Section 3.02 hereof and will not be deemed to be a Sub-Servicer under this Agreement. (b) If an advancing facility is entered into, then the Servicer shall not be permitted to reimburse itself therefor under Section 3.11(a)(ii), Section 3.11(a)(iii) and Section 3.11(a)(vi) prior to the remittance to the Trust Fund, but instead the Servicer shall remit such amounts 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. The Trustee is hereby authorized to pay to the Advancing Person, reimbursements for Advances and Servicing Advances from the Certificate Account to the same extent the Servicer would have been permitted to reimburse itself for such Advances and/or Servicing Advances in accordance with Section 3.11(a)(ii), Section 3.11(a)(iii) and Section 3.11(a)(vi), as the case may be, had the Servicer itself funded such Advance or Servicing Advance. The Trustee is hereby authorized to pay directly to the Advancing Person such portion of the Servicing Fee as the parties to any advancing facility agree in writing. (c) All Advances and Servicing Advances made pursuant to the terms of this Agreement shall be deemed made and shall be reimbursed on a "first in-first out" (FIFO) basis. (d) Any amendment to this Section 3.26 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 3.26, including amendments to add provisions relating to a successor Servicer, may be entered into by the Trustee and the Servicer without the consent of any Certificateholder, notwithstanding anything to the contrary in this Agreement; provided, however, such amendment shall otherwise comply with Section 13.01 hereof. All costs and expenses (including attorneys' fees) of each party hereto related to such amendment shall be borne by the Servicer without reimbursement from the Trust Fund. SECTION 3.27 Net WAC Rate Carryover Reserve Account. (a) No later than the Closing Date, the Trustee shall establish and maintain with itself, a separate, segregated trust account (the "Net WAC Rate Carryover Reserve Account") titled, "Net WAC Rate Carryover Reserve Account, Wells Fargo Bank, N.A., as Trustee, in trust for the registered holders of Carrington Mortgage Loan Trust, Series 2006-NC1, Asset Backed Pass-Through Certificates." On the Business Day prior to each Distribution Date, the Trustee will deposit any amounts received under the Cap Contracts into the Net WAC Carryover Reserve Account. All amounts deposited in the Net WAC Rate Carryover Reserve Account shall be distributed to the Holders of the Class A Certificates and the Mezzanine Certificates in the manner set forth in Section 4.01(a)(4). (b) On each Distribution Date as to which there is a Net WAC Rate Carryover Amount payable to the Class A Certificates or the Mezzanine Certificates, the Trustee has been directed by the Class CE Certificateholders to, and therefore will, deposit into the Net WAC Rate Carryover Reserve Account the amounts described in Section 4.01(a)(4), rather than distributing 81 such amounts to the Class CE Certificateholders. On each such Distribution Date, the Trustee shall hold all such amounts for the benefit of the Holders of the Class A Certificates and the Mezzanine Certificates, and will distribute such amounts to the Holders of the Class A Certificates and the Mezzanine Certificates in the amounts and priorities set forth in Section 4.01(a)(4). (c) For federal and state income tax purposes, the Class CE Certificateholders will be deemed to be the owners of the Net WAC Rate Carryover Reserve Account and amounts deposited into the Net WAC Rate Carryover Reserve Account (other than amounts paid on the Cap Contracts) shall be treated as amounts distributed by REMIC II to the Holders of the Class CE Certificates. Upon the termination of the Trust Fund, or the payment in full of the Class A Certificates and the Mezzanine Certificates, all amounts remaining on deposit in the Net WAC Rate Carryover Reserve Account will be released by the Trust Fund and distributed to the Class CE Certificateholders or their designees. The Net WAC Rate Carryover Reserve Account will be part of the Trust Fund but not part of any REMIC and any payments to the Holders of the Class A Certificates or the Mezzanine Certificates of Net WAC Rate Carryover Amounts will not be payments with respect to a "regular interest" in a REMIC within the meaning of Code Section 860(G)(a)(1). (d) By accepting a Class CE Certificate, each Class CE Certificateholder hereby agrees to direct the Trustee, and the Trustee hereby is directed, to deposit into the Net WAC Rate Carryover Reserve Account the amounts described above on each Distribution Date as to which there is any Net WAC Rate Carryover Amount rather than distributing such amounts to the Class CE Certificateholders. By accepting a Class CE Certificate, each Class CE Certificateholder further agrees that such direction is given for good and valuable consideration, the receipt and sufficiency of which is acknowledged by such acceptance. (e) Amounts on deposit in the Net WAC Rate Carryover Reserve Account shall remain uninvested. (f) For federal tax return and information reporting, the right of the Holders of the Class A Certificates and the Mezzanine Certificates to receive payments from the Net WAC Rate Carryover Reserve Account in respect of any Net WAC Rate Carryover Amount shall be assigned a value of $1,000 and $1,000, respectively. ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS SECTION 4.01 Distributions. (a) (1) On each Distribution Date, the following amounts, in the following order of priority, shall be distributed by REMIC I to REMIC II on account of the REMIC I Regular Interests or withdrawn from the Certificate Account and distributed to the holders of the Class R-I Interest, as the case may be: (i) first, to Holders of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular 82 Interest I-LTA3, REMIC I Regular Interest I-LTA4, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9, REMIC I Regular Interest I-LTM10 and REMIC I Regular Interest I-LTZZ, in an amount equal to (A) the Uncertificated Interest for such Distribution Date, plus (B) any amounts in respect thereof remaining unpaid from previous Distribution Dates. Amounts payable as Uncertificated Interest in respect of REMIC I Regular Interest I-LTZZ shall be reduced when the sum of the REMIC I Overcollateralized Amount is less than the REMIC I Required Overcollateralized Amount, by the lesser of (x) the amount of such difference and (y) the Maximum I-LTZZ Uncertificated Interest Deferral Amount and such amounts will be payable to the Holders of REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular Interest I-LTA3, REMIC I Regular Interest I-LTA4, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9, REMIC Regular Interest I-LTM10 in the same proportion as the Overcollateralization Increase Amount is allocated to the Corresponding Certificates and the Uncertificated Balance of REMIC I Regular Interest I-LTZZ shall be increased by such amount; (ii) second, to the Holders of REMIC I Regular Interests, in an amount equal to the remainder of the Available Distribution Amount for such Distribution Date after the distributions made pursuant to clause (i) above, allocated as follows: (a) 98.00% of such remainder (less the amount payable in clause (e) below), to the Holders of REMIC I Regular Interest I-LTAA, until the Uncertificated Balance of such REMIC I Regular Interest is reduced to zero; 2% of such remainder, first to the Holders of REMIC I Regular Interest I-LTA1, REMIC I Regular Interest I-LTA2, REMIC I Regular Interest I-LTA3, REMIC I Regular Interest I-LTA4, REMIC I Regular Interest I-LTM1, REMIC I Regular Interest I-LTM2, REMIC I Regular Interest I-LTM3, REMIC I Regular Interest I-LTM4, REMIC I Regular Interest I-LTM5, REMIC I Regular Interest I-LTM6, REMIC I Regular Interest I-LTM7, REMIC I Regular Interest I-LTM8, REMIC I Regular Interest I-LTM9, REMIC Regular Interest I-LTM10, 1.00% of and in the same proportion as principal payments are allocated to the Corresponding Certificates, until the Uncertificated Balances of such REMIC I Regular Interests are reduced to zero; and second, to the Holders of REMIC I Regular Interest I-LTZZ, (less the amount payable in clause (c) below), 83 until the Uncertificated Balance of such REMIC I Regular Interest is reduced to zero; then (b) to the Holders of REMIC I Regular Interest I-LTP, on the Distribution Date immediately following the expiration of the latest Prepayment Charge as identified on the Prepayment Charge Schedule or any Distribution Date thereafter until $100 has been distributed pursuant to this clause; and (c) any remaining amount to the Holders of the Class R Certificates (as Holder of the Class R-I Interest); provided, however, that 98.00% and 2.00% of any principal payments that are attributable to an Overcollateralization Reduction Amount shall be allocated to Holders of REMIC I Regular Interest I-LTAA and REMIC I Regular Interest I-LTZZ, respectively. (2) On each Distribution Date, the Trustee shall withdraw from the Certificate Account an amount equal to the Interest Remittance Amount and distribute to the Certificateholders the following amounts, in the following order of priority: (i) to the Holders of each Class of the Class A Certificates, on a pro rata basis based on the entitlement of each such Class, an amount equal to the Senior Interest Distribution Amount allocable to such Class of the Class A Certificates; and (ii) sequentially, to the Holders of 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, Class M-9 Certificates, Class M-10 Certificates, in that order, an amount equal to the Interest Distribution Amount allocable to each such Class. (3) On each Distribution Date, the Trustee shall withdraw from the Certificate Account an amount equal to the Principal Distribution Amount and distribute to the Certificateholders the following amounts, in the following order of priority: (A) On each Distribution Date (a) prior to the Stepdown Date or (b) on which a Trigger Event is in effect, the Principal Distribution Amount shall be distributed in the following order of priority: (i) sequentially, to the holders of the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates, in that order, until the aggregate Certificate Principal Balance of the Class A Certificates have been reduced to zero; and (ii) sequentially, to the holders of 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 84 Certificates, Class M-9 Certificates and Class M-10 Certificates, in that order, until the Certificate Principal Balance of each such Class has been reduced to zero. (B) On each Distribution Date (a) on or after the Stepdown Date and (b) on which a Trigger Event is not in effect, the Principal Distribution Amount shall be distributed in the following order of priority: (i) sequentially, to the holders of the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates, in that order, up to an amount equal to the Class A Principal Distribution Amount, until the aggregate Certificate Principal Balances of the Class A Certificates have been reduced to zero; and (ii) sequentially, to the Holders of 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, Class M-9 Certificates and Class M-10 Certificates, in that order, up to an amount equal to the related Class M Principal Distribution Amount until the Certificate Principal Balances of each such class has been reduced to zero. (4) On each Distribution Date, the Net Monthly Excess Cashflow shall be distributed by the Trustee as follows: (i) to the Holders of the Class or Classes of Certificates then entitled to receive distributions in respect of principal, as part of the Principal Distribution Amount in an amount equal to the Overcollateralization Increase Amount for the Certificates, applied to reduce the Certificate Principal Balance of such Certificates until the aggregate Certificate Principal Balance of such Certificates is reduced to zero; (ii) sequentially, to the Holders of 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, Class M-9 Certificates and Class M-10 Certificates in that order, in each case, in an amount equal to the Interest Carry Forward Amount allocable to such Class of Certificates; (iii) on a pro rata basis to the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates, and sequentially to 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, Class M-9 Certificates and Class M-10 Certificates, in that order, in each case up to the related Allocated Realized Loss Amount related to each such Class of Certificates for such Distribution Date; 85 (iv) to the Net WAC Rate Carryover Reserve Account, the amount by which any Net WAC Rate Carryover Amounts for such Distribution Date exceed the amounts received by the Trustee under the Cap Contracts; (v) to the Holders of the Class CE Certificates, (a) the Interest Distribution Amount and any Overcollateralization Reduction Amount for such Distribution Date and (b) on any Distribution Date on which the aggregate Certificate Principal Balance of the Class A Certificates and the Mezzanine Certificates have been reduced to zero, any remaining amounts in reduction of the Certificate Principal Balance of the Class CE Certificates, until the Certificate Principal Balance thereof has been reduced to zero; and (vi) to the Holders of the Class R Certificates, any remaining amounts; provided that if such Distribution Date is the Distribution Date immediately following the expiration of the latest Prepayment Charge term on a Mortgage Loan as identified on the Mortgage Loan Schedule or any Distribution Date thereafter, then any such remaining amounts will be distributed first, to the Holders of the Class P Certificates, until the Certificate Principal Balance thereof has been reduced to zero; and second, to the Holders of the Class R Certificates. (5) On each Distribution Date, after making the distributions of the Available Distribution Amount as set forth above, the Trustee will withdraw from the Net WAC Rate Carryover Reserve Account, to the extent of amounts remaining on deposit therein, the amount of any Net WAC Rate Carryover Amount with respect to the Class A Certificates and the Mezzanine Certificates for such Distribution Date and distribute such amount as follows: (A) concurrently, to the Class A Certificates, on a pro rata basis based on the outstanding balance of each such class immediately prior to the Distribution Date, but only to the extent of amounts paid under the Class A Cap Contract and only up to the related Net WAC Carryover Amount; (B) concurrently, to the Mezzanine Certificates, on a pro rata basis based on the outstanding balance of each such class immediately prior to the Distribution Date, but only to the extent of amounts paid under the Mezzanine Cap Contract and only up to the related Net WAC Carryover Amount; and (C) to the Class A Certificates, any related unpaid Net WAC Rate Carryover Amount (after taking into account distributions pursuant to clause (A) above), distributed on a pro rata basis based on the remaining undistributed Net WAC Rate Carryover Amount, but only to the extent of amounts remaining under the Class A Cap Contract; (D) to the Mezzanine Certificates, any related unpaid Net WAC Rate Carryover Amount (after taking into account distributions pursuant to clause (B) above), distributed on a pro rata basis based on the remaining undistributed Net WAC Rate 86 Carryover Amount, but only to the extent of amounts remaining under the Mezzanine Cap Contract; and (E) to the Class A Certificates and Mezzanine Certificates from Net Monthly Excess Cash Flow, any related unpaid Net WAC Carryover Amount (after taking into account distributions pursuant to (A) through (D) above), distributed in the following order of priority: (i) to the Class A Certificates, on a pro rata basis based first on the outstanding certificate principal balance immediately prior to the Distribution Date, and second on such remaining undistributed Net WAC Carryover Amount, (ii) sequentially to the Mezzanine Certificates any such remaining undistributed Net WAC Carryover Amount for each class. (b) On each Distribution Date, the Trustee shall withdraw any amounts then on deposit in the Certificate Account that represent Prepayment Charges collected by the Servicer, during the related Prepayment Period in connection with the Principal Prepayment of any of the Mortgage Loans or any Servicer Prepayment Charge Payment Amount and shall distribute such amounts to the Holders of the Class P Certificates. Such distributions shall not be applied to reduce the Certificate Principal Balance of the Class P Certificates. Following the foregoing distributions, an amount equal to the amount of Subsequent Recoveries shall be applied to increase the Certificate Principal Balance of the Class of Certificates with the Highest Priority up to the extent of such Realized Losses previously allocated to that Class of Certificates pursuant to Section 4.04. An amount equal to the amount of any remaining Subsequent Recoveries shall be applied to increase the Certificate Principal Balance of the Class of Certificates with the next Highest Priority, up to the amount of such Realized Losses previously allocated to that Class of Certificates pursuant to Section 4.04. Holders of such Certificates will not be entitled to any distribution in respect of interest on the amount of such increases for any Interest Accrual Period preceding the Distribution Date on which such increase occurs. Any such increases shall be applied to the Certificate Principal Balance of each Certificate of such Class in accordance with its respective Percentage Interest. (c) All distributions made with respect to each Class of Certificates on each Distribution Date shall be allocated pro rata among the outstanding Certificates in such Class based on their respective Percentage Interests. Payments in respect of each Class of Certificates on each Distribution Date shall be made to the Holders of the respective Class of record on the related Record Date (except as otherwise provided in Section 4.01(e) or Section 9.01 respecting the final distribution on such Class), based on the aggregate Percentage Interest represented by their respective Certificates, and shall be made by wire transfer of immediately available funds to the account of any such Holder at a bank or other entity having appropriate facilities therefor, if such Holder shall (i) own Certificates having denominations aggregating at least $1,000,000 and (ii) have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date, or otherwise by check mailed by first class mail to the address of such Holder appearing in the Certificate Register. The final distribution on each Certificate shall be made in like manner, but only upon presentment and surrender of such Certificate at the office of the Trustee maintained for such purpose pursuant to Section 8.12 or such other location specified in the notice to Certificateholders of such final distribution. 87 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 Depositor or the Servicer shall have any responsibility therefor except as otherwise provided by this Agreement or applicable law. (d) The rights of the Certificateholders to receive distributions in respect of the Certificates, and all interests of the Certificateholders in such distributions, shall be as set forth in this Agreement. None of the Holders of any Class of Certificates, the Trustee or the Servicer shall in any way be responsible or liable to the Holders of any other Class of Certificates in respect of amounts properly previously distributed on the Certificates. (e) Except as otherwise provided in Section 9.01, whenever the Trustee expects that the final distribution with respect to any Class of Certificates will be made on the next Distribution Date, the Trustee shall, no later than three (3) days before the related Distribution Date (to the extent that an accurate Remittance Report is received in a timely manner by the Trustee), mail to each Holder on such date of such Class of Certificates a notice to the effect that: (i) the Trustee expects 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 therein specified, and (ii) no interest shall accrue on such Certificates from and after the end of the related Interest Accrual Period. Any funds not distributed to any Holder or Holders of Certificates of such Class on such Distribution Date because of the failure of such Holder or Holders to tender their Certificates shall, on such date, be set aside and held in trust by the Trustee and credited to the account of the appropriate non-tendering Holder or Holders. If any Certificates as to which notice has been given pursuant to this Section 4.01(e) shall not have been surrendered for cancellation within six months after the time specified in such notice, the Trustee shall mail a second notice to the remaining non-tendering Certificateholders to surrender their Certificates for cancellation in order to receive the final distribution with respect thereto. If within one year after the second notice all such Certificates shall not have been surrendered for cancellation, the Trustee shall, directly or through an agent, mail a final notice to the remaining non-tendering Certificateholders concerning surrender of their Certificates and shall continue to hold any remaining funds for the benefit of non-tendering Certificateholders. The costs and expenses of maintaining the funds in trust and of contacting such Certificateholders shall be paid out of the assets held in trust for such Certificateholders. If within one year after the final notice any such Certificates shall not have been surrendered for cancellation, the Trustee shall pay to Citigroup Global Markets Inc., as representative for the underwriters, in accordance with its wiring instructions, all such amounts, 88 and all rights of non-tendering Certificateholders in or to such amounts shall thereupon cease. No interest shall accrue or be payable to any Certificateholder on any amount held in trust by the Trustee as a result of such Certificateholder's failure to surrender its Certificate(s) for final payment thereof in accordance with this Section 4.01(e). Any such amounts held in trust by the Trustee shall be held in an Eligible Account and shall be held uninvested. (f) Notwithstanding anything to the contrary herein, (i) in no event shall the Certificate Principal Balance of a Class A Certificate or a Mezzanine Certificate be reduced more than once in respect of any particular amount allocated to such Certificate in respect of Realized Losses pursuant to Section 4.04 and (ii) in no event shall the Uncertificated Balance of a REMIC I Regular Interest be reduced more than once in respect of any particular amount both (a) allocated to such REMIC I Regular Interest in respect of Realized Losses pursuant to Section 4.04 and (b) distributed on such REMIC I Regular Interest in reduction of the Uncertificated Balance thereof pursuant to this Section 4.01. SECTION 4.02 Statements to Certificateholders. On each Distribution Date, the Trustee shall prepare and make available via its website to each Holder of the Regular Certificates, a statement as to the distributions made on such Distribution Date setting forth: (i) applicable Record Date and Determination Date for calculating such distribution; (ii) the aggregate amount of payments received and the sources thereof for distributions, fees and expenses; (iii) the amount of the distribution made on such Distribution Date to the Holders of the Certificates of each Class allocable to principal; (iv) the amount of the distribution made on such Distribution Date to the Holders of the Class P Certificates allocable to Prepayment Charges; (v) the amount of the distribution made on such Distribution Date to the Holders of the Certificates of each Class allocable to interest; (vi) the amount of any fees or expenses paid, and the identity of the party receiving such fees or expenses, including the aggregate Servicing Fee received by the Servicer during the related Due Period and such other customary information as the Trustee deems necessary or desirable, or which a Certificateholder reasonably requests, to enable Certificateholders to prepare their tax returns; (vii) the amount of Net Monthly Excess Cashflow or and the disposition of such Net Monthly Excess Cashflow; (viii) the balance of the Net WAC Rate Carryover Reserve Account, if any, at the opening of business and the close of business on such Distribution Date; 89 (ix) the aggregate amount, terms and general purpose of Advances made or reimbursed for such Distribution Date; (x) any material breaches of mortgage loan representations or warranties or covenants in this Agreement; (xi) any material modifications, extensions or waivers to the terms of the Mortgage Loans during the related Due Period or that have cumulatively become material over time; (xii) information regarding any new issuance of asset-backed securities backed by the same asset pool or any pool asset changes; (xiii) the aggregate Stated Principal Balance of the Mortgage Loans and any REO Properties at the close of business on such Distribution Date; (xiv) the number, aggregate principal balance, weighted average remaining term to maturity and weighted average Mortgage Rate of the Mortgage Loans as of the related Due Date; (xv) delinquency and loss information (according to the OTS delinqency calculation method) relating to the Mortgage Loans, including the number and aggregate unpaid principal balance of Mortgage Loans (a) delinquent 30 to 59 days, (b) delinquent 60 to 89 days, (c) delinquent 90 or more days, in each case, as of the last day of the preceding calendar month, (d) as to which foreclosure proceedings have been commenced and (e) with respect to which the related Mortgagor has filed for protection under applicable bankruptcy laws, with respect to whom bankruptcy proceedings are pending or with respect to whom bankruptcy protection is in force; (xvi) with respect to any Mortgage Loan that became an REO Property during the preceding calendar month, the loan number of such Mortgage Loan, the unpaid principal balance and the Stated Principal Balance of such Mortgage Loan as of the date it became an REO Property; (xvii) the book value of any REO Property as of the close of business on the last Business Day of the calendar month preceding the Distribution Date; (xviii) the aggregate amount of Principal Prepayments made during the related Prepayment Period; (xix) the aggregate amount of Realized Losses incurred during the related Prepayment Period (or, in the case of Bankruptcy Losses allocable to interest, during the related Due Period), separately identifying whether such Realized Losses constituted Bankruptcy Losses and the aggregate amount of Realized Losses incurred since the Closing Date and the aggregate amount of Subsequent Recoveries received during the related Prepayment Period and the cumulative amount of Subsequent Recoveries received since the Closing Date; 90 (xx) the aggregate amount of Extraordinary Trust Fund Expenses withdrawn from the Custodial Account or the Certificate Account for such Distribution Date; (xxi) the aggregate Certificate Principal Balance and Notional Amount, as applicable, of each Class of Certificates, after giving effect to the distributions, and allocations of Realized Losses, made on such Distribution Date, separately identifying any reduction thereof due to allocations of Realized Losses; (xxii) the Certificate Factor for each such Class of Certificates applicable to such Distribution Date; (xxiii) the Interest Distribution Amount in respect of the Class A Certificates, the Mezzanine Certificates and the Class CE Certificates for such Distribution Date and the Interest Carry Forward Amount, if any, with respect to the Class A Certificates and the Mezzanine Certificates on such Distribution Date, and in the case of the Class A Certificates, the Mezzanine Certificates and the Class CE Certificates, separately identifying any reduction thereof due to allocations of Realized Losses, Prepayment Interest Shortfalls and Relief Act Interest Shortfalls; (xxiv) the aggregate amount of any Prepayment Interest Shortfall for such Distribution Date, to the extent not covered by payments by the Servicer pursuant to Section 3.24; (xxv) the aggregate amount of Relief Act Interest Shortfalls for such Distribution Date; (xxvi) the Overcollateralization Target Amount and the Credit Enhancement Percentage for such Distribution Date; (xxvii) the Overcollateralization Increase Amount, if any, for such Distribution Date; (xxviii) the Overcollateralization Reduction Amount, if any, for such Distribution Date; (xxix) the respective Pass-Through Rates applicable to the Class A Certificates, the Mezzanine Certificates, the Class CE Certificates for such Distribution Date and the Pass-Through Rate applicable to the Class A Certificates and the Mezzanine Certificates for the immediately succeeding Distribution Date; (xxx) the Net WAC Rate Carryover Amount for the Class A Certificates and the Mezzanine Certificates, if any, for such Distribution Date and the amount remaining unpaid after reimbursements therefor on such Distribution Date; (xxxi) whether a Trigger Event is in effect; and (xxxii) payments, if any, made under the Cap Contracts. 91 The Trustee shall make such statement (and, at its option, any additional files containing the same information in an alternative format) available each month to Certificateholders, the Servicer and the Rating Agencies via the Trustee's internet website. The Trustee's internet website shall initially be located at https://www.ctslink.com and assistance in using the website can be obtained by calling the Trustee's investor relations desk at 1-800-301-815-6600. Parties that are unable to use the above distribution options are entitled to have a paper copy mailed to them via first class mail by calling the investor relations desk and indicating such. The Trustee shall have the right to change the way such statements are distributed in order to make such distribution more convenient and/or more accessible to the above parties and the Trustee shall provide timely and adequate notification to all above parties regarding any such changes. In the case of information furnished pursuant to subclauses (iii), (iv) and (v) above, the amounts shall be expressed as a dollar amount per Single Certificate of the relevant Class. Within a reasonable period of time after the end of each calendar year, the Trustee shall furnish to each Person who at any time during the calendar year was a Holder of a Regular Certificate a statement containing the information set forth in subclauses (iii), (iv) and (v) above, aggregated for such calendar year or applicable portion thereof during which such person was a Certificateholder. Such obligation of the Trustee shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Trustee pursuant to any requirements of the Code as from time to time are in force. Within a reasonable period of time after the end of each calendar year, the Trustee shall furnish to each Person who at any time during the calendar year was a Holder of a Residual Certificate a statement setting forth the amount, if any, actually distributed with respect to the Residual Certificates, as appropriate, aggregated for such calendar year or applicable portion thereof during which such Person was a Certificateholder. The Trustee shall, upon request, furnish to each Certificateholder, during the term of this Agreement, such periodic, special, or other reports or information, whether or not provided for herein, as shall be reasonable with respect to the Certificateholder, or otherwise with respect to the purposes of this Agreement, all such reports or information to be provided at the expense of the Certificateholder in accordance with such reasonable and explicit instructions and directions as the Certificateholder may provide. For purposes of this Section 4.02, the Trustee's duties are limited to the extent that the Trustee receives timely reports as required from the Servicer. On each Distribution Date the Trustee shall provide Bloomberg Financial Markets, L.P. ("Bloomberg") CUSIP level factors for each class of Certificates as of such Distribution Date, using a format and media mutually acceptable to the Trustee and Bloomberg. SECTION 4.03 Remittance Reports; Advances. (a) On the Business Day following each Determination Date, the Servicer shall deliver to the Trustee by telecopy (or by such other means as the Servicer or the Trustee may agree from time to time) a Remittance Report with respect to the related Distribution Date. On the same date, the Servicer shall electronically transmit to the Trustee (in a format acceptable to the Trustee), a data file containing the information set forth in such Remittance Report (including but not limited to the date elements specified in Schedule 4 92 hereto) with respect to the related Distribution Date or if electronic transmission is not available, the Servicer shall forward to the Trustee by overnight mail a computer readable magnetic tape. Such Remittance Report will include (i) the amount of Advances to be made by the Servicer in respect of the related Distribution Date, the aggregate amount of Advances outstanding after giving effect to such Advances, and the aggregate amount of Nonrecoverable Advances in respect of such Distribution Date and (ii) such other information with respect to the Mortgage Loans as the Trustee may reasonably require to perform the calculations necessary to make the distributions contemplated by Section 4.01 and to prepare the statements to Certificateholders contemplated by Section 4.02. The Trustee shall not be responsible to recompute, recalculate or verify any information provided to it by the Servicer. (b) The amount of Advances to be made by the Servicer for any Distribution Date shall equal, subject to Section 4.03(d), the sum of, (i) the aggregate amount of Monthly Payments (with each interest portion thereof net of the related Servicing Fee), due on the related Due Date in respect of the Mortgage Loans, which Monthly Payments were delinquent as of the close of business on the related Determination Date and (ii) with respect to each REO Property, which REO Property was acquired during or prior to the related Prepayment Period and as to which REO Property an REO Disposition did not occur during the related Prepayment Period, an amount equal to the excess, if any, of the REO Imputed Interest on such REO Property for the most recently ended calendar month, over the net income from such REO Property transferred to the Certificate Account pursuant to Section 3.23 for distribution on such Distribution Date; provided, however, that the Servicer shall not be required to make Advances with respect to Relief Act Interest Shortfalls or Prepayment Interest Shortfalls in excess of their respective obligations under Section 3.24. By 1:00 p.m. New York time on the Servicer Remittance Date, the Servicer shall remit in immediately available funds to the Trustee for deposit in the Certificate Account an amount equal to the aggregate amount of Advances, if any, to be made in respect of the Mortgage Loans and REO Properties for the related Distribution Date either (i) from its own funds or (ii) from the Custodial Account, to the extent of funds held therein for future distribution (in which case it will cause to be made an appropriate entry in the records of the Custodial Account that amounts held for future distribution have been, as permitted by this Section 4.03, used by the Servicer in discharge of any such Advance) or (iii) in the form of any combination of (i) and (ii) aggregating the total amount of Advances to be made by the Servicer with respect to the Mortgage Loans and REO Properties. Any amounts held for future distribution and so used shall be appropriately reflected in the Servicer's records and replaced by the Servicer by deposit in the Custodial Account on or before any future Servicer Remittance Date to the extent that the Available Distribution Amount for the related Distribution Date (determined without regard to Advances to be made on the Servicer Remittance Date) shall be less than the total amount that would be distributed to the Classes of Certificateholders pursuant to Section 4.01 on such Distribution Date if such amounts held for future distributions had not been so used to make Advances. The Trustee will provide notice to the Servicer by telecopy by the close of business on the Business Day prior to the Distribution Date in the event that the amount remitted by the Servicer to the Trustee on such date is less than the amount required to be remitted by the Servicer as set forth in the Remittance Report for the related Distribution Date. 93 (c) The obligation of the Servicer to make such Advances is mandatory, notwithstanding any other provision of this Agreement but subject to (d) below, and, with respect to any Mortgage Loan or REO Property, shall continue until a Final Recovery Determination in connection therewith or the removal thereof from the Trust Fund pursuant to any applicable provision of this Agreement, except as otherwise provided in this Section. (d) Notwithstanding anything herein to the contrary, no Advance or Servicing Advance shall be required to be made hereunder by the Servicer if such Advance or Servicing Advance would, if made, constitute a Nonrecoverable Advance or Nonrecoverable Servicing Advance, respectively. The determination by the Servicer that it has made a Nonrecoverable Advance or a Nonrecoverable Servicing Advance or that any proposed Advance or Servicing Advance, if made, would constitute a Nonrecoverable Advance or Nonrecoverable Servicing Advance, respectively, shall be evidenced by a certification of a Servicing Officer delivered to the Depositor and the Trustee. SECTION 4.04 Allocation of Realized Losses. (a) Prior to each Determination Date, the Servicer shall determine as to each Mortgage Loan and REO Property: (i) the total amount of Realized Losses, if any, incurred in connection with any Final Recovery Determinations made during the related Prepayment Period; (ii) whether and the extent to which such Realized Losses constituted Bankruptcy Losses; and (iii) the respective portions of such Realized Losses allocable to interest and allocable to principal. Prior to each Determination Date, the Servicer shall also determine as to each Mortgage Loan: (i) the total amount of Realized Losses, if any, incurred in connection with any Deficient Valuations made during the related Prepayment Period; and (ii) the total amount of Realized Losses, if any, incurred in connection with Debt Service Reductions in respect of Monthly Payments due during the related Due Period. The information described in the two preceding sentences that is to be supplied by the Servicer shall be evidenced by an Officers' Certificate delivered to the Trustee by the Servicer prior to the Determination Date immediately following the end of (i) in the case of Bankruptcy Losses allocable to interest, the Due Period during which any such Realized Loss was incurred, and (ii) in the case of all other Realized Losses, the Prepayment Period during which any such Realized Loss was incurred. (b) All Realized Losses on the Mortgage Loans shall be allocated or covered by the Trustee on each Distribution Date as follows: first, to the Accrued Certificate Interest for the Class CE Certificates for the related Interest Accrual Period; second, to the Class CE Certificates, until the Certificate Principal Balance thereof has been reduced to zero; third, to the Class M-10 Certificates, until the Certificate Principal Balance thereof has been reduced to zero; fourth, to the Class M-9 Certificates, until the Certificate Principal Balance thereof has been reduced to zero; fifth, to the Class M-8 Certificates, until the Certificate Principal Balance thereof has been reduced to zero; sixth, to the Class M-7 Certificates until the Certificate Principal Balance thereof has been reduced to zero; seventh, to the Class M-6 Certificates until the Certificate Principal Balance thereof has been reduced to zero; eighth, to the Class M-5 Certificates until the Certificate Principal Balance thereof has been reduced to zero; ninth, to the Class M-4 Certificates until the Certificate Principal Balance thereof has been reduced to zero; tenth, to the Class M-3 Certificates until the Certificate Principal Balance 94 thereof has been reduced to zero; eleventh, to the Class M-2 Certificates, until the Certificate Principal Balance thereof has been reduced to zero; twelfth, to the Class M-1 Certificates, until the Certificate Principal Balance thereof has been reduced to zero; and thirteenth, concurrently, to the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates on a pro rata basis based on the Certificate Principal Balance of each such Class of Certificates, until their respective Certificate Principal Balances have been reduced to zero. All Realized Losses to be allocated to the Certificate Principal Balances of all Classes on any Distribution Date shall be so allocated after the actual distributions to be made on such date as provided above. All references above to the Certificate Principal Balance of any Class of Certificates shall be to the Certificate Principal Balance of such Class immediately prior to the relevant Distribution Date, before reduction thereof by any Realized Losses, in each case to be allocated to such Class of Certificates, on such Distribution Date. Any allocation of Realized Losses to a Class A Certificate or Mezzanine Certificate on any Distribution Date shall be made by reducing the Certificate Principal Balance thereof by the amount so allocated and any allocation of Realized Losses to a Class CE Certificates shall be made by reducing the amount otherwise payable in respect thereof pursuant to Section 4.01(a)(4)(vi). No allocations of any Realized Losses shall be made to the Certificate Principal Balances of the Class P Certificates. As used herein, 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. 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. (c) All Realized Losses on the Mortgage Loans shall be allocated by the Trustee on each Distribution Date to the following REMIC I Regular Interests in the specified percentages, as follows: first, to Uncertificated Interest payable to the REMIC I Regular Interest I-LTAA and REMIC I Regular Interest I-LTZZ up to an aggregate amount equal to the REMIC I Interest Loss Allocation Amount, 98% and 2%, respectively; second, to the Uncertificated Balances of the REMIC I Regular Interest I-LTAA and REMIC I Regular Interest I-LTZZ up to an aggregate amount equal to the REMIC I Principal Loss Allocation Amount, 98% and 2%, respectively; third, to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTM10 and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LTM10 has been reduced to zero; fourth, to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTM9 and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LTM9 has been reduced to zero; fifth, to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTM8 and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LTM8 has been reduced to zero; sixth, to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTM7 and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LTM7 has been reduced to zero; seventh to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTM6 and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LTM6 has been reduced to zero; eighth to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTM5 and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until the 95 Uncertificated Balance of REMIC I Regular Interest I-LTM5 has been reduced to zero; ninth to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTM4 and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LTM4 has been reduced to zero; tenth, to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTM3 and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LTM3 has been reduced to zero; eleventh, to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTM2 and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LTM2 has been reduced to zero; twelfth, to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTM1 and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LTM1 has been reduced to zero; and thirteenth, concurrently, to the Uncertificated Balances of REMIC I Regular Interest I-LTAA, REMIC I Regular Interest I-LTA1, I-LTA2, I-LTA3 and I-LTA4 on a pro rata basis, and REMIC I Regular Interest I-LTZZ, 98%, 1% and 1%, respectively, until their respective Uncertificated Balance of REMIC I Regular Interest has been reduced to zero. SECTION 4.05 Compliance with Withholding Requirements. Notwithstanding any other provision of this Agreement, the Trustee shall comply with all federal withholding requirements respecting payments to Certificateholders of interest or original issue discount that the Trustee reasonably believes are applicable under the Code. The consent of Certificateholders shall not be required for such withholding. In the event the Trustee does withhold any amount from interest or original issue discount payments or advances thereof to any Certificateholder pursuant to federal withholding requirements, the Trustee shall indicate the amount withheld to such Certificateholders. SECTION 4.06 Exchange Commission; Additional Information. (a) Notwithstanding anything herein to the contrary, the Depositor, and not the Trustee, shall be responsible for executing each Form 10-K filed on behalf of the Trust. Within 15 days after each Distribution Date, the Trustee shall, in accordance with applicable law, prepare and file with the Commission via the Electronic Data Gathering and Retrieval System ("EDGAR"), any Form 10-D (or other comparable Form containing the same or comparable information or other information mutually agreed upon), in the form and substance as required by the Exchange Act, with a copy of the statement to the Certificateholders for such Distribution Date as an exhibit thereto. Any necessary disclosure in addition to the statement to the Certificateholders that is required to be included on Form 10-D ("Additional Form 10-D Disclosure") shall, pursuant to the paragraph immediately below, be reported by the Seller, the Depositor, the Trustee, the Trust, any servicer under Item 1108(a)(3) of Regulation AB, any originator under Item 1110(b) of Regulation AB, any other party contemplated by Items 1100(d)(1), 1112(b), Item 1114(b)(2) or 115(b) of Regulation 96 AB as identified to the Trustee by the Depositor (together the "Reporting Parties"), any party so required under and directed and approved by the Depositor, and the Trustee will have no duty or liability for any failure hereunder to determine or prepare any Additional Form 10-D Disclosure absent such reporting, direction and approval. For so long as the Trust is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 5 calendar days after the related Distribution Date, (i) the Reporting Parties shall be required to provide to the Trustee and the Depositor, to the extent known, in EDGAR-compatible form, or in such other form as otherwise agreed upon by the Trustee and the Depositor and such party, the form and substance of the Additional Form 10-D Disclosure applicable to such party, and (ii) the Depositor will approve, as to form and substance, or disapprove, as the case may be, the inclusion of the Additional Form 10-D Disclosure on Form 10-D. The Trustee has no duty under this Agreement to monitor or enforce the performance by the Reporting Parties of their duties under this paragraph or proactively solicit or procure from such parties any Additional Form 10-D Disclosure information. The Depositor will be responsible for any reasonable fees and expenses assessed or incurred by the Trustee in connection with including any Additional Form 10-D Disclosure on Form 10-D pursuant to this paragraph. After preparing the Form 10-D, the Trustee shall forward electronically a draft copy of the Form 10-D to the Depositor and the Servicer for review. No later than 2 Business Days prior to the 15th calendar day after the related Distribution Date, a senior officer of the Depositor shall sign the Form 10-D and return an electronic or fax copy of such signed Form 10-D (with an original executed hard copy to follow by overnight mail) to the Trustee. If a Form 10-D cannot be filed on time or if a previously filed Form 10-D needs to be amended, the Trustee will follow the procedures set forth in the second paragraph of Section 406(d). Promptly (but no later than 1 Business Day) after filing with the Commission, the Trustee will make available on its internet website a final executed copy of each Form 10-D. The signing party at the Depositor can be contacted as described in Section 13.05 hereto. The parties to this Agreement acknowledge that the performance by the Trustee of its duties under this Section 4.06(a) related to the timely preparation and filing of Form 10-D is contingent upon such parties strictly observing all applicable deadlines in the performance of their duties under this Section 4.06(a). The Trustee shall have no liability for any loss, expense, damage, claim arising out of or with respect to any failure to properly prepare and/or timely file such Form 10-D, where such failure results from the Trustee's inability or failure to receive, on a timely basis, any information from any other party hereto needed to prepare, arrange for execution or file such Form 10-D, not resulting from its own negligence, bad faith or willful misconduct. (b) Within 90 days after the end of each fiscal year of the Trust or such earlier date as may be required by the Exchange Act (the "10-K Filing Deadline") (it being understood that the fiscal year for the Trust ends on December 31st of each year), commencing in March 2007, the Trustee shall prepare and file on behalf of the Trust a Form 10-K, in form and substance as required by the Exchange Act. Each such Form 10-K shall include the following items, in each case to the extent they have been delivered to the Trustee within the applicable time frames set 97 forth in this Agreement, (i) an annual compliance statement for the Servicer and each Additional Servicer, as described under Section 12.04, (ii)(A) the annual reports on assessment of compliance with servicing criteria for the Servicer, each Additional Servicer and the Trustee, as described under Sections 11.04 and 12.05, and (B) if the Servicer's, each Additional Servicer's or the Trustee's report on assessment of compliance with servicing criteria described under Sections 11.04 and 12.05 identifies any material instance of noncompliance, disclosure identifying such instance of noncompliance, or if the Servicer's, each Additional Servicer's or the Trustee's report on assessment of compliance with servicing criteria described under Sections 11.04 and 12.05 is not included as an exhibit to such Form 10-K, disclosure that such report is not included and an explanation why such report is not included, (iii)(A) the registered public accounting firm attestation report for the Servicer, each Additional Servicer and the Trustee, as described under Sections 11.04 and 12.05, and (B) if any registered public accounting firm attestation report described under Sections 11.04 and 12.05 identifies any material instance of noncompliance, disclosure identifying such instance of noncompliance, or if any such registered public accounting firm attestation report is not included as an exhibit to such Form 10-K, disclosure that such report is not included and an explanation why such report is not included, and (iv) a Sarbanes-Oxley Certification ("Sarbanes Certification") as described in Section 12.05 and substantially in the form of Exhibit I-1 hereto. In addition, the Trustee shall sign a certification (in the form attached hereto as Exhibit I-2) for the benefit of the Servicer and its officers, directors and Affiliates regarding certain aspects of the Servicer Certification (the "Trustee Certification") (provided, however, that the Trustee shall not undertake an analysis of the accountant's report attached as an exhibit to Form 10-K). Any necessary disclosure that is required to be included on Form 10-K ("Additional Form 10-K Disclosure") shall, pursuant to the paragraph immediately below, be reported by the Reporting Parties and directed and approved by the Depositor, and the Trustee will have no duty or liability for any failure hereunder to determine or prepare any Additional Form 10-K Disclosure absent such reporting, direction and approval. For so long as the Trust is subject to the reporting requirements of the Exchange Act, no later than March 10 (with a 5 calendar day cure period), commencing in March 2007 (i) the Reporting Parties shall be required to provide to the Trustee and the Depositor, to the extent known, in EDGAR-compatible form, or in such other form as otherwise agreed upon by the Trustee and the Depositor and such party, the form and substance of the Additional Form 10-K Disclosure applicable to such party, and (ii) the Depositor will approve, as to form and substance, or disapprove, as the case may be, the inclusion of the Additional Form 10-K Disclosure on Form 10-K. The Trustee has no duty under this Agreement to monitor or enforce the performance by the Reporting Parties of their duties under this paragraph or proactively solicit or procure from such parties any Additional Form 10-K Disclosure information. The Depositor will be responsible for any reasonable fees and expenses assessed or incurred by the Trustee in connection with including any Additional Form 10-K Disclosure on Form 10-K pursuant to this paragraph. After preparing the Form 10-K, the Trustee shall forward electronically a draft copy of the Form 10-K to the Depositor for review. No later than end of business New York City time on the 4th Business Day prior to the 10-K Filing Deadline, a senior officer of the Depositor shall sign the Form 10-K and return an electronic or fax copy of such signed Form 10-K (with an 98 original executed hard copy to follow by overnight mail) to the Trustee. If a Form 10-K cannot be filed on time or if a previously filed Form 10-K needs to be amended, the Trustee will follow the procedures set forth in the second paragraph of Section 406(d). Promptly (but no later than 1 Business Day) after filing with the Commission, the Trustee will make available on its internet website a final executed copy of each Form 10-K. The signing party at the Servicer can be contacted as described in Section 13.05. The parties to this Agreement acknowledge that the performance by the Trustee of its duties under this Section 4.06(b) related to the timely preparation and filing of Form 10-K is contingent upon such parties (and any Additional Servicer or Servicing Function Participant) strictly observing all applicable deadlines in the performance of their duties under this Section 4.06, Sections 11.04 and 12.05 and Section 12.04. The Trustee shall have no liability for any loss, expense, damage, claim arising out of or with respect to any failure to properly prepare and/or timely file such Form 10-K, where such failure results from the Trustee's inability or failure to receive, on a timely basis, any information from any other party hereto needed to prepare, arrange for execution or file such Form 10-K, not resulting from its own negligence, bad faith or willful misconduct. (c) Within four (4) Business Days after the occurrence of an event requiring disclosure on Form 8-K (each such event, a "Reportable Event"), and if requested by the Depositor and to the extent it receives the Form 8-K Disclosure Information described below, the Trustee shall prepare and file on behalf of the Trust any Form 8-K, as required by the Exchange Act, provided that the Depositor shall file the initial Form 8-K in connection with the issuance of the Certificates. Any disclosure or information related to a Reportable Event or that is otherwise required to be included on Form 8-K ("Form 8-K Disclosure Information") shall, pursuant to the paragraph immediately below, be reported by the Reporting Parties and directed and approved by the Depositor, and the Trustee will have no duty or liability for any failure hereunder to determine or prepare any Form 8-K Disclosure Information absent such reporting, direction and approval. For so long as the Trust is subject to the reporting requirements of the Exchange Act, no later than end of business on the 2nd Business Day after the occurrence of a Reportable Event (i) the Reporting Parties hereto shall be required to provide to the Trustee and the Depositor, to the extent known, in EDGAR-compatible form, or in such other form as otherwise agreed upon by the Trustee and the Depositor and such party, the form and substance of the Form 8-K Disclosure Information applicable to such party, and (ii) the Depositor will approve, as to form and substance, or disapprove, as the case may be, the inclusion of the Form 8-K Disclosure Information on Form 8-K. The Trustee has no duty under this Agreement to monitor or enforce the performance by the Reporting Parties of their duties under this paragraph or proactively solicit or procure from such parties any Form 8-K Disclosure Information. The Depositor will be responsible for any reasonable fees and expenses assessed or incurred by the Trustee in connection with including any Form 8-K Disclosure Information on Form 8-K pursuant to this paragraph. After preparing the Form 8-K, the Trustee shall forward electronically a draft copy of the Form 8-K to the Depositor and the Servicer for review. No later than Noon New York City time on the 4th Business Day after the Reportable Event, a senior officer of the Depositor shall sign the Form 8-K and return an electronic or fax copy of such signed Form 8-K (with an original 99 executed hard copy to follow by overnight mail) to the Trustee. If a Form 8-K cannot be filed on time or if a previously filed Form 8-K needs to be amended, the Trustee will follow the procedures set forth in the second paragraph of Section 406(d). Promptly (but no later than 1 Business Day) after filing with the Commission, the Trustee will, make available on its internet website a final executed copy of each Form 8-K. The signing party at the Trustee can be contacted as described in Section 13.05. The parties to this Agreement acknowledge that the performance by the Trustee of its duties under this Section 4.06(c) related to the timely preparation and filing of Form 8-K is contingent upon such parties strictly observing all applicable deadlines in the performance of their duties under this Section 4.06(c). The Trustee shall have no liability for any loss, expense, damage, claim arising out of or with respect to any failure to properly prepare and/or timely file such Form 8-K, where such failure results from the Trustee's inability or failure to receive, on a timely basis, any information from any other party hereto needed to prepare, arrange for execution or file such Form 8-K, not resulting from its own negligence, bad faith or willful misconduct. (d) On or prior to January 30 of the first year in which the Trustee is able to do so under applicable law, the Trustee shall prepare and file a Form 15 Suspension Notification relating to the automatic suspension of reporting in respect of the Trust under the Exchange Act. In the event that the Trustee is unable to timely file with the Commission all or any required portion of any Form 8-K, 10-D or 10-K required to be filed by this Agreement because required disclosure information was either not delivered to it or delivered to it after the delivery deadlines set forth in this Agreement or for any other reason, the Trustee will promptly notify the Depositor and the Servicer of such inability to make a timely filing with the Commission. In the case of Form 10-D and 10-K, the Depositor, Servicer and Trustee will cooperate to prepare and file a Form 12b-25 and a 10-DA and 10-KA as applicable, pursuant to Rule 12b-25 of the Exchange Act. In the case of Form 8-K, the Trustee will, upon receipt of all required Form 8-K Disclosure Information and upon the approval and direction of the Depositor, include such disclosure information on the next succeeding Form 10-D to be filed for the Trust. In the event that any previously filed Form 8-K, 10-D or 10-K needs to be amended, the Trustee will notify the Depositor and the Servicer and such parties agree to cooperate to prepare any necessary 8-KA, 10-DA or 10-KA. Any Form 15, Form 12b-25 or any amendment to Form 8-K or 10-K shall be signed by a senior officer of the Trustee and any amendment to Form 10-D shall be signed by a senior officer of the Depositor. The Depositor and Servicer acknowledge that the performance by the Trustee of its duties under this Section 4.06(d) related to the timely preparation and filing of Form 15, a Form 12b-25 or any amendment to Form 8-K, 10-D or 10-K is contingent upon the Servicer and the Depositor performing their duties under this Section. The Trustee shall have no liability for any loss, expense, damage, claim arising out of or with respect to any failure to properly prepare and/or timely file any such Form 15, Form 12b-25 or any amendments to Forms 8-K, 10-D or 10-K, where such failure results from the Trustee's inability or failure to receive, on a timely basis, any information from any other party hereto needed to prepare, arrange for execution or file such Form 15, Form 12b-25 or any amendments to Forms 8-K, 10-D or 10-K, not resulting from its own negligence, bad faith or willful misconduct. 100 The Trustee shall have no responsibility to file any items other than those specified in this Section 4.06; provided, however, the Trustee and the Servicer will cooperate with the Depositor in connection with any additional filings with respect to the Trust Fund as the Depositor deems necessary under the Exchange Act. ARTICLE V THE CERTIFICATES SECTION 5.01 The Certificates. (a) The Certificates in the aggregate will represent the entire beneficial ownership interest in the Mortgage Loans and all other assets included in REMIC I. The Certificates will be substantially in the forms annexed hereto as Exhibits A-1 and A-5. The Certificates of each Class will be issuable in registered form only, in denominations of authorized Percentage Interests as described in the definition thereof. Each Certificate will share ratably in all rights of the related Class. Upon original issue, the Certificates shall be executed, authenticated and delivered by the Trustee to or upon the written order of the Depositor. The Certificates shall be executed by manual or facsimile signature on behalf of the Trustee by an authorized signatory. 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 Certificates 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 herein executed by the Trustee by manual signature, and such certificate of authentication 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 the Mezzanine Certificates shall initially be issued as one or more Certificates held by the Book-Entry Custodian or, if appointed to hold such Certificates as provided below, the Depository and 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 such Certificates through the book-entry facilities of the Depository and, except as provided below, shall not be entitled to definitive, fully registered Certificates ("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 only transfer the Ownership Interests 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 is hereby initially appointed as the Book-Entry Custodian and 101 hereby agrees to act as such in accordance herewith and in accordance with the agreement that it has with the Depository authorizing it to act as such. The Book-Entry Custodian may, and, if it is no longer qualified to act as such, the Book-Entry Custodian shall, appoint, by a written instrument delivered to the Depositor, the Servicer, the Trustee and, if the Trustee is not the Book-Entry Custodian, the Trustee, any other transfer agent (including the Depository or any successor Depository) to act as Book-Entry Custodian under such conditions as the predecessor Book-Entry Custodian and the Depository or any successor Depository may prescribe, provided that the predecessor Book-Entry Custodian shall not be relieved of any of its duties or responsibilities by reason of any such appointment of other than the Depository. If the Trustee resigns or is removed in accordance with the terms hereof, the successor Trustee or, if it so elects, the Depository shall immediately succeed to its predecessor's duties as Book-Entry Custodian. The Depositor shall have the right to inspect, and to obtain copies of, any Certificates held as Book-Entry Certificates by the Book-Entry Custodian. The Trustee, the 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 the 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 (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, and (B) the Depositor is unable to locate a qualified successor or (ii) after the occurrence of a Servicer Event of Default, Certificate Owners representing in the aggregate not less than 66% of the Ownership Interests of the Book-Entry Certificates advise the Trustee through the Depository, in writing, that the continuation of a book-entry system through the Depository is no longer in the best interests of the Certificate Owners, the Trustee shall notify all Certificate Owners, 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 Book-Entry Custodian or the Depository, as applicable, accompanied by registration instructions from the Depository for registration of transfer, the Trustee shall cause the Definitive Certificates to be issued. Such Definitive Certificates will be issued in minimum denominations of $25,000, except that any beneficial ownership that was represented by a Book-Entry Certificate in an amount less than $25,000 immediately prior to the issuance of a Definitive Certificate shall be issued in a minimum denomination equal to the amount represented by such Book-Entry Certificate. None of the Depositor, the Servicer or the Trustee shall be liable for any delay in the delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Certificates all references herein to obligations imposed upon or to be performed by the Depository shall be deemed to be 102 imposed upon and performed by the Trustee, to the extent applicable with respect to such Definitive Certificates, and the Trustee shall recognize the Holders of the Definitive Certificates as Certificateholders hereunder. 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 8.11, a Certificate Register for the Certificates 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. (b) No transfer of any Class M-10 Certificate, Class CE Certificate, Class P Certificate or Residual Certificate (the "Private Certificates") shall be made unless that transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), and effective registration or qualification under applicable state securities laws, or is made in a transaction that does not require such registration or qualification. In the event that such a transfer of a Private Certificate is to be made without registration or qualification (other than in connection with (i) the initial transfer of any such Certificate by the Depositor to an Affiliate of the Depositor, (ii) the transfer of any such Class CE or Class P Certificate to the issuer under the Indenture or the indenture trustee under the Indenture or (iii) a transfer of any such Class CE or Class P Certificate from the issuer under the Indenture or the indenture trustee under the Indenture to the Depositor or an Affiliate of the Depositor), the Trustee shall require receipt of: (i) if such transfer is purportedly being made in reliance upon Rule 144A under the 1933 Act, written certifications from the Certificateholder desiring to effect the transfer and from such Certificateholder's prospective transferee, substantially in the forms attached hereto as Exhibit F-1; and (ii) in all other cases, an Opinion of Counsel satisfactory to it that such transfer may be made without such registration (which Opinion of Counsel shall not be an expense of the Trust Fund or of the Depositor, the Trustee, the Servicer in its capacity as such or any Sub-Servicer), together with copies of the written certification(s) of the Certificateholder desiring to effect the transfer and/or such Certificateholder's prospective transferee upon which such Opinion of Counsel is based, if any. None of the Depositor or the Trustee is obligated to register or qualify any such Certificates under the 1933 Act or any other securities laws or to take any action not otherwise required under this Agreement to permit the transfer of such Certificates without registration or qualification. Any Certificateholder desiring to effect the transfer of any such Certificate shall, and does hereby agree to, indemnify the Trustee, the Depositor and the Servicer 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. Notwithstanding the foregoing, in the event of any such transfer of any Ownership Interest in any Private Certificate that is a Book-Entry Certificate, except with respect to the initial transfer of any such Ownership Interest by the Depositor, such transfer shall be required to be made in reliance upon Rule 144A under the 1933 Act, and the transferee will be deemed to have made each of the transferee representations and warranties set forth Exhibit F-1 hereto in respect of such interest as if it was evidenced by a Definitive Certificate. The Certificate Owner of any such Ownership Interest in any such Book-Entry Certificate desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee and the Depositor against any 103 liability that may result if the transfer is not so exempt or is not made in accordance with such federal and state laws. Notwithstanding the foregoing, no certification or Opinion of Counsel described in this Section 5.02(b) will be required in connection with the transfer, on the Closing Date, of any Class R Certificate by the Depositor to an "accredited investor" within the meaning of Rule 501(d) of the 1933 Act. (c) (i) No transfer of a Private Certificate (other than a Class M-10 Certificate) or any interest therein shall be made to any Plan, any Person acting, directly or indirectly, on behalf of any such Plan or any Person acquiring such Private Certificates with "plan assets" of a Plan (within the meaning of the Department of Labor regulation promulgated at 29 C. F. R. ss. 2510.3-101 ("Plan Assets")), as certified by such transferee in the form of Exhibit G, unless the Trustee is provided with an Opinion of Counsel acceptable to and in form and substance satisfactory to the Depositor, the Trustee and the Servicer to the effect that the purchase and holding of such Private 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 Depositor, the Servicer, the Trustee or the Trust Fund 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 Depositor, the Servicer, the Trustee or the Trust Fund. (ii) In the case of a Class A Certificate, Class M-1 Certificate, Class M-2 Certificate, Class M-3 Certificate, Class M-4 Certificate, Class M-5 Certificate, Class M-6 Certificate, Class M-7 Certificate, Class M-8 Certificate, Class M-9 Certificate or Class M-10 Certificate, each beneficial owner of such a Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not a Plan or a Plan investor, (B) it has acquired and is holding such Certificate in reliance on the Underwriters' Exemption, and that it understands that there are certain conditions to the availability of the Underwriters' Exemption, including that such Certificate must be rated, at the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificates are so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold such Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. (iii) Neither a certification nor an Opinion of Counsel shall be required in connection with (A) the initial transfer of any such Certificate by the Depositor to an Affiliate of the Depositor, (B) the transfer of any such Certificate to the issuer under the Indenture or the indenture trustee under the Indenture or (C) a transfer of any such Certificate from the issuer under the Indenture or the indenture trustee under the Indenture to the Depositor or an Affiliate of the Depositor (in which case such transferee shall be deemed to have represented that it is not 104 purchasing with Plan Assets) and the Trustee shall be entitled to conclusively rely upon a representation (which, upon the request of the Trustee, shall be a written representation) from the Depositor of the status of such transferee as an affiliate of the Depositor. (iv) If any Certificate or any interest therein is acquired or held in violation of the provisions of this Section 5.02(c), the next preceding permitted beneficial owner will be treated as the beneficial owner of that Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any such Certificate or any interest therein was effected in violation of the provisions of this Section 5.02(c) shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. (d) (i) Each Person who has or who acquires any Ownership Interest in a Residual 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 Residual Certificate are expressly subject to the following provisions: (A) Each Person holding or acquiring any Ownership Interest in a Residual 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 Residual Certificate, the Trustee shall require delivery to it, and shall not register the Transfer of any Residual Certificate until its receipt of, an affidavit and agreement (a "Transfer Affidavit and Agreement," in the form attached hereto as Exhibit F-2) from the proposed Transferee, in form and substance satisfactory to the Trustee, representing and warranting, among other things, that such Transferee is a Permitted Transferee, that it is not acquiring its Ownership Interest in the Residual Certificate that is the subject of the proposed Transfer as a nominee, trustee or agent for any Person that is not a Permitted Transferee, that for so long as it retains its Ownership Interest in a Residual Certificate, it will endeavor to remain a Permitted Transferee, and that it has reviewed the provisions of this Section 5.02(d) and agrees to be bound by them. (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 transaction has actual knowledge that the proposed Transferee is not a Permitted Transferee, no Transfer of an Ownership Interest in a Residual Certificate to such proposed Transferee shall be effected. (D) Each Person holding or acquiring any Ownership Interest in a Residual Certificate shall agree (x) to require a Transfer Affidavit and Agreement in the form 105 attached hereto as Exhibit F-2 from any other Person to whom such Person attempts to transfer its Ownership Interest in a Residual Certificate and (y) not to transfer its Ownership Interest unless it provides a Transferor Affidavit (in the form attached hereto as Exhibit F-2) to the Trustee stating that, among other things, it has no actual knowledge that such other Person is not a Permitted Transferee. (E) Each Person holding or acquiring an Ownership Interest in a Residual 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 regulation Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an Ownership Interest in a Residual Certificate, if it is, or is holding an Ownership Interest in a Residual Certificate on behalf of, a "pass-through interest holder." (ii) The Trustee will register the Transfer of any Residual Certificate only if it shall have received the Transfer Affidavit and Agreement and all of such other documents as shall have been reasonably required by the Trustee as a condition to such registration. In addition, no Transfer of a Residual Certificate shall be made unless the Trustee shall have received a representation letter from the Transferee of such Certificate to the effect that such Transferee is a Permitted Transferee. (iii) (A) If any purported Transferee shall become a Holder of a Residual Certificate in violation of the provisions of this Section 5.02(d), then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights as holder thereof retroactive to the date of registration of such Transfer of such Residual Certificate. The Trustee shall be under no liability to any Person for any registration of Transfer of a Residual Certificate that is in fact not permitted by this Section 5.02(d) 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 Residual Certificate in violation of the restrictions in this Section 5.02(d) and to the extent that the retroactive restoration of the rights of the holder of such Residual Certificate as described in clause (iii)(A) above shall be invalid, illegal or unenforceable, then the Trustee shall have the right, but not the obligation, without notice to the holder or any prior holder of such Residual Certificate, to sell such Residual Certificate to a purchaser selected by the Trustee on such terms as the Trustee may choose. Such purported Transferee shall promptly endorse and deliver each Residual Certificate in accordance with the instructions of the Trustee. Such purchaser may be the Trustee itself or any Affiliate of the Trustee. The proceeds of such sale, net of the commissions (which may include commissions payable to the Trustee or its Affiliates), expenses and taxes due, if any, will be remitted by the Trustee 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 Trustee, and the Trustee shall not be liable to any Person having an Ownership Interest in a Residual Certificate as a result of its exercise of such discretion. 106 (iv) The Trustee shall make available to the Internal Revenue Service and those Persons specified by the REMIC Provisions all information necessary to compute any tax imposed (A) as a result of the Transfer of an Ownership Interest in a Residual Certificate to any Person who is a Disqualified Organization, including the information described in Treasury regulations sections 1.860D-1(b)(5) and 1.860E-2(a)(5) with respect to the "excess inclusions" of such Residual Certificate 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 Residual Certificate having as among its record holders at any time any Person which is a Disqualified Organization. Reasonable compensation for providing such information may be accepted by the Trustee. (v) The provisions of this Section 5.02(d) set forth prior to this subsection (v) may be modified, added to or eliminated, provided that there shall have been delivered to the Trustee at the expense of the party seeking to modify, add to or eliminate any such provision 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 of any Class of Certificates; and (B) an Opinion of Counsel, in form and substance satisfactory to the Trustee, to the effect that such modification of, addition to or elimination of such provisions will not cause any Trust REMIC to cease to qualify as a REMIC and will not cause any Trust REMIC to be subject to an entity-level tax caused by the Transfer of any Residual Certificate to a Person that is not a Permitted Transferee or a Person other than the prospective transferee to be subject to a REMIC-tax caused by the Transfer of a Residual Certificate to a Person that is not a Permitted Transferee. (e) Subject to the preceding subsections, 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, the Trustee shall execute, authenticate and deliver, in the name of the designated Transferee or Transferees, one or more new Certificates of the same Class of a like aggregate Percentage Interest. (f) At the option of the Holder thereof, any Certificate may be exchanged for other Certificates of the same Class with authorized denominations and a like aggregate Percentage Interest, upon surrender of such Certificate to be exchanged at any office or agency of the Trustee maintained for such purpose pursuant to Section 8.12. Whenever any Certificates are so surrendered for exchange, the Trustee shall execute, authenticate and deliver, the Certificates 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) be duly endorsed by, or be accompanied by a written instrument of transfer in the form satisfactory to the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing. In addition, with respect to each Class R Certificate, the Holder thereof may exchange, in the manner described above, such Class R Certificate for two separate Certificates, each representing 107 such Holder's respective Percentage Interest in the Class R-I Interest and the Class R-II Interest, respectively, in each case that was evidenced by the Class R Certificate being exchanged. (g) No service charge to the Certificateholders shall be made for any transfer or exchange of Certificates, 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 canceled and destroyed by the Trustee in accordance with its customary procedures. SECTION 5.03 Mutilated, Destroyed, Lost or Stolen Certificates. If (i) any mutilated Certificate is surrendered to the Trustee, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Trustee such security or indemnity as may be required by it to save it harmless, then, in the absence of actual knowledge by the Trustee that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute, authenticate and deliver in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of the same Class and of like denomination 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) connected therewith. Any replacement Certificate issued pursuant to this Section shall constitute complete and indefeasible evidence of ownership in the applicable REMIC created hereunder, 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 Servicer, the Trustee and any agent of any of them 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 4.01 and for all other purposes whatsoever, and none of the Depositor, the Servicer, the Trustee or any agent of any of them shall be affected by notice to the contrary. SECTION 5.05 Certain Available Information. On or prior to the date of the first sale of any Private Certificate to an Independent third party, the Depositor shall provide to the Trustee a copy of any private placement memorandum or other disclosure document used by the Depositor in connection with the offer and sale of such Certificates. In addition, if any such private placement memorandum or disclosure document is revised, amended or supplemented at any time following the delivery thereof to the Trustee, the Depositor promptly shall inform the Trustee of such event and shall deliver to the Trustee a copy of the private placement memorandum or disclosure document, as revised, amended or supplemented. The Trustee shall maintain at its Corporate Trust Office and shall make available free of charge during normal business hours for review by any Holder of a Certificate, a Certificate Owner or any Person identified to the Trustee as a prospective transferee of a Certificate, originals or copies of the following items: (i) in the case of a Holder, a Certificate Owner or prospective transferee of a Private Certificate, the related private placement memorandum or other disclosure document 108 relating to such Class of Certificates, in the form most recently provided to the Trustee; and (ii) in all cases, (A) this Agreement and any amendments hereof entered into pursuant to Section 12.01, (B) all monthly statements required to be delivered to Certificateholders of the relevant Class pursuant to Section 4.02 since the Closing Date, and all other notices, reports, statements and written communications delivered to the Certificateholders of the relevant Class pursuant to this Agreement since the Closing Date, (C) all certifications delivered by a Responsible Officer of the Trustee since the Closing Date pursuant to Section 10.01(h), (D) any and all Officers' Certificates delivered to the Trustee by the Servicer since the Closing Date to evidence the Servicer's determination that any Advance or Servicing Advance was, or if made, would be a Nonrecoverable Advance or Nonrecoverable Servicing Advance, respectively, and (E) any and all Officers' Certificates delivered to the Trustee by the Servicer since the Closing Date pursuant to Section 4.04(a). Copies and mailing of any and all of the foregoing items will be available from the Trustee upon request at the expense of the Person requesting the same. ARTICLE VI THE DEPOSITOR AND THE SERVICER SECTION 6.01 Respective Liabilities of the Depositor and the Servicer. The Depositor and the Servicer each shall be liable in accordance herewith only to the extent of the obligations specifically imposed by this Agreement upon them in their respective capacities as Depositor and Servicer and undertaken hereunder by the Depositor and the Servicer herein. SECTION 6.02 Merger or Consolidation of the Depositor or the Servicer. Subject to the following paragraph, the Depositor will keep in full effect its existence, rights and franchises as a corporation under the laws of the jurisdiction of its incorporation. Subject to the following paragraph, the Servicer will keep in full effect its existence, rights and franchises as a corporation under the laws of the jurisdiction of its incorporation. The Depositor and the Servicer each will 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. The Depositor or the Servicer may be merged or consolidated with or into any Person, or transfer all or substantially all of its assets to any Person, in which case any Person resulting from any merger or consolidation to which the Depositor or the Servicer shall be a party, or any Person succeeding to the business of the Depositor or the Servicer, shall be the successor of the Depositor or the 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 Servicer shall be qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac; and provided further that the Rating Agencies' ratings of the Class A Certificates and the Mezzanine 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 the Rating Agencies). 109 SECTION 6.03 Limitation on Liability of the Depositor, the Servicer and Others. (a) None of the Depositor, the Servicer or any of the directors, officers, employees or agents of the Depositor or the Servicer shall be under any liability to the Trustee, 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 Servicer or any such person against any breach of warranties, representations or covenants made herein, or against any specific liability imposed on the Servicer pursuant hereto, or against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. The Depositor, the Servicer and any director, officer, employee or agent of the Depositor or the Servicer may rely in good faith on any document of any kind which, prima facie, is properly executed and submitted by any Person respecting any matters arising hereunder. The Depositor, the Servicer and any director, officer, employee or agent of the Depositor or the Servicer shall be indemnified by the Trust Fund and held harmless against any loss, liability or expense (including reasonable legal fees and disbursements of counsel) incurred on their part that may be sustained in connection with, arising out of, or related to, any claim or legal action (including any pending or threatened claim or legal action) relating to this Agreement or the Certificates, other than any loss, liability or expense relating to any specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense shall be otherwise reimbursable pursuant to this Agreement) or any loss, liability or expense incurred by reason of willful misfeasance, bad faith or negligence in the performance of duties hereunder or by reason of reckless disregard of obligations and duties hereunder. Neither the Depositor nor the Servicer shall be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its duties under this Agreement and that in its opinion may involve it in any expense or liability; provided, however, that the Depositor or the Servicer may in its discretion undertake any such action which it may deem necessary or desirable with 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 and any liability resulting therefrom shall be expenses, costs and liabilities of the Trust Fund, and the Depositor or the Servicer shall be entitled to be reimbursed therefor from the Custodial Account as and to the extent provided in Section 3.11, any such right of reimbursement being prior to the rights of the Certificateholders to receive any amount in the Custodial Account. Nothing in this Subsection 6.03(a) shall affect the Servicer's obligation to supervise, or to take such actions as are necessary to ensure, the servicing and administration of the Mortgage Loans pursuant to Subsection 3.01(a). (b) In taking or recommending any course of action pursuant to this Agreement, unless specifically required to do so pursuant to this Agreement, the Servicer shall not be required to investigate or make recommendations concerning potential liabilities which the Trust might incur as a result of such course of action by reason of the condition of the Mortgaged Properties but shall give notice to the Trustee if it has notice of such potential liabilities. SECTION 6.04 Limitation on Resignation of the Servicer. (a) The Servicer shall not resign from the obligations and duties hereby imposed on it except upon determination that its duties hereunder are no longer permissible under applicable law or as provided in Section 6.04(c). Any such determination pursuant to the preceding sentence permitting the resignation of 110 the Servicer shall be evidenced by an Opinion of Counsel to such effect obtained at the expense of the Servicer and delivered to the Trustee. No resignation of the Servicer shall become effective until the Trustee or a successor servicer shall have assumed the Servicer's responsibilities, duties, liabilities (other than those liabilities arising prior to the appointment of such successor) and obligations under this Agreement. (b) Except as expressly provided herein, the Servicer shall not assign or transfer any of its rights, benefits or privileges hereunder to any other Person, or delegate to or subcontract with, or authorize or appoint any other Person to perform any of the duties, covenants or obligations to be performed by the Servicer hereunder. The foregoing prohibition on assignment shall not prohibit the Servicer from designating a Sub-Servicer as payee of any indemnification amount payable to the Servicer hereunder; provided, however, that as provided in Section 3.06 hereof, no Sub-Servicer shall be a third-party beneficiary hereunder and the parties hereto shall not be required to recognize any Sub-Servicer as an indemnitee under this Agreement. SECTION 6.05 Rights of the Depositor in Respect of the Servicer. The Servicer shall afford (and any Sub-Servicing Agreement shall provide that each Sub-Servicer shall afford) the Depositor and the Trustee, upon reasonable notice, during normal business hours, access to all records maintained by the Servicer (and any such Sub-Servicer) in respect of the Servicer's rights and obligations hereunder and access to officers of the Servicer (and those of any such Sub-Servicer) responsible for such obligations. Upon request, the Servicer shall furnish to the Depositor and the Trustee its (and any such Sub-Servicer's) most recent financial statements and such other information relating to the Servicer's capacity to perform its obligations under this Agreement as it possesses (and that any such Sub-Servicer possesses). To the extent such information is not otherwise available to the public, the Depositor and the Trustee shall not disseminate any information obtained pursuant to the preceding two sentences without the Servicer's written consent, except as required pursuant to this Agreement or to the extent that it is appropriate to do so (i) in working with legal counsel, auditors, taxing authorities or other governmental agencies, (ii) pursuant to any law, rule, regulation, order, judgment, writ, injunction or decree of any court or governmental authority having jurisdiction over the Depositor and the Trustee or the Trust Fund, and in any case, the Depositor or the Trustee, (iii) disclosure of any and all information that is or becomes publicly known, or information obtained by the Trustee from sources other than the Depositor or the Servicer, (iv) disclosure as required pursuant to this Agreement or (v) disclosure of any and all information(A) in any preliminary or final offering circular, registration statement or contract or other document pertaining to the transactions contemplated by the Agreement approved in advance by the Depositor or the Servicer or (B) to any affiliate, independent or internal auditor, agent, employee or attorney of the Trustee having a need to know the same, provided that the Trustee advises such recipient of the confidential nature of the information being disclosed, shall use its best efforts to assure the confidentiality of any such disseminated non-public information. The Depositor may, but is not obligated to, enforce the obligations of the Servicer under this Agreement and may, but is not obligated to, perform, or cause a designee to perform, any defaulted obligation of the Servicer under this Agreement or exercise the rights of the Servicer under this Agreement; provided that the Servicer shall not be relieved of any of its obligations under this Agreement by virtue of such performance by the Depositor or its designee. The Depositor shall not have any responsibility or 111 liability for any action or failure to act by the Servicer and is not obligated to supervise the performance of the Servicer under this Agreement or otherwise. ARTICLE VII DEFAULT SECTION 7.01 Servicer Events of Default. (a) "Servicer Event of Default," wherever used herein, means any one of the following events: (i) any failure by the Servicer to remit to the Trustee for distribution to the Certificateholders any payment (other than an Advance required to be made from its own funds on any Servicer Remittance Date pursuant to Section 4.03) required to be made under the terms of the Certificates and this Agreement which continues unremedied for a period of 5 Business Days after the date upon which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Depositor or the Trustee (in which case notice shall be provided by telecopy), or to the Servicer, the Depositor and the Trustee by the Holders of Certificates entitled to at least 25% of the Voting Rights; or (ii) any failure on the part of the Servicer duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Servicer contained in this Agreement, or the breach by the Servicer of any representation and warranty contained in Section 2.05, which continues unremedied for a period of 30 days (or if such failure or breach cannot be remedied within 30 days, then such remedy shall have been commenced within 30 days and diligently pursued thereafter; provided, however, that in no event shall such failure or breach be allowed to exist for a period of greater than 90 days) or 15 days in the case of a failure to pay the premium for any insurance policy required to be maintained under this Agreement after the earlier of (i) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Depositor or the Trustee, or to the Servicer, the Depositor and the Trustee by the Holders of Certificates entitled to at least 25% of the Voting Rights and (ii) actual knowledge of such failure by a Servicing Officer; 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 the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding, or for the winding-up or liquidation of its affairs, shall have been entered against the Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 90 days; or (iv) the 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 it or of or relating to all or substantially all of its property; or 112 (v) the Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations; or (vi) any failure by the Servicer of the Servicer Termination Test; or (vii) any failure of the Servicer to make any Advance on any Servicer Remittance Date required to be made from its own funds pursuant to Section 4.03 which continues unremedied until 12:00 p.m. New York time on the Business Day immediately following the Servicer Remittance Date. If a Servicer Event of Default described in clauses (i) through (vi) of this Section shall occur, then, and in each and every such case, so long as such Servicer Event of Default shall not have been remedied, the Trustee may, and at the written direction of the Holders of Certificates entitled to at least 66% of Voting Rights, the Trustee shall, by notice in writing to the Servicer and to the Depositor, terminate all of the rights and obligations of the Servicer in its capacity as Servicer under this Agreement, to the extent permitted by law, in and to the Mortgage Loans and the proceeds thereof. If a Servicer Event of Default described in clause (vii) hereof shall occur, the Trustee shall, by notice in writing to the Servicer, terminate all of the rights and obligations of the Servicer in its capacity as Servicer under this Agreement in and to the Mortgage Loans and the proceeds thereof and the Trustee as successor Servicer, or another successor servicer appointed in accordance with Section 7.02, shall immediately make such Advance. On or after the receipt by the Servicer of such written notice, all authority and power of the Servicer under this Agreement, whether with respect to the Certificates (other than as a Holder of any Certificate) or the Mortgage Loans or otherwise, shall pass to and be vested in the Trustee pursuant to and under this Section, and, without limitation, the Trustee is hereby authorized and empowered, as attorney-in-fact or otherwise, to execute and deliver, on behalf of and at the expense of the Servicer, 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, provided, however, the parties acknowledge that notwithstanding the preceding sentence there may be a transition period, not to exceed 90 days, in order to effect the transfer of the Servicing obligations to the Trustee or other successor servicer. The Servicer agrees promptly (and in any event no later than ten Business Days subsequent to such notice) to provide the Trustee with all documents and records requested by it to enable it to assume the Servicer's functions under this Agreement, and to cooperate with the Trustee in effecting the termination of the Servicer's responsibilities and rights under this Agreement, including, without limitation, the transfer within one Business Day to the Trustee for administration by it of all cash amounts which at the time shall be or should have been credited by the Servicer to the Custodial Account held by or on behalf of the Servicer, the Certificate Account or any REO Account or Servicing Account held by or on behalf of the Servicer or thereafter be received with respect to the Mortgage Loans or any REO Property serviced by the Servicer (provided, however, that the Servicer shall continue to be entitled to receive all amounts accrued or owing to it under this Agreement on or prior to the date of such termination, whether in respect of Advances, Servicing Advances or otherwise, and shall continue to be entitled to the 113 benefits of Section 6.03, notwithstanding any such termination, with respect to events occurring prior to such termination). For purposes of this Section 7.01, the Trustee shall not be deemed to have knowledge of a Servicer Event of Default unless a Responsible Officer of the Trustee assigned to and working in the Trustee's Corporate Trust Office has actual knowledge thereof or unless written notice of any event which is in fact such a Servicer Event of Default is received by the Trustee and such notice references the Certificates, the Trust Fund or this Agreement. SECTION 7.02 Trustee to Act; Appointment of Successor. (a) (1) On and after the time the Servicer receives a notice of termination in accordance with Section 13.05 hereof, the Trustee, or such other person appointed by the Trustee pursuant to this paragraph, shall separately assume and become the successor in all respects to the Servicer in its capacity as Servicer under this Agreement and the transactions set forth or provided for herein, and all the responsibilities, duties and liabilities relating thereto and arising thereafter shall be assumed by the Trustee (except for any representations or warranties of the Servicer under this Agreement, the responsibilities, duties and liabilities contained in Section 2.05 and the obligation to deposit amounts in respect of losses pursuant to Section 3.12) by the terms and provisions hereof including, without limitation, the Servicer's obligations to make Advances pursuant to Section 4.03; provided, however, that if the Trustee is prohibited by law or regulation from obligating itself to make advances regarding delinquent mortgage loans, then the Trustee shall not be obligated to make Advances pursuant to Section 4.03; and provided further, that any failure to perform such duties or responsibilities caused by the Servicer's failure to provide information required by Section 7.01 shall not be considered a default by the Trustee as successor to the Servicer hereunder. As compensation therefor, the Trustee shall be entitled to the Servicing Fee and all funds relating to the Mortgage Loans to which the Servicer would have been entitled if it had continued to act hereunder. Notwithstanding the above and subject to Section 7.02(a)(2) below, the Trustee may, if it shall be unwilling to so act, or shall, if it is unable to so act or if it is prohibited by law from making advances regarding delinquent mortgage loans or if the Holders of Certificates entitled to at least 66% of the Voting Rights so request in writing to the Trustee promptly appoint or petition a court of competent jurisdiction to appoint, a Fannie Mae or Freddie Mac approved mortgage loan servicing institution acceptable to each Rating Agency without qualification, withdrawal or downgrading of the ratings then assigned to any of the Certificates and having a net worth of not less than $10,000,000, as the successor to the Servicer under this Agreement in the assumption of all or any part of the responsibilities, duties or liabilities of the Servicer under this Agreement. All Servicing Transfer Costs shall be paid by the predecessor Servicer upon presentation of reasonable documentation of such costs (provided, that if the Trustee is the predecessor Servicer by reason of this Section 7.02, such costs shall be paid by the Servicer preceding the Trustee as successor servicer), and if such predecessor or initial Servicer, as applicable, defaults in its obligation to pay such costs, such costs shall be paid by the successor Servicer or the Trustee (in which case the successor Servicer or the Trustee, as applicable, shall be entitled to reimbursement therefor from the assets of the Trust Fund). (2) No appointment of a successor to the Servicer under this Agreement shall be effective until the assumption by the successor of all of the Servicer's responsibilities, duties and liabilities hereunder. In connection with such appointment and assumption 114 described herein, 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 Servicer as such hereunder. The Depositor, the Trustee and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. Pending appointment of a successor to the Servicer under this Agreement, the Trustee shall act in such capacity as hereinabove provided. SECTION 7.03 Notification to Certificateholders. (a) Upon any termination of the Servicer pursuant to Section 7.01 above or any appointment of a successor to the Servicer pursuant to Section 7.02 above, the Trustee shall give prompt written notice thereof to Certificateholders at their respective addresses appearing in the Certificate Register. (b) Not later than the later of 60 days after the occurrence of any event, which constitutes or which, with notice or lapse of time or both, would constitute a Servicer Event of Default or five days after a Responsible Officer of the Trustee becomes aware of the occurrence of such an event, the Trustee shall transmit by mail to all Holders of Certificates notice of each such occurrence, unless such default or Servicer Event of Default shall have been cured or waived. SECTION 7.04 Waiver of Servicer Events of Default. Holders representing at least 66% of the Voting Rights evidenced by all Classes of Certificates affected by any default or Servicer Event of Default hereunder may waive such default or Servicer Event of Default; provided, however, that a default or Servicer Event of Default under clause (i) or (vii) of Section 7.01 may be waived only by all of the Holders of the Regular Certificates. Upon any such waiver of a default or Servicer Event of Default, such default or Servicer 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 Servicer 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 a Servicer Event of Default and after the curing of all Servicer Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. During a Servicer Event of Default (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 person would exercise or use under the circumstances in the conduct of such person's own affairs. Any permissive right of the Trustee enumerated in this Agreement shall not be construed as a duty. (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 115 determine whether they conform on their face to the requirements of this Agreement. If any such instrument is found not to conform on its face to the requirements of this Agreement in a material manner, the Trustee shall take such action as it deems appropriate to have the instrument corrected, and if the instrument is not corrected to its satisfaction, will provide notice thereof to the Certificateholders. (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 misconduct; provided, however, that: (i) Prior to the occurrence of a Servicer Event of Default, and after the curing of all such Servicer 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 that conform to 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; and (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 Holders of Certificates entitled to at least 25% of the Voting Rights relating 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 it, under this Agreement. (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 Trust 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 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 request and conclusively rely upon and shall be fully 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 reasonably 116 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 not be under any 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 security or indemnity reasonably satisfactory to it 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 a Servicer Event of Default (which has not been cured or waived), 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 person would exercise or use under the circumstances in the conduct of such person'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 a Servicer Event of Default hereunder and after the curing of all Servicer 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 entitled to at least 25% of the Voting Rights; 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 such Certificateholders, the Trustee may require indemnity reasonably satisfactory to it against such expense or liability from such Certificateholders as a condition to taking any such action; (vi) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, accountants or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any agents, accountants or attorneys appointed with due care by it hereunder; (vii) The Trustee shall have no obligation to invest and reinvest any cash held in the absence of timely and specific written investment direction from the Servicer or the Depositor. In no event shall the Trustee be liable for the selection of investments or for investment losses incurred thereon. The Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any investment incurred as a result of the 117 liquidation of any investment prior to its stated maturity or the failure of the Servicer or the Depositor to provide timely written investment direction; and (viii) In order to comply with its duties under the USA Patriot Act of 2001, the Trustee shall obtain and verify certain information and documentation from the other parties to this Agreement including, but not limited to, each such party's name, address and other identifying information. (b) All rights of action under this Agreement or under any of the Certificates, enforceable by the Trustee, may be enforced by it without the possession of any of the Certificates, or the production thereof at the trial or other proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit of all the Holders of such Certificates, subject to the provisions of this Agreement. SECTION 8.03 Trustee Not Liable for Certificates or Mortgage Loans. The recitals contained herein and in the Certificates (other than the signature of the Trustee, the authentication of the Certificate Registrar on the Certificates, the acknowledgments of the Trustee contained in Article II and the representations and warranties of the Trustee in Section 8.13) shall be taken as the statements of the Depositor and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations or warranties as to the validity or sufficiency of this Agreement (other than as specifically set forth with respect to such party in Section 8.13) or of the Certificates (other than the signature of the Trustee and authentication of the Certificate Registrar on the Certificates) or of any Mortgage Loan or related document or of MERS or the MERS(R) System. The Trustee shall not be accountable for the use or application by the Depositor 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 Servicer in respect of the Mortgage Loans or deposited in or withdrawn from the Custodial Account by the Servicer, other than any funds held by or on behalf of the Trustee in accordance with Section 3.10, subject to Section 8.01. SECTION 8.04 Trustee May Own Certificates. The Trustee in its individual capacity 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 Trustee's Fees and Expenses. (a) The Trustee shall withdraw from the Certificate Account on each Distribution Date and pay to itself the Trustee Fee. The Trustee shall pay, from its own funds, the Custodian Fee as compensation for the Custodian's services under the Custodial Agreement as separately agreed to with the Custodian. In addition, the Trustee shall pay the Custodian amounts from the Certificate Account as set forth below. The Trustee, or any director, officer, employee or agent of the Trustee shall be indemnified by the Trust Fund and held harmless against any loss, liability or expense (not including expenses, disbursements and advances incurred or made by the Trustee including the compensation and the expenses and disbursements of its agents and counsel, in the ordinary course of the Trustee's performance in accordance with the provisions of this Agreement) incurred by the Trustee in connection with any Servicer Event of Default (not including expenses, disbursements and 118 advances incurred or made by the Trustee in its capacity as successor Servicer), default, claim or legal action or any pending or threatened claim or legal action arising out of or in connection with the acceptance or administration of its obligations and duties under this Agreement or the Cap Contracts or the Custodial Agreement, other than any loss, liability or expense (i) resulting from a breach of the Servicer's obligations and duties under this Agreement (for which the Servicer indemnifies pursuant to Sections 8.05(b) and 10.03(b)), (ii) for the expenses of preparing and filing Tax Returns pursuant to Section 10.01(d) or (iii) any loss, liability or expense incurred by reason of its willful misfeasance, bad faith or negligence in the performance of its duties hereunder or by reason of reckless disregard of its respective obligations and duties hereunder. It is understood by the parties hereto that a "claim" as used in the preceding sentence includes any claim for indemnification made by the Custodian under Section 24 of the Custodial Agreement; provided, however, that the Trustee shall not lose any right it may have to indemnification under this Section 8.05 due to the willful misfeasance, bad faith or negligence of the Custodian in the performance of its duties under the Custodial Agreement or by reason of the Custodian's reckless disregard of its obligations and duties under the Custodial Agreement. Any amounts payable to the Trustee, or any director, officer, employee or agent of the Trustee in respect of the indemnification provided by this paragraph (a), or pursuant to any other right of reimbursement from the Trust Fund that the Trustee, or any director, officer, employee or agent of the Trustee, may have hereunder in its capacity as such, may be withdrawn by the Trustee from the Certificate Account at any time. (b) The Servicer agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense (including reasonable legal fees and disbursements of counsel) resulting from a breach of the Servicer's obligations and duties under this Agreement. Such indemnity shall survive the termination or discharge of this Agreement and the resignation or removal of the Trustee. Any payment hereunder made by the Servicer to the Trustee shall be from the Servicer's own funds, without reimbursement from the Trust Fund therefor. The provisions of this Section 8.05 shall survive the termination of this Agreement or the earlier resignation or removal of the Trustee. SECTION 8.06 Eligibility Requirements for Trustee. The Trustee hereunder shall at all times be a corporation or an association (other than the Depositor, the Seller, the Servicer or any Affiliate of the foregoing) organized and doing business under the laws of any 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 association publishes reports of conditions at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation or association 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. The Trustee may at any time resign and be discharged from the trust hereby created by giving written notice thereof to the 119 Depositor, the Servicer and the Certificateholders. Upon receiving such notice of resignation of the Trustee, 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. A copy of such instrument shall be delivered to the Certificateholders, the Trustee and the Servicer by the Depositor. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation or removal, the Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. 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, which instrument shall be delivered to the Trustee so removed and to the successor trustee. A copy of such instrument shall be delivered to the Certificateholders and the Servicer by the Depositor. The Holders of Certificates entitled to at least 66% 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. A copy of such instrument shall be delivered to the Certificateholders and the Servicer by the Depositor. Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall not become effective until acceptance of appointment by the successor trustee as provided in Section 8.08. SECTION 8.08 Successor Trustee. 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 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, as well as all moneys, held by it hereunder (other than any Mortgage Files at the time held by a custodian, which custodian shall become the agent of any successor trustee hereunder), and the Depositor 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. 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 120 8.06 and the appointment of such successor trustee shall not result in a downgrading of any Class of Certificates by either Rating Agency, as evidenced by a letter from each Rating Agency. 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 association into which the Trustee may be merged or converted or with which it may be consolidated or any corporation or association resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or association succeeding to the business of the Trustee shall be the successor of the Trustee hereunder, provided such corporation or 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. 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 REMIC I or property securing the same may at the time be located, the 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 REMIC I, and to vest in such Person or Persons, in such capacity, such title to REMIC I, or any part thereof, and, subject to the other provisions of this Section 8.10, such powers, duties, obligations, rights and trusts as the Servicer and the Trustee may consider necessary or desirable. Any such co-trustee or separate trustee shall be subject to the written approval of the Servicer. If the 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 a Servicer 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. The Servicer shall be responsible for the fees of any co-trustee or separate trustee appointed under this Section 8.10. (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 by the Trustee (whether as Trustee hereunder or as successor to the 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 REMIC I 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. 121 (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 trust 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 and a copy thereof given to the Depositor and the Servicer. (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 Trustee to Execute Custodial Agreement and Cap Contract. The Depositor hereby directs the Trustee to execute, deliver and perform its obligations under the Custodial Agreement and Cap Contracts on the Closing Date and thereafter on behalf of the Holders of the Class A Certificates and the Mezzanine Certificates. The Depositor, the Servicer and the Holders of the Class A Certificates and the Mezzanine Certificates by their acceptance of such Certificates acknowledge and agree that the Trustee shall execute, deliver and perform its obligations under the Custodial Agreement and Cap Contracts and shall do so solely in its capacity as Trustee of the Trust Fund and not in its individual capacity. SECTION 8.12 Appointment of Office or Agency. The Trustee shall maintain an office or agency in the United States where the Certificates may be surrendered for registration of transfer or exchange, and presented for final distribution. As of the Closing Date, the Trustee designates its Corporate Trust Office in Minneapolis, Minnesota for such purposes. Notices and demands to or upon the Trustee in respect of the Certificates and this Agreement may be delivered at the Corporate Trust Office in Columbia, Maryland. SECTION 8.13 Representations and Warranties of the Trustee. The Trustee hereby represents and warrants, solely as to itself, to the Servicer and the Depositor, as of the Closing Date, that: (i) It is a national banking association duly organized, validly existing and in good standing under the laws of the United States. (ii) The execution and delivery of this Agreement by it, and the performance and compliance with the terms of this Agreement by it, will not violate its charter or bylaws. 122 (iii) It has the full power and authority to enter into and consummate all transactions contemplated by this Agreement, has duly authorized the execution, delivery and performance of this Agreement, and has duly executed and delivered this Agreement. (iv) This Agreement, assuming due authorization, execution and delivery by the other parties hereto, constitutes a valid, legal and binding obligation of it, enforceable against it in accordance with the terms hereof, subject to (A) applicable bankruptcy, insolvency, receivership, reorganization, moratorium and other laws affecting the enforcement of creditors' rights generally, and (B) general principles of equity, regardless of whether such enforcement is considered in a proceeding in equity or at law. SECTION 8.14 Appointment of the Custodian. The Trustee may, at the direction of the Depositor and with the consent of the Servicer, appoint the Custodian to hold all or a portion of the Mortgage Files as agent for the Trustee, by entering into the Custodial Agreement. The appointment of the Custodian may at any time be terminated in accordance with the Custodial Agreement and a substitute custodian appointed therefor upon the reasonable request of the Servicer to the Trustee, the consent to which shall not be unreasonably withheld. The Trustee shall pay the fees (out of the Trustee Fee) and expenses not covered by the monthly fee paid to the Custodian and indemnity afforded to the Custodian (out of the Certificate Account) in accordance with Section 8.05 hereof and the Custodial Agreement. The Trustee, as directed by the Depositor and with the consent of the Servicer initially appoints Deutsche Bank National Trust Company, as Custodian. Subject to Article VIII hereof, the Trustee agrees to comply with the terms of the Custodial Agreement and to enforce the terms and provisions thereof against the Custodian for the benefit of the Certificateholders having an interest in any Mortgage File held by the Custodian. The Custodian shall be a depository institution or trust company subject to supervision by federal or state authority, shall have combined capital and surplus of at least $10,000,000 and shall be qualified to do business in the jurisdiction in which it holds any Mortgage File. The Custodial Agreement may be amended only as provided therein. The Trustee shall not be liable for the acts or omissions of the Custodian. In no event shall the appointment of the Custodian pursuant to the Custodial Agreement diminish the obligations of the Trustee hereunder. ARTICLE IX TERMINATION SECTION 9.01 Termination Upon Repurchase or Liquidation of All Mortgage Loans. (a) Subject to Section 9.02, the respective obligations and responsibilities under this Agreement of the Depositor, the Servicer and the Trustee (other than the obligations of the Servicer to the Trustee pursuant to Section 8.05 and of the Servicer to make remittances to the Trustee and the Trustee to make payments in respect of the REMIC I Regular Interests and the Classes of Certificates as hereinafter set forth) shall terminate upon payment to the Certificateholders and the deposit of all amounts held by or on behalf of the Trustee and required hereunder to be so paid or deposited on the Distribution Date coinciding with or following the earlier to occur of (i) the purchase by the Terminator (as defined below) of all Mortgage Loans and each REO Property remaining in REMIC I and (ii) the final payment or other liquidation (or any advance 123 with respect thereto) of the last Mortgage Loan or REO Property remaining in REMIC I; provided, however, that in no event shall the trust created hereby continue beyond the earlier of (a) 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 (b) the latest possible Maturity Date. Subject to Section 3.10 hereof, the purchase by the Terminator of all Mortgage Loans and each REO Property remaining in REMIC I shall be at a price equal to the greater of (i) the Stated Principal Balance of the Mortgage Loans and the appraised value of any REO Properties (such appraisal to be conducted by an Independent appraiser mutually agreed upon by the Terminator and, to the extent that the Class A Certificates or a Class of Mezzanine Certificates will not receive all amounts owed to it as a result of the termination, the Trustee, in their reasonable discretion) and (ii) the fair market value of the Mortgage Loans and the REO Properties (as determined by the Terminator and, to the extent that the Class A Certificates or a Class of Mezzanine Certificates will not receive all amounts owed to it as a result of the termination, the Trustee (it being understood and agreed that any determination by the Trustee shall be made solely in reliance on an appraisal by an Independent appraiser as provided above)), as of the close of business on the third Business Day next preceding the date upon which notice of any such termination is furnished to the related Certificateholders pursuant to Section 9.01(c), in each case plus accrued and unpaid interest thereon at the weighted average of the Mortgage Rates through the end of the Due Period preceding the final Distribution Date plus unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable to such Mortgage Loans and REO Properties and any accrued and unpaid Net WAC Rate Carryover Amounts (the "Termination Price"); provided, however, such option may only be exercised if the Termination Price is sufficient to pay all interest accrued on, as well as amounts necessary to retire the principal balance of, each class of notes issued pursuant to the Indenture. If the determination of the fair market value of the Mortgage Loans and REO Properties shall be required to be made by the Terminator and an Independent appraiser as provided above, (A) such appraisal shall be obtained at no expense to the Trustee and (B) the Trustee may conclusively rely on, and shall be protected in relying on, such appraisal. (b) The majority Holder of the Class CE Certificates shall have the right (the party exercising such right, the "Terminator") to purchase all of the Mortgage Loans and each REO Property remaining in REMIC I pursuant to clause (i) of the preceding paragraph in the manner set forth in Section 9.01(c) below if the aggregate Stated Principal Balance of the Mortgage Loans and each REO Property remaining in the Trust Fund at the time of such election is reduced to less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. By acceptance of a Residual Certificate, the Holders of the Residual Certificates agree, in connection with any termination hereunder, to assign and transfer any amounts in excess of par, and to the extent received in respect of such termination, to pay any such amounts to the Holders of the Class CE Certificates. (c) Notice of the liquidation of the Certificates shall be given promptly by the Trustee by letter to Certificateholders mailed (a) in the event such notice is given in connection with the purchase of the Mortgage Loans and each REO Property by the Terminator, not earlier than the 10th day and not later than the 20th day of the month next preceding the month of the final distribution on the related Certificates or (b) otherwise during the month of such final 124 distribution on or before the Determination Date in such month, in each case specifying (i) the Distribution Date upon which the Trust Fund will terminate and the final payment in respect of the REMIC I Regular Interests, as applicable and the related Certificates will be made upon presentation and surrender of the related Certificates at the office of the Trustee therein designated, (ii) the amount of any such final payment, (iii) that no interest shall accrue in respect of the REMIC I Regular Interests or the related Certificates from and after the Interest Accrual Period relating to the final Distribution Date therefor and (iv) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the related Certificates at the office of the Trustee. In the event such notice is given in connection with the purchase of all of the Mortgage Loans and each REO Property remaining in REMIC I by the Terminator, the Terminator shall deliver to the Trustee for deposit in the Certificate Account, not later than the third Business Day preceding the date for such final payment, an amount in immediately available funds equal to the above-described purchase price. The Trustee shall remit to the Servicer from such funds deposited in the Certificate Account (i) any amounts which the Servicer would be permitted to withdraw and retain from the Custodial Account pursuant to Section 3.11 and (ii) any other amounts otherwise payable by the Trustee to the Servicer from amounts on deposit in the Certificate Account pursuant to the terms of this Agreement, in each case prior to making any final distributions pursuant to Section 10.01(d) below. Upon certification to the Trustee by the Terminator of the making of such final deposit, the Trustee shall promptly release to the Terminator the Mortgage Files for the remaining Mortgage Loans, and the Trustee shall execute all assignments, endorsements and other instruments necessary to effectuate such transfer. Immediately following the deposit of funds in trust hereunder in respect of the Certificates, the Trust Fund shall terminate. SECTION 9.02 Additional Termination Requirements. (a) In the event that the Terminator purchases all the Mortgage Loans and each REO Property or the final payment on or other liquidation of the last Mortgage Loan or REO Property remaining in REMIC I pursuant to Section 9.01, the Trust Fund (or the applicable Trust REMIC) shall be terminated in accordance with the following additional requirements: (i) The Trustee shall specify the first day in the 90-day liquidation period in a statement attached to each Trust REMIC's final Tax Return pursuant to Treasury regulation Section 1.860F-1 and shall satisfy all requirements of a qualified liquidation under Section 860F of the Code and any regulations thereunder, as evidenced by an Opinion of Counsel obtained at the expense of the Terminator; (ii) During 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 all of the assets of REMIC I to the Terminator for cash; and (iii) At the time of the making of the final payment on the Certificates, the Trustee shall distribute or credit, or cause to be distributed or credited, to the Holders of the Residual Certificates in respect of the Class R-I Interest all cash on hand in the Trust 125 Fund (other than cash retained to meet claims), and the Trust Fund shall terminate at that time. (b) At the expense of the requesting Terminator (or, if the Trust Fund is being terminated as a result of the occurrence of the event described in clause (ii) of the first paragraph of Section 9.01, at the expense of the Depositor without the right of reimbursement from the Trust Fund), the Terminator shall prepare or cause to be prepared the documentation required in connection with the adoption of a plan of liquidation of each Trust REMIC pursuant to this Section 9.02. (c) By their acceptance of Certificates, the Holders thereof hereby agree to authorize the Trustee to specify the 90-day liquidation period for each Trust REMIC, which authorization shall be binding upon all successor Certificateholders. ARTICLE X REMIC PROVISIONS SECTION 10.01 REMIC Administration. (a) The Trustee shall elect to treat each Trust REMIC as a REMIC under the Code and, if necessary, under applicable state law. Each such election will be made by the Trustee on Form 1066 or other appropriate federal tax or information return or any appropriate state return for the taxable year ending on the last day of the calendar year in which the Certificates are issued. For the purposes of the REMIC election in respect of REMIC I, the REMIC I Regular Interests shall be designated as the Regular Interests in REMIC I and the Class R-I Interest shall be designated as the sole class of Residual Interests in REMIC I. The Class A Certificates and the Mezzanine Certificates shall be designated as the Regular Interests in REMIC II and the Class R-II Interest shall be designated as the sole class of Residual Interests in REMIC II. The Trustee shall not permit the creation of any "interests" in any Trust REMIC (within the meaning of Section 860G of the Code) other than the REMIC I Regular Interests and the interests represented by the Certificates. (b) The Closing Date is hereby designated as the "Startup Day" of each Trust REMIC within the meaning of Section 860G(a)(9) of the Code. (c) The Trustee shall be reimbursed for any and all expenses relating to any tax audit of the Trust Fund (including, but not limited to, any professional fees or any administrative or judicial proceedings with respect to each Trust REMIC that involve the Internal Revenue Service or state tax authorities), including the expense of obtaining any tax related Opinion of Counsel required to be obtained hereunder. The Trustee, as agent for each Trust REMIC's tax matters person shall (i) act on behalf of the Trust Fund in relation to any tax matter or controversy involving any Trust REMIC 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 holder of the largest Percentage Interest of each Class of Residual Certificates shall be designated, in the manner provided under Treasury regulations section 1.860F-4(d) and Treasury regulations section 301.6231(a)(7)-1, as the tax matters person of the Trust REMICs created hereunder. By their acceptance thereof, the holder of the largest Percentage Interest of 126 the Residual Certificates hereby agrees to irrevocably appoint the Trustee or an Affiliate as its agent to perform all of the duties of the tax matters person for the Trust Fund. (d) The Trustee shall prepare, sign and file all of the Tax Returns (including Form 8811, which must be filed within 30 days following the Closing Date) in respect of each Trust REMIC created hereunder. The expenses of preparing and filing such returns shall be borne by the Trustee without any right of reimbursement therefor. (e) The Trustee shall perform on behalf of each Trust REMIC all reporting and other tax compliance duties that are the responsibility of such REMIC under the Code, the REMIC Provisions or other compliance guidance issued by the Internal Revenue Service or any state or local taxing authority. Among its other duties, as required by the Code, the REMIC Provisions or other such compliance guidance, the Trustee shall provide (i) to any Transferor of a Residual Certificate such information as is necessary for the application of any tax relating to the transfer of a Residual Certificate to any Person who is not a Permitted Transferee, (ii) 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 and market discount or premium (using the Prepayment Assumption as required) 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 Trust REMIC. The Depositor shall provide or cause to be provided to the Trustee, within ten (10) days after the Closing Date, all information or data that the Trustee reasonably determines to be relevant for tax purposes as to the valuations and issue prices of the Certificates, including, without limitation, the price, yield, prepayment assumption and projected cash flow of the Certificates. (f) The Trustee shall take such action and shall cause each Trust REMIC created hereunder to take such action as shall be necessary to create or maintain the status thereof as a REMIC under the REMIC Provisions. The Trustee shall not take any action or cause the Trust Fund to take any action or fail to take (or fail to cause to be taken) any action that, under the REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger the status of each Trust REMIC as a REMIC or (ii) result in the imposition of a tax upon the Trust Fund (including but not limited to the tax on prohibited transactions as defined in Section 860F(a)(2) of the Code and the tax on contributions to a REMIC set forth in Section 860G(d) of the Code) (either such event, an "Adverse REMIC Event") unless the Trustee has received an Opinion of Counsel, addressed to the Trustee (at the expense of the party seeking to take such action but in no event at the expense of the Trustee) to the effect that the contemplated action will not, with respect to any Trust REMIC, endanger such status or result in the imposition of such a tax, nor shall the Servicer take or fail to take any action (whether or not authorized hereunder) as to which the Trustee 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; provided that the Servicer may conclusively rely on such Opinion of Counsel and shall incur no liability for its action or failure to act in accordance with such Opinion of Counsel. In addition, prior to taking any action with respect to any Trust REMIC or the respective assets of each, or causing any Trust REMIC to take any action, which is not contemplated under the terms of this Agreement, the Servicer will consult with the Trustee or its designee, in writing, with respect to whether such action could cause an Adverse REMIC Event to occur with respect to any Trust REMIC and the 127 Servicer shall not take any such action or cause any Trust REMIC to take any such action as to which the Trustee has advised it in writing that an Adverse REMIC Event could occur; provided that the Servicer may conclusively rely on such writing and shall incur no liability for its action or failure to act in accordance with such writing. The Trustee 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 permitted by this Agreement, but in no event shall such cost be an expense of the Trustee. At all times as may be required by the Code, the Trustee will ensure that substantially all of the assets of REMIC I will consist of "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, to the extent such obligations are within the Trustee's control and not otherwise inconsistent with the terms of this Agreement. (g) In the event that any tax is imposed on "prohibited transactions" of any Trust REMIC created hereunder as defined in Section 860F(a)(2) of the Code, on the "net income from foreclosure property" of such REMIC as defined in Section 860G(c) of the Code, on any contributions to any such REMIC after the Startup Day therefor pursuant to Section 860G(d) of the Code, or any other tax is imposed by the Code or any applicable provisions of state or local tax laws, such tax shall be charged (i) to the Trustee pursuant to Section 10.03 hereof, if such tax arises out of or results from a breach by the Trustee of any of its obligations under this Article X, (ii) to the Servicer pursuant to Section 10.03 hereof, if such tax arises out of or results from a breach by the Servicer of any of its obligations under Article III or this Article X, or (iii) in all other cases, against amounts on deposit in the Certificate Account and shall be paid by withdrawal therefrom. (h) On or before April 15 of each calendar year, commencing April 15, 2007, the Trustee shall deliver to each Rating Agency an Officer's Certificate of the Trustee stating the Trustee's compliance with this Article X. (i) The Trustee shall, for federal income tax purposes, maintain books and records with respect to each Trust REMIC on a calendar year and on an accrual basis. (j) Following the Startup Day, neither the Servicer nor the Trustee shall accept any contributions of assets to any Trust REMIC other than in connection with any Qualified Substitute Mortgage Loan delivered in accordance with Section 2.03 unless it shall have received an Opinion of Counsel to the effect that the inclusion of such assets in the Trust Fund will not cause any Trust REMIC to fail to qualify as a REMIC at any time that any Certificates are outstanding or subject any Trust REMIC to any tax under the REMIC Provisions or other applicable provisions of federal, state and local law or ordinances. (k) Neither the Trustee nor the Servicer shall enter into any arrangement by which any Trust REMIC will receive a fee or other compensation for services nor knowingly permit any Trust REMIC 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. 128 SECTION 10.02 Prohibited Transactions and Activities. None of the Depositor, the Servicer or the Trustee shall sell, dispose of or substitute for any of the Mortgage Loans (except in connection with (i) the 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 REMIC I, (iii) the termination of REMIC I pursuant to Article IX of this Agreement, (iv) a substitution pursuant to Article II of this Agreement or (v) a purchase of Mortgage Loans pursuant to Article II or III of this Agreement), nor acquire any assets for any Trust REMIC (other than REO Property acquired in respect of a defaulted Mortgage Loan), nor sell or dispose of any investments in the Custodial Account or the Certificate Account for gain, nor accept any contributions to any Trust REMIC after the Closing Date (other than a Qualified Substitute Mortgage Loan delivered in accordance with Section 2.03), unless it has received an Opinion of Counsel, addressed to the Trustee (at the expense of the party seeking to cause such sale, disposition, substitution, acquisition or contribution but in no event at the expense of the Trustee) that such sale, disposition, substitution, acquisition or contribution will not (a) affect adversely the status of any Trust REMIC as a REMIC or (b) cause any Trust REMIC to be subject to a tax on "prohibited transactions" or "contributions" pursuant to the REMIC Provisions. SECTION 10.03 Servicer and Trustee Indemnification. (a) The Trustee agrees to indemnify the Trust Fund, the Depositor and the 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 Servicer as a result of a breach of the Trustee's covenants set forth in this Article X. (b) The Servicer agrees to indemnify the Trust Fund, the Depositor 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 or the Trustee, as a result of a breach of the Servicer's covenants set forth in Article III or this Article X. ARTICLE XI TRUSTEE COMPLIANCE WITH REGULATION AB SECTION 11.01 Intent of the Parties; Reasonableness. The Seller, the Trustee, the Depositor and the Servicer acknowledge and agree that the purpose of Article XI of this Agreement is to facilitate compliance by the Seller and the Depositor with the provisions of Regulation AB and related rules and regulations of the Commission. Neither the Seller nor the Depositor shall 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 thereunder. Each of the Depositor, the Seller, the 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 asset-backed securities markets, advice of counsel, or otherwise, and agrees to comply with requests made by the Seller or the Depositor in good faith for delivery of information under these provisions on the basis of evolving interpretations of Regulation AB. Each of the Servicer and 129 the Trustee shall cooperate fully with the Seller to deliver to the Seller (including any of its assignees or designees) and the Depositor, any and all statements, reports, certifications, records and any other information necessary in the good faith determination of the Seller or the Depositor to permit the Seller or the Depositor to comply with the provisions of Regulation AB, together with such disclosures relating to the Servicer, the Trustee and the Mortgage Loans, or the servicing of the Mortgage Loans, reasonably believed by the Seller or the Depositor to be necessary in order to effect such compliance. SECTION 11.02 Additional Representations and Warranties of the Trustee. For so long as the Trust is subject to the reporting requirements of the Exchange Act, the Trustee agrees that: (a) The Trustee shall be deemed to represent to the Seller and to the Depositor, as of the date hereof and the date on which information is provided to the Seller or the Depositor under Sections 11.01, 11.02(b) or 11.03 that, except as disclosed in writing to the Seller or 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 act or failure to act of the Trustee; (ii) it has not been terminated as trustee in a securitization of mortgage loans, (iii) there are no aspects of it's financial condition that could have a material adverse effect on its performance of its trustee obligations under this Agreement or any other Securitization Transaction as to which it is the trustee; (iv) there are no material legal or governmental proceedings pending (or known to be contemplated) against it that would be material to Certificateholders; and (v) there are no affiliations, relationships or transactions outside the ordinary course of business 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 (the "Transaction Parties"). (b) If so requested by the Seller or the Depositor on any date following the date on which information is first provided to the Seller or the Depositor under Section 11.03, 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 request or such confirmation, provide reasonably adequate disclosure of the pertinent facts, in writing, to the requesting party. SECTION 11.03 Information to Be Provided by the Trustee. (a) For so long as the Trust is subject to the reporting requirements of the Exchange Act, for the purpose of satisfying the Depositor's and the Seller's reporting obligation under the Exchange Act with respect to any class of asset-backed securities, the Trustee shall provide to the Servicer and the Seller a written description of (A) any litigation or governmental proceedings pending against the Trustee as of the last day of the 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 11.02(a)(iv) or 11.02(a)(v) as of the last day of each calendar year. Any descriptions required with respect to legal proceedings, as well as 130 updates to previously provided descriptions, under this Section 11.03 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 11.03 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 the Trustee 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 XI is materially correct and does not have any material omissions unless the Trustee has provided an update to such information. (b) In addition to such information as the Trustee is obligated to provide pursuant to other provisions of this Agreement, if so requested by the Servicer or the Seller in its reasonable good faith determination, the Trustee shall provide such information regarding the performance or servicing of the Mortgage Loans as is reasonably required to facilitate preparation of distribution reports in accordance with Item 1121 of Regulation AB. SECTION 11.04 Report on Assessment of Compliance and Attestation. On or before March 1 of each calendar year, the Trustee shall: (a) deliver to the Seller and the Depositor a report (in form and substance reasonably satisfactory to the Seller and 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 Seller and the Depositor and signed by an authorized officer of the Trustee, and shall address each of the Servicing Criteria specified on a certification substantially in the form of Exhibit J-2 hereto; (b) deliver to the Seller and the Depositor a report of a registered public accounting firm reasonably acceptable to the Seller and 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 11.05 Indemnification; Remedies. (a) The Trustee shall indemnify the Seller, each affiliate of the Seller, the Depositor, the Servicer, each broker dealer acting as underwriter, placement agent or initial purchaser, 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 (w) compliance certificate or report regarding the Trustee's assessment of compliance delivered by the Trustee or any Subcontractor of the Trustee pursuant to Section 11.04(a), (x) any report of a registered public accounting firm delivered by or on 131 behalf of the Trustee or any Subcontractor of the Trustee pursuant to Section 11.04(b), or (y) any information about the Trustee provided by it pursuant to Section 11.01, 11.02 or 11.03 (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; (ii) any failure by the Trustee to deliver any information, report, certification, accountants' letter or other material when and as required under this Article XI; or (iii) any breach by the Trustee of a representation or warranty set forth in Section 11.02(a) or in a writing furnished pursuant to Section 11.02(b). (b) In the case of any failure of performance described in clause (ii) of this Section 11.05(a), the Trustee shall promptly reimburse the Seller or the Depositor, as applicable, for all costs reasonably incurred by each such party in order to obtain the information, report, certification, accountants' attestation or other material not delivered as required by the Trustee and cooperate with the Depositor and the Seller to mitigate any damages that may result. ARTICLE XII SERVICER COMPLIANCE WITH REGULATION AB SECTION 12.01 Intent of the Parties; Reasonableness. The Seller, the Depositor and the Servicer acknowledge and agree that the purpose of Article XII of this Agreement is to facilitate compliance by the Seller and the Depositor with the provisions of Regulation AB and related rules and regulations of the Commission. Although Regulation AB is applicable by its terms only to offerings of asset-backed securities that are registered under the Securities Act, the Servicer acknowledges that investors in privately offered securities may require that the Seller or the Depositor provide comparable disclosure in unregistered offerings. References in this Agreement to compliance with Regulation AB include provision of comparable disclosure in private offerings. Neither the Seller nor the Depositor shall 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 thereunder (or the provision in a private offering of disclosure comparable to that required under the Securities Act). The Servicer 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 asset-backed securities markets, advice of counsel, or otherwise, and agrees to comply with requests made by the Seller or the Depositor in good faith for delivery of information under these provisions on the basis of evolving interpretations of Regulation AB. In connection with the transactions contemplated by this Agreement, the Servicer shall cooperate fully with the Seller to deliver to the Seller (including any of its assignees or designees) and the Depositor, any and all statements, reports, certifications, records and any other information necessary in the good faith 132 determination of the Seller or the Depositor to permit the Seller or the Depositor to comply with the provisions of Regulation AB, together with such disclosures relating to the Servicer, any Sub-Servicer, any Third-Party Originator and the Mortgage Loans, or the servicing of the Mortgage Loans, reasonably believed by the Seller or the Depositor to be necessary in order to effect such compliance. The Seller (including any of its assignees or designees) shall cooperate with the Servicer by providing timely notice of requests for information under these provisions and by reasonably limiting such requests to information required, in the Seller's reasonable judgment, to comply with Regulation AB. SECTION 12.02 Additional Representations and Warranties of the Servicer. (a) The Servicer shall be deemed to represent to the Seller and to the Depositor, as of the date on which information is first provided to the Servicer or the Depositor under Section 12.03 that, except as disclosed in writing to the Seller or the Depositor prior to such date: (i) the Servicer 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 due to any act or failure to act of the Servicer; (ii) the Servicer has not been terminated as servicer in a residential mortgage loan securitization, either due to a servicing default or to application of a servicing performance test or trigger; (iii) no material noncompliance with the applicable servicing criteria with respect to other securitizations of residential mortgage loans involving the Servicer as servicer has been disclosed or reported by the Servicer; (iv) no material changes to the Servicer's policies or procedures with respect to the servicing function it will perform under this Agreement for mortgage loans of a type similar to the Mortgage Loans have occurred during the three-year period immediately preceding the Closing Date; (v) there are no aspects of the Servicer's financial condition that could have a material adverse effect on the performance by the Servicer of its servicing obligations under this Agreement; (vi) there are no material legal or governmental proceedings pending (or known to be contemplated) against the Servicer, any Sub-Servicer or any Third-Party Originator; and (vii) there are no affiliations, relationships or transactions relating to the Servicer, any Sub-Servicer or any Third-Party Originator with respect to the transactions contemplated by this Agreement and any party thereto identified by the Depositor of a type described in Item 1119 of Regulation AB. (b) If so requested by the Seller or the Depositor on any date following the date on which information is first provided to the Seller or the Depositor under Section 12.03, the Servicer 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 request, provide reasonably adequate disclosure of the pertinent facts, in writing, to the requesting party. SECTION 12.03 Information to Be Provided by the Servicer. The Servicer shall (i) within five Business Days following request by the Seller or the Depositor, provide to the Seller and the Depositor (or, as applicable, cause each Third-Party Originator and each Sub-Servicer to provide), in writing and in form and substance reasonably satisfactory to the Seller and the Depositor, the information and materials specified in paragraphs (a), (b), (c) and (f) of this Section, and (ii) as promptly as practicable following notice to or discovery by the Servicer, 133 provide to the Seller and the Depositor (in writing and in form and substance reasonably satisfactory to the Seller and the Depositor) the information specified in paragraph (d) of this Section. (a) If so requested by the Seller or the Depositor, the Servicer shall provide such information regarding (i) the Servicer, as originator of the Mortgage Loans (including as an acquirer of Mortgage Loans from a Qualified Correspondent), or (ii) each Third-Party Originator, and (iii) as applicable, each Sub-Servicer, as is requested for the purpose of compliance with Items 1103(a)(1), 1105, 1110, 1117 and 1119 of Regulation AB. Such information shall include, at a minimum: (A) the originator's form of organization; (B) a description of the originator's origination program and how long the originator has been engaged in originating residential mortgage loans, which description shall include a discussion of the originator's experience in originating mortgage loans of a similar type as the Mortgage Loans; information regarding the size and composition of the originator's origination portfolio; and information that may be material, in the good faith judgment of the Seller or the Depositor, to an analysis of the performance of the Mortgage Loans, including the originators' credit-granting or underwriting criteria for mortgage loans of similar type(s) as the Mortgage Loans and such other information as the Seller or the Depositor may reasonably request for the purpose of compliance with Item 1110(b)(2) of Regulation AB; (C) a description of any material legal or governmental proceedings pending (or known to be contemplated) against the Servicer, each Third-Party Originator and each Sub-Servicer; and (D) a description of any affiliation or relationship between the Servicer, each Third-Party Originator, each Sub-Servicer and any of the following parties to a Securitization Transaction, as such parties are identified to the Servicer by the Seller or the Depositor in writing in advance of such Securitization Transaction: (i) the sponsor; (ii) the depositor; (iii) the issuing entity; (iv) any servicer; (v) any trustee; (vi) any originator; (vii) any significant obligor; 134 (viii) any enhancement or support provider; and (ix) any other material transaction party. (b) If so requested by the Seller or the Depositor, the Servicer shall provide (or, as applicable, cause each Third-Party Originator to provide) Static Pool Information with respect to the mortgage loans (of a similar type as the Mortgage Loans, as reasonably identified by the Seller as provided below) originated by (i) the Servicer, if the Servicer is an originator of Mortgage Loans (including as an acquirer of Mortgage Loans from a Qualified Correspondent), and/or (ii) each Third-Party Originator. Such Static Pool Information shall be prepared by the Servicer (or Third-Party Originator) on the basis of its reasonable, good faith interpretation of the requirements of Item 1105(a)(1)-(3) of Regulation AB. To the extent that there is reasonably available to the Servicer (or Third-Party Originator) Static Pool Information with respect to more than one mortgage loan type, the Seller or the Depositor shall be entitled to specify whether some or all of such information shall be provided pursuant to this paragraph. The content of such Static Pool Information may be in the form customarily provided by the Servicer, and need not be customized for the Seller or the Depositor. Such Static Pool Information for each vintage origination year or prior securitized pool, as applicable, shall be presented in increments no less frequently than quarterly over the life of the mortgage loans included in the vintage origination year or prior securitized pool. The most recent periodic increment must be as of a date no later than 135 days prior to the date of the prospectus or other offering document in which the Static Pool Information is to be included or incorporated by reference. The Static Pool Information shall be provided in an electronic format that provides a permanent record of the information provided, such as a portable document format (pdf) file, or other such electronic format reasonably required by the Seller or the Depositor, as applicable. Promptly following notice or discovery of a material error in Static Pool Information provided pursuant to the immediately preceding paragraph (including an omission to include therein information required to be provided pursuant to such paragraph), the Servicer shall provide corrected Static Pool Information to the Seller or the Depositor, as applicable, in the same format in which Static Pool Information was previously provided to such party by the Servicer. If so requested by the Seller or the Depositor, the Servicer shall provide (or, as applicable, cause each Third-Party Originator to provide), at the expense of the requesting party (to the extent of any additional incremental expense associated with delivery pursuant to this Agreement), such agreed-upon procedures letters of certified public accountants reasonably acceptable to the Seller or Depositor, as applicable, pertaining to Static Pool Information relating to prior securitized pools for securitizations closed on or after January 1, 2006 or, in the case of Static Pool Information with respect to the Servicer's or Third-Party Originator's originations or purchases, to calendar months commencing January 1, 2006, as the Seller or the Depositor shall reasonably request. Such letters shall be addressed to and be for the benefit of such parties as the Seller or the Depositor shall designate, which may include, by way of example, the Seller as sponsor, the Depositor and any broker dealer acting as underwriter, placement agent or initial purchaser with respect to the transactions contemplated by this Agreement. Any such statement 135 or letter may take the form of a standard, generally applicable document accompanied by a reliance letter authorizing reliance by the addressees designated by the Seller or the Depositor. (c) If so requested by the Seller or the Depositor, the Servicer shall provide such information regarding the Servicer, as servicer of the Mortgage Loans, and each Sub-Servicer (each of the Servicer and each Sub-Servicer, for purposes of this paragraph, a "Servicer"), as is requested for the purpose of compliance with Item 1108 of Regulation AB. Such information shall include, at a minimum: (A) the Servicer's form of organization; (B) a description of how long the Servicer has been servicing residential mortgage loans; a general discussion of the Servicer's experience in servicing assets of any type as well as a more detailed discussion of the Servicer's experience in, and procedures for, the servicing function it will perform under this Agreement; information regarding the size, composition and growth of the Servicer's portfolio of residential mortgage loans of a type similar to the Mortgage Loans and information on factors related to the Servicer that may be material, in the good faith judgment of the Seller or the Depositor, to any analysis of the servicing of the Mortgage Loans or the related asset-backed securities, as applicable, including, without limitation: (i) whether any prior securitizations of mortgage loans of a type similar to the Mortgage Loans involving the Servicer have defaulted or experienced an early amortization or other performance triggering event because of servicing during the three-year period immediately preceding the Closing Date; (ii) the extent of outsourcing the Servicer utilizes; (iii) whether there has been previous disclosure of material noncompliance with the applicable servicing criteria with respect to other securitizations of residential mortgage loans involving the Servicer as a servicer during the three-year period immediately preceding the Closing Date; (iv) whether the Servicer has been terminated as servicer in a residential mortgage loan securitization, either due to a servicing default or to application of a servicing performance test or trigger; and (v) such other information as the Seller or the Depositor may reasonably request for the purpose of compliance with Item 1108(b)(2) and Item 1108(c) of Regulation AB; (C) a description of any material changes during the three-year period immediately preceding the Closing Date to the Servicer's policies or procedures with respect to the servicing function it will perform under this Agreement for mortgage loans of a type similar to the Mortgage Loans; 136 (D) information regarding the Servicer's financial condition, to the extent that there is a material risk that an adverse financial event or circumstance involving the Servicer could have a material adverse effect on the performance by the Servicer of its servicing obligations under this Agreement; (E) information regarding advances made by the Servicer on the Mortgage Loans and the Servicer's overall servicing portfolio of residential mortgage loans for the three-year period immediately preceding the Closing Date, which may be limited to a statement by an authorized officer of the Servicer to the effect that the Servicer has made all advances required to be made on residential mortgage loans serviced by it during such period, or, if such statement would not be accurate, information regarding the percentage and type of advances not made as required, and the reasons for such failure to advance; (F) a description of the Servicer's processes and procedures designed to address any special or unique factors involved in servicing loans of a similar type as the Mortgage Loans; (G) a description of the Servicer's processes for handling delinquencies, losses, bankruptcies and recoveries, such as through liquidation of mortgaged properties, sale of defaulted mortgage loans or workouts; and (H) information as to how the Servicer defines or determines delinquencies and charge-offs, including the effect of any grace period, re-aging, restructuring, partial payments considered current or other practices with respect to delinquency and loss experience. (d) If so requested by the Seller or the Depositor for the purpose of satisfying its reporting obligation under the Exchange Act with respect to any class of asset-backed securities, the Servicer shall (or shall cause each Sub-Servicer and Third-Party Originator to) (i) notify the Seller and the Depositor in writing of (A) any material litigation or governmental proceedings pending against the Servicer, any Sub-Servicer or any Third-Party Originator and (B) any affiliations or relationships that develop following the Closing Date between the Servicer, any Sub-Servicer or any Third-Party Originator and any of the parties specified in clause (D) of paragraph (a) of this Section (and any other parties identified in writing by the requesting party) with respect to the issuing of the Certificates, and (ii) provide to the Seller and the Depositor a description of such proceedings, affiliations or relationships. (e) As a condition to the succession to the Servicer or any Sub-Servicer as servicer or subservicer under this Agreement by any Person (i) into which the Servicer or such Sub-Servicer may be merged or consolidated, or (ii) which may be appointed as a successor to the Servicer or any Sub-Servicer, the Servicer shall provide to the Seller and the Depositor, at least 15 calendar days prior to the effective date of such succession or appointment, (x) written notice to the Seller and the Depositor of such succession or appointment and (y) in writing and in form and substance reasonably satisfactory to the Seller and the Depositor, all information reasonably requested by the Seller or the Depositor in order to comply with its reporting obligation under Item 6.02 of Form 8-K with respect to any class of asset-backed securities. 137 (f) In addition to such information as the Servicer, as servicer, is obligated to provide pursuant to other provisions of this Agreement, if so requested by the Seller or the Depositor, the Servicer shall provide such information regarding the performance or servicing of the Mortgage Loans as is reasonably required to facilitate preparation of distribution reports in accordance with Item 1121 of Regulation AB. Such information shall be provided concurrently with the monthly reports otherwise required to be delivered by the Trustee pursuant to Section 4.02 of this Agreement, commencing with the first such report due not less than ten Business Days following such request. SECTION 12.04 Servicer Compliance Statement. On or before March 1 of each calendar year, commencing in 2007, the Servicer shall deliver to the Seller, the Trustee and the Depositor a statement of compliance addressed to the Seller and the Depositor and signed by an authorized officer of the Servicer, to the effect that (i) a review of the Servicer's activities during the immediately preceding calendar year (or applicable portion thereof) and of its performance under this Agreement and any applicable Mortgage Loan Purchase Agreement during such period has been made under such officer's supervision, and (ii) to the best of such officers' knowledge, based on such review, the Servicer has fulfilled all of its obligations under this Agreement and any applicable Mortgage Loan Purchase Agreement in all material respects throughout such calendar year (or applicable portion thereof) or, if there has been a failure to fulfill any such obligation in any material respect, specifically identifying each such failure known to such officer and the nature and the status thereof. SECTION 12.05 Report on Assessment of Compliance and Attestation. (a) On or before March 1 of each calendar year, commencing in 2007, the Servicer shall: (i) deliver to the Seller, the Trustee and the Depositor a report (in form and substance reasonably satisfactory to the Seller and the Depositor) regarding the Servicer'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 Seller and the Depositor and signed by an authorized officer of the Servicer, and shall address each of the Servicing Criteria specified on a certification substantially in the form of Exhibit J-2 hereto delivered to the Seller concurrently with the execution of this Agreement; (ii) deliver to the Seller, the Trustee and the Depositor a report of a registered public accounting firm reasonably acceptable to the Seller and the Depositor that attests to, and reports on, the assessment of compliance made by the Servicer 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; immediately upon receipt of such report, the Servicer shall, at its own expense, furnish a copy of such report to the Trustee and each Rating Agency. Copies of such statement shall be provided by the Trustee to any Certificateholder upon request, provided that such statement is delivered by the Servicer to the Trustee; (iii) cause each Sub-Servicer, and each Subcontractor determined by the Servicer pursuant to Section 12.06(b) to be "participating in the servicing function" 138 within the meaning of Item 1122 of Regulation AB, to deliver to the Seller, the Trustee and the Depositor an assessment of compliance and accountants' attestation as and when provided in paragraphs (a) and (b) of this Section; and (iv) if requested by the Seller or the Depositor not later than February 1 of the calendar year in which such certification is to be delivered, deliver to the Seller, the Depositor and any other Person that will be responsible for signing the certification (a "Sarbanes Certification") required by Rules 13a-14(d) and 15d-14(d) under the Exchange Act (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) on behalf of an asset-backed issuer with respect to the transactions contemplated by this Agreement a certification in the form attached hereto as Exhibit I-1. The Servicer acknowledges that the parties identified in clause (a)(iv) above may rely on the certification provided by the Servicer pursuant to such clause in signing a Sarbanes Certification and filing such with the Commission. Neither the Seller nor the Depositor will request delivery of a certification under clause (a)(iv) above unless the Depositor is required under the Exchange Act to file an annual report on Form 10-K with respect to an issuing entity whose asset pool includes Mortgage Loans. (b) Each assessment of compliance provided by a Sub-Servicer pursuant to Section 12.05(a)(i) shall address each of the Servicing Criteria specified on a certification substantially in the form of Exhibit J-2 hereto delivered to the Seller concurrently with the execution of this Agreement or, in the case of a Sub-Servicer subsequently appointed as such, on or prior to the date of such appointment. An assessment of compliance provided by a Subcontractor pursuant to Section 12.05(a)(iii) need not address any elements of the Servicing Criteria other than those specified by the Servicer pursuant to Section 12.06. SECTION 12.06 Use of Sub-Servicers and Subcontractors. The Servicer shall not hire or otherwise utilize the services of any Sub-Servicer to fulfill any of the obligations of the Servicer as servicer under this Agreement unless the Servicer complies with the provisions of paragraph (a) of this Section. The Servicer shall not hire or otherwise utilize the services of any Subcontractor, and shall not permit any Sub-Servicer to hire or otherwise utilize the services of any Subcontractor, to fulfill any of the obligations of the Servicer as servicer under this Agreement unless the Servicer complies with the provisions of paragraph (b) of this Section. (a) It shall not be necessary for the Servicer to seek the consent of the Seller or the Depositor to the utilization of any Sub-Servicer. The Servicer shall cause any Sub-Servicer used by the Servicer (or by any Sub-Servicer) for the benefit of the Seller and the Depositor to comply with the provisions of this Section and with Sections 12.02, 12.03(c) and (e), 12.04, 12.05 and 12.07 of this Agreement to the same extent as if such Sub-Servicer were the Servicer, and to provide the information required with respect to such Sub-Servicer under Section 12.03(d) of this Agreement. The Servicer shall be responsible for obtaining from each Sub-Servicer and delivering to the Seller and the Depositor any servicer compliance statement required to be delivered by such Sub-Servicer under Section 12.04, any assessment of compliance and attestation required to be delivered by such Sub-Servicer under Section 12.05 and any 139 certification required to be delivered to the Person that will be responsible for signing the Sarbanes Certification under Section 12.05 as and when required to be delivered. (b) It shall not be necessary for the Servicer to seek the consent of the Seller or the Depositor to the utilization of any Subcontractor. The Servicer shall promptly upon request provide to the Seller and the Depositor (or any designee of the Depositor, such as a master servicer or administrator) a written description (in form and substance satisfactory to the Seller and the Depositor) of the role and function of each Subcontractor utilized by the Servicer or any Sub-Servicer, specifying (i) the identity of each such Subcontractor, (ii) which (if any) of such Subcontractors are "participating in the servicing function" within the meaning of Item 1122 of Regulation AB, and (iii) which elements of the Servicing Criteria will be addressed in assessments of compliance provided by each Subcontractor identified pursuant to clause (ii) of this paragraph. As a condition to the utilization of any Subcontractor determined to be "participating in the servicing function" within the meaning of Item 1122 of Regulation AB, the Servicer shall cause any such Subcontractor used by the Servicer (or by any Sub-Servicer) for the benefit of the Seller and the Depositor to comply with the provisions of Sections 12.05 and 12.07 of this Agreement to the same extent as if such Subcontractor were the Servicer. The Servicer shall be responsible for obtaining from each Subcontractor and delivering to the Seller and the Depositor any assessment of compliance and attestation required to be delivered by such Subcontractor under Section 12.05, in each case as and when required to be delivered. SECTION 12.07 Indemnification; Remedies. (a) The Servicer shall indemnify the Trustee, the Depositor, the Seller, each affiliate of the Seller, and each of the following parties participating in the transactions contemplated by this Agreement: each sponsor and issuing entity; each Person responsible for the preparation, execution or filing of any report required to be filed with the Commission with respect to such transactions, or for execution of a certification pursuant to Rule 13a-14(d) or Rule 15d-14(d) under the Exchange Act with respect to such transactions; each broker dealer acting as underwriter, placement agent or initial purchaser, each Person who controls any of such parties or the Depositor (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 of the Depositor, 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' letter or other material provided in written or electronic form under this Article XII by or on behalf of the Servicer, or provided under this Article XII by or on behalf of any Sub-Servicer, Subcontractor or Third-Party Originator (collectively, the "Servicer Information"), or (B) the omission or alleged omission to state in the Servicer Information a material fact required to be stated in the Servicer 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 140 construed solely by reference to the Servicer Information and not to any other information communicated in connection with a sale or purchase of securities, without regard to whether the Servicer Information or any portion thereof is presented together with or separately from such other information; (ii) any failure by the Servicer, any Sub-Servicer, any Subcontractor or any Third-Party Originator to deliver any information, report, certification, accountants' letter or other material when and as required under this Article XII, including any failure by the Servicer to identify pursuant to Section 12.06(b) any Subcontractor "participating in the servicing function" within the meaning of Item 1122 of Regulation AB; or (iii) any breach by the Servicer of a representation or warranty set forth in Section 12.02(a) or in a writing furnished pursuant to Section 12.02(b) and made as of a date prior to the Closing Date, to the extent that such breach is not cured by such closing date, or any breach by the Servicer of a representation or warranty in a writing furnished pursuant to Section 12.02(b) to the extent made as of a date subsequent to such closing date. In the case of any failure of performance described in clause (a)(ii) of this Section, the Servicer shall promptly reimburse the Seller, the Depositor, as applicable, and each Person responsible for the preparation, execution or filing of any report required to be filed with the Commission with respect to the transactions contemplated hereunder, or for execution of a certification pursuant to Rule 13a-14(d) or Rule 15d-14(d) under the Exchange Act with respect to the transactions contemplated by this Agreement, for all costs reasonably incurred by each such party in order to obtain the information, report, certification, accountants' letter or other material not delivered as required by the Servicer, any Sub-Servicer, any Subcontractor or any Third-Party Originator. (b) (i) Any failure by the Servicer, any Sub-Servicer, any Subcontractor or any Third-Party Originator to deliver any information, report, certification, accountants' letter or other material when and as required under this Article XII, or any breach by the Servicer of a representation or warranty set forth in Section 12.02(a) or in a writing furnished pursuant to Section 12.02(b) and made as of a date prior to the Closing Date, to the extent that such breach is not cured by such closing date, or any breach by the Servicer of a representation or warranty in a writing furnished pursuant to Section 12.02(b) to the extent made as of a date subsequent to such closing date, shall, except as provided in clause (ii) of this paragraph, immediately and automatically, without notice or grace period, constitute an Event of Default with respect to the Servicer under this Agreement and shall entitle the Depositor, in its sole discretion, to terminate the rights and obligations of the Servicer as servicer under this Agreement without payment (notwithstanding anything in this Agreement to the contrary) of any compensation to the Servicer; provided that to the extent that any provision of this Agreement expressly provides for the survival of certain rights or obligations following termination of the Servicer as servicer, such provision shall be given effect. (ii) Any failure by the Servicer, any Sub-Servicer or any Subcontractor to deliver any information, report, certification or accountants' letter when and as required 141 under Section 12.04 or 12.05, including (except as provided below) any failure by the Servicer to identify pursuant to Section 12.06(b) any Subcontractor "participating in the servicing function" within the meaning of Item 1122 of Regulation AB, which continues unremedied for ten calendar days after the date on which such information, report, certification or accountants' letter was required to be delivered shall constitute an Event of Default with respect to the Servicer under this Agreement, and shall entitle Depositor, as applicable, in its sole discretion to terminate the rights and obligations of the Servicer as servicer under this Agreement without payment (notwithstanding anything in this Agreement to the contrary) of any compensation to the Servicer; provided that to the extent that any provision of this Agreement expressly provides for the survival of certain rights or obligations following termination of the Servicer as servicer, such provision shall be given effect. Neither the Seller nor the Depositor shall be entitled to terminate the rights and obligations of the Servicer pursuant to this subparagraph (b)(ii) if a failure of the Servicer to identify a Subcontractor "participating in the servicing function" within the meaning of Item 1122 of Regulation AB was attributable solely to the role or functions of such Subcontractor with respect to mortgage loans other than the Mortgage Loans. (iii) The Servicer shall promptly reimburse the Seller (or any designee of the Seller, such as a master servicer) and the Depositor, as applicable, for all reasonable expenses incurred by the Seller (or such designee) or the Depositor, as such are incurred, in connection with the termination of the Servicer as servicer and the transfer of servicing of the Mortgage Loans to a successor servicer. The provisions of this paragraph shall not limit whatever rights the Seller or the Depositor may have under other provisions of this Agreement or otherwise, whether in equity or at law, such as an action for damages, specific performance or injunctive relief. ARTICLE XIII MISCELLANEOUS PROVISIONS SECTION 13.01 Amendment. This Agreement may be amended from time to time by the Depositor, the Servicer and the Trustee without the consent of any of the Certificateholders, (i) to cure any ambiguity or defect, (ii) to correct, modify or supplement any provisions herein (including to give effect to the expectations of Certificateholders), (iii) to amend the provisions of Section 4.06, (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 Servicer Remittance 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 any of its provisions to such extent as shall be necessary or desirable to maintain the qualification of any Trust REMIC created hereunder as a Trust REMIC at all times that any Certificate is 142 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, (vi) such amendment is made to conform the terms of this Agreement to the terms described in the Prospectus dated January 25, 2006 together with the Prospectus Supplement dated February 6, 2006, or (vii) to make any other provisions with respect to matters or questions arising under this Agreement which shall not be inconsistent with the provisions of this Agreement, provided that any such action pursuant to clauses (i), (ii), (iii), (vi) or (vii), as evidenced by either (a) an Opinion of Counsel delivered to the Trustee adversely affect in any material respect the interests of any Certificateholder or (b) written notice to the Depositor, the Servicer and the Trustee from the Rating Agencies that such action will not result in the reduction or withdrawal of the rating of any outstanding Class of Certificates with respect to which it is a Rating Agency). No amendment shall be deemed to adversely affect in any material respect the interests of any Certificateholder who shall have consented thereto, and no Opinion of Counsel or Rating Agency confirmation shall be required to address the effect of any such amendment on any such consenting Certificateholder. Notwithstanding the foregoing, neither an Opinion of Counsel nor written notice to the Depositor, the Servicer and the Trustee from the Rating Agencies will be required in connection with an amendment to the provisions of Section 4.06. This Agreement may also be amended from time to time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Holders of Certificates; provided, however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, payments received on Mortgage Loans 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 interests of the Holders of any Class of Certificates (as evidenced by either (a) an Opinion of Counsel delivered to the Trustee or (b) written notice to the Depositor, the Servicer and the Trustee from the Rating Agencies that such action will not result in the reduction or withdrawal of the rating of any outstanding Class of Certificates with respect to which it is a Rating Agency) in a manner, other than as described in (i) or (iii) modify the consents required by the immediately preceding clauses (i) and (ii) without the consent of the Holders of all Certificates then outstanding. Notwithstanding any other provision of this Agreement, for purposes of the giving or withholding of consents pursuant to this Section 13.01, Certificates registered in the name of the Depositor or the Servicer or any Affiliate thereof shall be entitled to Voting Rights with respect to matters affecting such Certificates. 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 to the effect that such amendment (i) will not result in the imposition of any tax on any Trust REMIC pursuant to the REMIC Provisions or cause any Trust REMIC to fail to qualify as a 143 REMIC at any time that any Certificates are outstanding and (ii) is authorized or permitted hereunder. Promptly after the execution of any such amendment the Trustee shall furnish a copy of such amendment to each Certificateholder. It shall not be necessary for the consent of Certificateholders under this Section 13.01 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. The cost of any Opinion of Counsel to be delivered pursuant to this Section 13.01 shall be borne by the Person seeking the related amendment, but in no event shall such Opinion of Counsel be an expense of the Trustee. The Trustee may, but shall not be obligated to enter into any amendment pursuant to this Section that affects its rights, duties and immunities under this Agreement or otherwise. SECTION 13.02 Recordation of Agreement; Counterparts. To the extent permitted by applicable law, this Agreement is subject to recordation in all appropriate public offices for real property records in all of the counties or other comparable jurisdictions in which any or all of the Mortgaged Properties are situated, and in any other appropriate public recording office or elsewhere. The Servicer shall effect such recordation at the Trust's expense upon the request in writing of a Certificateholder, but only if such direction is accompanied by an Opinion of Counsel (provided at the expense of the Certificateholder requesting recordation) to the effect that such recordation would materially and beneficially affect the interests of the Certificateholders or is required by law. 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 13.03 Limitation on Rights of Certificateholders. The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's legal representative or heirs to claim an accounting or to take any action or commence any proceeding in any court for a petition or winding up of the Trust Fund, or otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. No Certificateholder shall have any right to vote (except as 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 party by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. 144 No Certificateholder shall have any right by virtue or by availing itself of any provisions 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 an Event of Default and of the continuance thereof, as hereinbefore provided, the Holders of Certificates evidencing not less than 25% of the Voting Rights evidenced by the Certificates shall also have made written request to 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 shall have any right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Agreement to affect, disturb or prejudice the rights of the Holders of any other of the Certificates, 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 all Certificateholders. For the protection and enforcement of the provisions of this Section 13.03, each and every Certificateholder, the Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 13.04 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HERETO AND THE CERTIFICATEHOLDERS SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS). SECTION 13.05 Notices. All directions, demands and notices hereunder shall be in writing and shall be deemed to have been duly given when received if personally delivered at or mailed by first class mail, postage prepaid, or by express delivery service or delivered in any other manner specified herein, to (a) in the case of the Depositor, Stanwich Asset Acceptance Company, L.L.C., Seven Greenwich Office Park, 599 West Putnam Avenue, Greenwich, Connecticut 06830, Attention: President, or such other address or telecopy number as may hereafter be furnished to the Servicer and the Trustee in writing by the Depositor, (b) in the case of the Servicer, 18400 Von Karman, Suite 1000, Irvine, California 92612, Attention: Kevin Cloyd (telecopy number: (949) 440-7033), or such other address or telecopy number as may hereafter be furnished to the Trustee and the Depositor in writing by the Servicer and (c) in the case of the Trustee, at its Corporate Trust Office in Columbia, Maryland, or such other address or telecopy number as may hereafter be furnished to the Servicer, the and the Depositor in writing by the Trustee. Any notice required or permitted to be given 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 when mailed, whether or not the 145 Certificateholder receives such notice. A copy of any notice required to be telecopied hereunder also shall be mailed to the appropriate party in the manner set forth above. SECTION 13.06 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 13.07 Notice to Rating Agencies. The Trustee shall use its best efforts promptly to provide notice to the Rating Agencies with respect to each of the following of which it has actual knowledge: Any material change or amendment to this Agreement; The occurrence of any Servicer Event of Default that has not been cured or waived; The resignation or termination of the Servicer or the Trustee; The repurchase or substitution of Mortgage Loans pursuant to or as contemplated by Section 2.03; The final payment to the Holders of any Class of Certificates; Any change in the location of the Custodial Account or the Certificate Account; and Any event that would result in the inability of the Trustee, as successor servicer, to make advances regarding delinquent Mortgage Loans. In addition, the Trustee shall make available to each Rating Agency copies of each report to Certificateholders described in Section 4.02 and the Servicer shall promptly furnish to each Rating Agency copies of the following: Each annual statement as to compliance described in Section 12.05(i); and Each annual independent public accountants' servicing report described in Section 12.05(ii). Any such notice pursuant to this Section 13.07 shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by first class mail, postage prepaid, or by express delivery service to Fitch Ratings, One State Street Plaza, New, York, New York 10004, facsimile number: (212) 344-1986 and to Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc., 55 Water Street, New York, New York 10007 or such other addresses as the Rating Agencies may designate in writing to the parties hereto. SECTION 13.08 Article and Section References. All article and section references used in this Agreement, unless otherwise provided, are to articles and sections in this Agreement. 146 SECTION 13.09 Grant of Security Interest. It is the express intent of the parties hereto that the conveyance of the Mortgage Loans by the Depositor to the Trustee, be, and be construed as, a sale of the Mortgage Loans by the Depositor and not a pledge of the Mortgage Loans to secure a debt or other obligation of the Depositor. However, in the event that, notwithstanding the aforementioned intent of the parties, the Mortgage Loans are held to be property of the Depositor, then, (a) it is the express intent of the parties that such conveyance be deemed a pledge of the Mortgage Loans by the Depositor to the Trustee to secure a debt or other obligation of the Depositor and (b) (1) this Agreement shall also be deemed to be a security agreement within the meaning of Articles 8 and 9 of the Uniform Commercial Code as in effect from time to time in the State of New York; (2) the conveyance provided for in Section 2.01 hereof shall be deemed to be a grant by the Depositor to the Trustee of a security interest in all of the Depositor's right, title and interest in and to (i) such Mortgage Loans and all amounts payable to the holders of the Mortgage Loans in accordance with the terms thereof and all proceeds of the conversion voluntary or involuntary, of the foregoing into cash, instruments, securities or other property and Prepayment Charges related thereto as from time to time are subject to this Agreement, together with the Mortgage Files relating thereto, and together with all collections thereon and proceeds thereof; (ii) any REO Property, together with all collections thereon and proceeds thereof; (iii) the Depositor's rights with respect to the Mortgage Loans under all insurance policies required to be maintained pursuant to this Agreement and any proceeds thereof; (iv) the Depositor's rights under the Mortgage Loan Purchase Agreement (including any security interest created thereby); (v) the Custodial Account (other than any amounts representing any Servicer Prepayment Charge Payment Amount), the Certificate Account (other than any amounts representing any Servicer Prepayment Charge Payment Amount) and any REO Account, and such assets that are deposited therein from time to time and any investments thereof, together with any and all income, proceeds and payments with respect thereto; (vi) the Net WAC Rate Carryover Reserve Account; and (vii) the Depositor's rights under the Cap Contracts and all payments received under the Cap Contracts; (3) the obligations secured by such security agreement shall be deemed to be all of the Depositor's obligations under this Agreement, including the obligation to provide to the Certificateholders the benefits of this Agreement relating to the Mortgage Loans and the Trust Fund; and (4) 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, financial intermediaries, bailees or agents (as applicable) of the Trustee for the purpose of perfecting such security interest under applicable law. Accordingly, the Depositor hereby grants to the Trustee a security interest in the Mortgage Loans and all other property described in clause (2) of the preceding sentence, for the purpose of securing to the Trustee the performance by the Depositor of the obligations described in clause (3) of the preceding sentence. Notwithstanding the foregoing, the parties hereto intend the conveyance pursuant to Section 2.01 to be a true, absolute and unconditional sale of the Mortgage Loans and assets constituting the Trust Fund by the Depositor to the Trustee. SECTION 13.10 Intention of Parties. It is the express intent of the parties hereto that the conveyance of the Mortgage Notes, Mortgages, assignments of Mortgages, title insurance policies and any modifications, extensions and/or assumption agreements and private mortgage insurance policies relating to the Mortgage Loans by the Seller to the Depositor, and by the Depositor to the Trustee be, and be construed as, an absolute sale thereof to the Depositor or the 147 Trustee, as applicable. It is, further, not the intention of the parties that such conveyance be deemed a pledge thereof by the Seller to the Depositor, or by the Depositor to the Trustee. However, in the event that, notwithstanding the intent of the parties, such assets are held to be the property of the Seller or the Depositor, as applicable, or if for any other reason the Mortgage Loan Purchase Agreement or this Agreement is held or deemed to create a security interest in such assets, then (i) the Mortgage Loan Purchase Agreement and this Agreement shall each be deemed to be a security agreement within the meaning of the Uniform Commercial Code of the State of New York and (ii) the conveyance provided for in the Mortgage Loan Purchase Agreement from the Seller to the Depositor, and the conveyance provided for in this Agreement from the Depositor to the Trustee, shall be deemed to be an assignment and a grant by the Seller or the Depositor, as applicable, for the benefit of the Certificateholders, of a security interest in all of the assets that constitute the Trust Fund, whether now owned or hereafter acquired. The Depositor for the benefit of the Certificateholders shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the assets of the Trust Fund, 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 the Agreement. SECTION 13.11 Assignment. Notwithstanding anything to the contrary contained herein, except as provided pursuant to Section 6.02, this Agreement may not be assigned by the Servicer or the Depositor. SECTION 13.12 Inspection and Audit Rights. The Servicer agrees that, on reasonable prior notice, it will permit any representative of the Depositor or the Trustee during the Servicer's normal business hours, to examine all the books of account, records, reports and other papers of the Servicer relating to the Mortgage Loans, to make copies and extracts therefrom, to cause such books to be audited by independent certified public accountants selected by the Depositor or the Trustee and to discuss its affairs, finances and accounts relating to such Mortgage Loans with its officers, employees and independent public accountants (and by this provision the Servicer hereby authorizes such accountants to discuss with such representative such affairs, finances and accounts), all at such reasonable times and as often as may be reasonably requested. Any out-of-pocket expense incident to the exercise by the Depositor or the Trustee of any right under this Section 13.12 shall be borne by the party requesting such inspection, subject to such party's right to reimbursement hereunder (in the case of the Trustee, pursuant to Section 8.05 hereof). SECTION 13.13 Certificates Nonassessable and Fully Paid. It is the intention of the Depositor that Certificateholders shall not be personally liable for obligations of the Trust Fund, that the interests in the Trust Fund represented by the Certificates shall be nonassessable for any reason whatsoever, and that the Certificates, upon due authentication thereof by the Trustee pursuant to this Agreement, are and shall be deemed fully paid. SECTION 13.14 Perfection Representations. The Perfection Representations shall be a part of this Agreement for all purposes. 148 SECTION 13.15 Notice to Holder of Class CE Certificate. Upon actual knowledge by a Servicing Officer of an event which constitutes a Servicer Event of Default under Section 7.01 of this Agreement or give rise to an indemnity claim under Sections 3.25, 8.05(b), 10.03(b) or 14.02(g) of this Agreement, such Servicing Officer shall promptly (but in no event later than two Business Days following such knowledge) provide written notice to the Holder of the Class CE Certificate of such event. ARTICLE XIV RIGHTS OF THE CLASS CE CERTIFICATEHOLDER SECTION 14.01 Reports and Notices. (a) In connection with the performance of its duties under this Agreement relating to, among other things, the collection of Mortgage Loans, the Servicer shall provide to the Class CE Certificateholder the following notices and reports in a timely manner and using the same methodology and calculations used in its standard servicing reports to the Trustee. The Servicer shall send all such notices and reports to the Class CE Certificateholder in electronic format unless otherwise specified herein or agreed to in writing by the Class CE Certificateholder. (i) The Servicer shall, within ten Business Days after each Distribution Date, commencing in March 2006, provide to the Class CE Certificateholder a report of each Mortgage Loan in the Trust Fund, indicating the information contained in Exhibit L for the Due Period relating to such Distribution Date and to the extent such information is reasonably available to the Servicer. (ii) Within ten Business Days after each Distribution Date commencing in March 2006, the Servicer shall provide the Class CE Certificateholder with a report listing each Mortgage Loan that has liquidated or paid off. Such report shall specify, if applicable and to the extent the information is reasonably available to the Servicer: (a) mortgage loan number; (b) outstanding Stated Principal Balance of the mortgage loan upon its liquidation; (c) Realized Loss or gain; (d) Liquidation Proceeds; (e) payoff date; (f) Prepayment Charges collected. (iii) Where applicable, the Servicer shall provide the Class CE Certificateholder with copies of all primary mortgage insurance claims filed, as well as the actual amount paid in respect of any claim. Copies of any primary mortgage insurance claims will be provided to the Class CE Certificateholder within ten Business Days of their filing with the mortgage insurance company. (iv) The Servicer shall provide the Class CE Certificateholder with a copy of the monthly reporting to the Trustee, and of any notice submitted to the Trustee regarding a loan modification. Such notice shall be provided to the Class CE Certificateholder simultaneous with its delivery to the Trustee. (v) On a monthly basis, the Servicer shall provide the Class CE Certificateholder with a delinquency report detailing at a minimum the percentages of 30- 149 day, 60-day and 90-day delinquencies in the Servicer's total portfolio that move into foreclosure and the percentage of foreclosed loans the Servicer's total portfolio that remain in foreclosure. (b) The Servicer shall make its servicing personnel available during their normal business hours to respond to reasonable inquiries, either orally or in writing by facsimile transmission, express mail, or electronic mail, transmitted by the Class CE Certificateholder in connection with any Mortgage Loan identified in a report under subsection 14.01(a)(i) through (iv) which has been given to the Class CE Certificateholder; provided that the Servicer shall only be required to provide information that is reasonably accessible to its servicing personnel. (c) If reasonably requested by the Class CE Certificateholder, the Servicer shall make available to the Class CE Certificateholder access to the underwriting files for defaulted Mortgage Loans, in original, photocopied or imaged form, to the extent such files have been provided to the Servicer. The Class CE Certificateholder agrees to protect the confidentiality of the documents and information contained in underwriting files from all parties other than the Depositor and Trustee, and agrees not to remove, mark or destroy any of the documents contained therein. (d) With respect to all Mortgage Loans which are serviced at any time by the Servicer through a Sub-Servicer which has been approved by the Class CE Certificateholder pursuant to the next succeeding sentence, the Servicer shall be entitled to rely for all purposes hereunder, including for purposes of fulfilling its reporting obligations under this Section 14.01, on the accuracy and completeness of any information provided to it by the applicable subservicer. The Servicer shall not allow any Mortgage Loan to be serviced by a Sub-Servicer without the prior written consent of such Sub-Servicer by the Class CE Certificateholder. (e) The Servicer shall permit the Class CE Certificateholder to conduct an on-site review and evaluation of the Servicer's operations as they relate to the Mortgage Loans no more than annually, unless circumstances warrant special review. Such review and evaluation will be conducted upon at least 30 days written notice to the Servicer by the Class CE Certificateholder, and shall be conducted at the Class CE Certificateholder's expense. The review is intended to benefit the Servicer, as well as to assist the Class CE Certificateholder in adjusting its monitoring approach to fit the default procedures in place. The Class CE Certificateholder will conduct such review and evaluation during normal business hours and use its best efforts to cause the least practicable interruption to the Servicer's business. During the course of the on-site evaluation, the Servicer will make available to the Class CE Certificateholder access to the Servicer's policies and procedures regarding the management and liquidation of defaulted Mortgage Loans. The written findings of such review and evaluation will be presented to the Servicer for review and comment. Other than a comfort letter to the Depositor summarizing the review and evaluation of the Servicer, the Class CE Certificateholder will not divulge the written findings of such review to any party without the prior written consent of the Servicer. SECTION 14.02 Class CE Certificateholder's Directions With Respect to Defaulted Mortgage Loans. (a) All parties to this Agreement acknowledge that the Class CE Certificateholder's advice is made in the form of directions, and that the Class CE 150 Certificateholder has the right to direct the Servicer in performing its duties under this Agreement. The Servicer must accept such advice, subject to the duties of the Servicer set forth in this Agreement. (b) The Class CE Certificateholder may provide the Servicer with advice regarding the management of specific defaulted Mortgage Loans. Such advice may be made in writing, in the form of electronic mail. The advice provided to the Servicer may be based on observations made in conjunction with the data provided pursuant to the Section 14.01 of this Agreement, or in conjunction with the Class CE Certificateholder's periodic review of the Servicer's operations. The advice may include comparable analysis of the performance of the Mortgage Loans in the Trust Fund with similar mortgage loans serviced by other mortgage loan servicers. Such advice also may take the form of benchmark comparisons that identify and interpret the Servicer's strengths and weaknesses relative to similar, unidentified servicers in the industry. (c) In all cases where the Class CE Certificateholder makes directions to the Servicer, the Class CE Certificateholder will protect the confidentiality of the Servicer and other servicers in the industry whose work is monitored by the Class CE Certificateholder. Under no circumstances will the Class CE Certificateholder divulge any materials confidential of the Servicer, whether a party to this Agreement or not, or the details of any Servicer's proprietary system or approaches. (d) All advice offered to the Servicer by the Class CE Certificateholder will be kept confidential by the Class CE Certificateholder, except as disclosed as a finding in the Class CE Certificateholder's review and evaluation of the Servicer, as discussed in Section 13.01(e), or in reports to the Depositor. (e) The Servicer's obligations under this Article XIV shall terminate upon the termination of the Trust Fund pursuant to Section 9.01. (f) Neither the Servicer nor the Class CE Certificateholder nor any of their respective directors, officers, employees or agents shall be under any liability for any action taken or for refraining from the taking of any action in good faith pursuant to this Article XIV or for errors in judgment; provided, however, that this provision shall not protect the Servicer or the Class CE Certificateholder or any such Person against any liability which would otherwise be imposed by reason of willful malfeasance or bad faith. The Servicer and the Class CE Certificateholder and any director, officer, employee or agent thereof 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. (g) The Servicer or the Class CE Certificateholder, as applicable, ("Indemnitor") shall indemnify, defend and hold harmless the other ("Indemnitee") and its officers, directors, agents and employees from and against all claims, losses, expenses, fees (including attorneys' and expert witnesses' fees), costs and judgments involving the rights and obligations of this Article XIV that may be asserted against Indemnitee (a) that result from the acts or omissions of the Indemnitor (including, without limitation, any advice or directions provided pursuant to this Section 14.02), or (b) result from third party claims of intellectual property infringement. 151 (h) The Class CE Certificateholder agrees that all information supplied by or on behalf of the Servicer shall be used by the Class CE Certificateholder only for the benefit of the Certificateholders of the Trust Fund. Notwithstanding anything to the contrary in this Agreement, the Class CE Certificateholder shall be entitled to retain all records or other information supplied to Class CE Certificateholder pursuant to this Agreement. [Signatures follow] 152 IN WITNESS WHEREOF, the Depositor, the Servicer and the Trustee have caused their names to be signed hereto by their respective officers thereunto duly authorized, in each case as of the day and year first above written. STANWICH ASSET ACCEPTANCE COMPANY L.L.C., as Depositor By: /s/ Bruce M. Rose ---------------------------------- Name: Bruce M. Rose Title: President NEW CENTURY MORTGAGE CORPORATION, as Servicer By: /s/ Kevin Cloyd ---------------------------------- Name: Kevin Cloyd Title: Executive Vice President WELLS FARGO BANK, N.A., as Trustee By: /s/ Peter A. Gobel ---------------------------------- Name: Peter A. Gobel Title: Vice President S-1 STATE OF CONNECTICUT ) ) ss.: COUNTY OF FAIRFIELD ) On the 6th day of February, 2006, before me, a notary public in and for said State, personally appeared Bruce M. Rose, known to me to be President of Stanwich Asset Acceptance Company, L.L.C., one of the companies 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. /s/ Peter L. Salce ------------------------------------- Notary Public [Notarial Seal] S-2 STATE OF CALIFORNIA) ) ss.: COUNTY OF ORANGE ) On the 3rd day of February 2006, before me, a notary public in and for said State, personally appeared Kevin Cloyd, known to me to be an Executive Vice President of New Century Mortgage 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. /s/ Tiffany A. Nelson ------------------------------------- Notary Public [Notarial Seal] S-3 STATE OF MARYLAND ) ) ss.: COUNTY OF BALTIMORE) On the 6th day of February 2006, before me, a notary public in and for said State, personally appeared Peter A. Gobel, known to me to be a Vice President of Wells Fargo Bank, N.A., 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. /s/ Graham M. Oglesby ------------------------------------- Notary Public [Notarial Seal] S-4 EXHIBIT A-1 FORM OF CLASS A-1 CERTIFICATE 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. 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"). Series 2006-NC1 Aggregate Certificate Principal Balance of the Class A-1 Pass-Through Rate: Variable Certificates as of the Closing Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-1-1 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class A-1 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class A-1 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class A-1 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-1-2 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee, and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-1-3 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-1-4 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-1-5 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-1-6 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-1-7 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-1-8 EXHIBIT A-2 FORM OF CLASS A-2 CERTIFICATE 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. 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"). Series 2006-NC1 Aggregate Certificate Principal Balance of the Class A-2 Pass-Through Rate: Variable Certificates as of the Closing Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-2-1 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class A-2 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class A-2 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class A-2 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-2-2 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee, and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-2-3 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-2-4 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-2-5 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-2-6 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-2-7 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-2-8 EXHIBIT A-3 FORM OF CLASS A-3 CERTIFICATE 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. 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"). Series 2006-NC1 Aggregate Certificate Principal Balance of the Class A-3 Pass-Through Rate: Variable Certificates as of the Closing Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-3-1 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class A-3 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class A-3 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class A-3 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-3-2 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee, and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-3-3 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-3-4 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-3-5 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-3-6 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-3-7 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-3-8 EXHIBIT A-4 FORM OF CLASS A-4 CERTIFICATE 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. 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"). Series 2006-NC1 Aggregate Certificate Principal Balance of the Class A-4 Pass-Through Rate: Variable Certificates as of the Closing Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-4-1 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class A-4 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class A-4 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class A-4 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-4-2 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee, and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-4-3 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-4-4 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-4-5 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-4-6 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-4-7 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-4-8 EXHIBIT A-5 FORM OF CLASS M-1 CERTIFICATE 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. 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"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. Series 2006-NC1 Aggregate Certificate Principal Balance of the Class M-1 Pass-Through Rate: Variable Certificates as of the Closing Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-5-1 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class M-1 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class M-1 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class M-1 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-5-2 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-5-3 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-5-4 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-5-5 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-5-6 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-5-7 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-5-8 EXHIBIT A-6 FORM OF CLASS M-2 CERTIFICATE 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. 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"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES AND THE CLASS M-1 CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. Series 2006-NC1 Aggregate Certificate Principal Balance of the Class M-2 Pass-Through Rate: Variable Certificates as of the Closing Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-6-1 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class M-2 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class M-2 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class M-2 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-6-2 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-6-3 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-6-4 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-6-5 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-6-6 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-6-7 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-6-8 EXHIBIT A-7 FORM OF CLASS M-3 CERTIFICATE 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. 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"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES, THE CLASS M-1 CERTIFICATES AND THE CLASS M-2 CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. Series 2006-NC1 Aggregate Certificate Principal Balance of the Class M-3 Pass-Through Rate: Variable Certificates as of the Closing Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-7-1 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class M-3 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class M-3 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class M-3 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-7-2 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-7-3 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-7-4 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-7-5 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-7-6 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-7-7 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-7-8 EXHIBIT A-8 FORM OF CLASS M-4 CERTIFICATE 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. 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"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES, THE CLASS M-1 CERTIFICATES, THE CLASS M-2 CERTIFICATES AND THE CLASS M-3 CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. Series 2006-NC1 Aggregate Certificate Principal Balance of the Class M-4 Pass-Through Rate: Variable Certificates as of the Closing Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-8-1 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class M-4 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class M-4 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class M-4 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-8-2 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-8-3 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-8-4 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-8-5 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-8-6 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-8-7 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-8-8 EXHIBIT A-9 FORM OF CLASS M-5 CERTIFICATE 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. 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"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES, THE CLASS M-1 CERTIFICATES, THE CLASS M-2 CERTIFICATES, THE CLASS M-3 CERTIFICATES AND THE CLASS M-4 CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. Series 2006-NC1 Aggregate Certificate Principal Balance of the Class M-5 Pass-Through Rate: Variable Certificates as of the Closing Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE A-9-1 AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-9-2 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class M-5 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class M-5 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class M-5 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-9-3 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-9-4 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-9-5 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-9-6 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-9-7 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-9-8 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-9-9 EXHIBIT A-10 FORM OF CLASS M-6 CERTIFICATE 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. 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"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES, THE CLASS M-1 CERTIFICATES, THE CLASS M-2 CERTIFICATES, THE CLASS M-3 CERTIFICATES, THE CLASS M-4 CERTIFICATES AND THE CLASS M-5 CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. Series 2006-NC1 Aggregate Certificate Principal Balance of the Class M-6 Pass-Through Rate: Variable Certificates as of the Closing Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE A-10-1 AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-10-2 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class M-6 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class M-6 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class M-6 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-10-3 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-10-4 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-10-5 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-10-6 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-10-7 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-10-8 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-10-9 EXHIBIT A-11 FORM OF CLASS M-7 CERTIFICATE 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. 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"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES, THE CLASS M-1 CERTIFICATES, THE CLASS M-2 CERTIFICATES, THE CLASS M-3 CERTIFICATES, THE CLASS M-4 CERTIFICATES, THE CLASS M-5 CERTIFICATES AND THE M-6 CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. Series 2006-NC1 Aggregate Certificate Principal Balance of the Class M-7 Certificates as of the Closing Pass-Through Rate: Variable Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: Servicer: New Century Mortgage Corporation February 1, 2006 First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE A-11-1 AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-11-2 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class M-7 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class M-7 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class M-7 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-11-3 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-11-4 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-11-5 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-11-6 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Authorized Signatory A-11-7 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------- TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to Minors JT TEN - as joint tenants with Act right if survivorship and not as tenants in --------------- common (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-11-8 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-11-9 EXHIBIT A-12 FORM OF CLASS M-8 CERTIFICATE 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. 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"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES, THE CLASS M-1 CERTIFICATES, THE CLASS M-2 CERTIFICATES, THE CLASS M-3 CERTIFICATES, THE CLASS M-4 CERTIFICATES, THE CLASS M-5 CERTIFICATES, THE CLASS M-6 CERTIFICATES AND THE CLASS M-7 CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. A-12-1 Series 2006-NC1 Aggregate Certificate Principal Balance of the Class M-8 Certificates as of the Closing Pass-Through Rate: Variable Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: Servicer: New Century Mortgage Corporation February 1, 2006 First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-12-2 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class M-8 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class M-8 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class M-8 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-12-3 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-12-4 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-12-5 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-12-6 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Signatory A-12-7 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian ----------------- TEN ENT - as tenants by the entireties (Cust) (Minor) under Uniform JT TEN - as joint tenants with right if Gifts to Minors survivorship and not as Act tenants in common ----------------- (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-12-8 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-12-9 EXHIBIT A-13 FORM OF CLASS M-9 CERTIFICATE 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. 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"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES, THE CLASS M-1 CERTIFICATES, THE CLASS M-2 CERTIFICATES, THE CLASS M-3 CERTIFICATES, THE CLASS M-4 CERTIFICATES, THE CLASS M-5 CERTIFICATES, THE CLASS M-6 CERTIFICATES, THE CLASS M-7 CERTIFICATES AND CLASS M-8 CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. A-13-1 Series 2006-NC1 Aggregate Certificate Principal Balance of the Class M-9 Certificates as of the Closing Pass-Through Rate: Variable Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: Servicer: New Century Mortgage Corporation February 1, 2006 First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-13-2 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class M-9 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class M-9 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class M-9 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-13-3 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at A-13-4 the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. A-13-5 The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-13-6 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Signatory A-13-7 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian ---------------------- TEN ENT - as tenants by the entireties (Cust) (Minor) under Uniform Gifts JT TEN - as joint tenants with right if to Minors Act survivorship and not as tenants in common ---------------------- (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-13-8 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-13-9 EXHIBIT A-14 FORM OF CLASS M-10 CERTIFICATE 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. 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"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES, THE CLASS M-1 CERTIFICATES, THE CLASS M-2 CERTIFICATES, THE CLASS M-3 CERTIFICATES, THE CLASS M-4 CERTIFICATES, THE CLASS M-5 CERTIFICATES, THE CLASS M-6 CERTIFICATES, THE CLASS M-7 CERTIFICATES, THE CLASS M-8 CERTIFICATES AND THE CLASS M-9 CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. 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 THAT 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 AGREEMENT. A-14-1 Series 2006-NC1 Aggregate Certificate Principal Balance of the Class M-10 Certificates as of the Closing Pass-Through Rate: Variable Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: Servicer: New Century Mortgage Corporation February 1, 2006 First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No. 1 Closing Date: February 8, 2006 CUSIP: [ -------- ] [ ] [ ] DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-14-2 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Cede & Co. is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class M-10 Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class M-10 Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class M-10 Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-14-3 The Pass-Through Rate applicable to the calculation of interest payable with respect to this Certificate on any Distribution Date shall equal a rate per annum equal to the lesser of (i) the related Formula Rate for such Distribution Date and (ii) the related Net WAC Pass-Through Rate for such Distribution Date. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. No transfer of this Certificate shall be made unless the transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), and an effective registration or qualification under applicable state securities laws, or is made in a transaction that does not require such registration or qualification. In the event that such a transfer of this Certificate is to be made without registration or qualification, the Trustee shall require receipt of written certifications from the Holder of the Certificate desiring to effect the transfer, and from such Holder's prospective transferee, substantially in the forms attached to the Agreement as Exhibit F-1. None of the Depositor or the Trustee is obligated to register or qualify the Class of Certificates specified on the face hereof under the 1933 Act or any other A-14-4 securities law or to take any action not otherwise required under the Agreement to permit the transfer of such Certificates without registration or qualification. Any Holder desiring to effect a transfer of this Certificate shall be required to indemnify the Trustee, the Depositor and the Servicer 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. Each beneficial owner of this Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or holding of such Certificate or any interest therein, that either (A) it is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing, (B) it has acquired and is holding this Certificate in reliance on the underwriters' exemption, and that it understands that there are certain conditions to the availability of the underwriters' exemption, including that this Certificate must be rated, at the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, S&P or Moody's and the Certificate is so rated, that it is an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Securities Act of 1933, as amended, and that it will obtain a representation from any transferee that such transferee is an accredited investor, or (C)(1) it is an insurance company, (2) the source of funds used to acquire or hold this Certificate or any interest therein is an "insurance company general account," as such term is defined in Prohibited Transaction Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been satisfied. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. A-14-5 The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-14-6 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Signatory A-14-7 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian ----------------- TEN ENT - as tenants by the entireties (Cust) (Minor) under Uniform JT TEN - as joint tenants with right if Gifts to Minors survivorship and not as Act tenants in common ----------------- (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-14-8 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-14-9 EXHIBIT A-15 FORM OF CLASS CE 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 (THE "CODE"). THIS CERTIFICATE IS SUBORDINATE TO THE CLASS A CERTIFICATES, AND THE MEZZANINE CERTIFICATES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. 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 THAT 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 AGREEMENT. NO TRANSFER OF THIS CERTIFICATE TO AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR THE CODE WILL BE REGISTERED EXCEPT IN COMPLIANCE WITH THE PROCEDURES DESCRIBED HEREIN. A-15-1 Series 2006-NC1 Aggregate Certificate Principal Balance of the Class CE Certificates as of the Closing Pass-Through Rate: Variable Date: [ ------------- ] Cut-off Date: February 1, 2006 Denomination: [ ------------- ] Date of Pooling and Servicing Agreement: Servicer: New Century Mortgage Corporation February 1, 2006 Trustee: Wells Fargo Bank, N.A. First Distribution Date: March 25, 2006 Closing Date: February 8, 2006 No. 1 Aggregate Notional Amount of the Class CE Certificates as of the Closing Date: [ ------------- ] A-15-1 Notional Amount: [ ------------- ] A-15-2 DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-15-3 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Wells Fargo Bank, N.A., as Indenture Trustee under the Indenture, dated February 8, 2006, relating to the Carrington NIM Trust 2006-NC1 Notes, is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class CE Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class CE Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class CE Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee of the pendency A-15-4 of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose as provided in the Agreement. This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. No transfer of this Certificate shall be made unless the transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), and an effective registration or qualification under applicable state securities laws, or is made in a transaction that does not require such registration or qualification. In the event that such a transfer of this Certificate is to be made without registration or qualification, the Trustee shall require receipt of (i) if such transfer is purportedly being made in reliance upon Rule 144A under the 1933 Act, written certifications from the Holder of the Certificate desiring to effect the transfer, and from such Holder's prospective transferee, substantially in the forms attached to the Agreement as Exhibit F-1, and (ii) in all other cases, an Opinion of Counsel satisfactory to it that such transfer may be made without such registration or qualification (which Opinion of Counsel shall not be an expense of the Trust Fund or of the Depositor, the Trustee or the Servicer in their A-15-5 respective capacities as such), together with copies of the written certification(s) of the Holder of the Certificate desiring to effect the transfer and/or such Holder's prospective transferee upon which such Opinion of Counsel is based. None of the Depositor or the Trustee is obligated to register or qualify the Class of Certificates specified on the face hereof under the 1933 Act or any other securities law or to take any action not otherwise required under the Agreement to permit the transfer of such Certificates without registration or qualification. Any Holder desiring to effect a transfer of this Certificate shall be required to indemnify the Trustee, the Depositor and the Servicer 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" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing (each, a "Plan"), any Person acting, directly or indirectly, on behalf of any such Plan or any Person acquiring this Certificate with "plan assets" of a Plan (within the meaning of the Department of Labor regulation promulgated at 29 C. F. R. ss. 2510.3-101 ("Plan Assets")), as certified by such transferee in the form of Exhibit G to the Agreement, unless the Trustee is provided with an Opinion of Counsel acceptable to and in form and substance satisfactory to the Depositor, the Trustee and the Servicer to the effect that the purchase and 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 Depositor, the Servicer, the Trustee or the Trust Fund 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 Depositor, the Servicer, the Trustee or the Trust Fund. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. A-15-6 The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-15-7 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Signatory A-15-8 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian -------------------- TEN ENT - as tenants by the entireties (Cust) (Minor) under Uniform Gifts JT TEN - as joint tenants with right to Minors Act if survivorship and not as tenants in common -------------------- (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-15-9 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-15-10 EXHIBIT A-16 FORM OF CLASS P 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 (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 THAT 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 AGREEMENT. NO TRANSFER OF THIS CERTIFICATE TO AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR THE CODE WILL BE REGISTERED EXCEPT IN COMPLIANCE WITH THE PROCEDURES DESCRIBED HEREIN. Series: 2006-NC1 Aggregate Certificate Principal Balance of the Class P Certificates as of the Closing Cut-off Date and date of Pooling and Date: [ ------------- ] Servicing Agreement: February 1, 2006 Denomination: [ ------------- ] First Distribution Date: March 25, 2006 Servicer: New Century Mortgage Corporation No. 1 Trustee: Wells Fargo Bank, N.A. Closing Date: February 8, 2006 DISTRIBUTIONS IN REDUCTION OF THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE MADE MONTHLY AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING CERTIFICATE PRINCIPAL BALANCE HEREOF AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE AS THE DENOMINATION OF THIS CERTIFICATE. A-16-1 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Wells Fargo Bank, N.A., as Indenture Trustee under the Indenture, dated February 8, 2006, relating to the Carrington NIM Trust 2006-NC1 Notes, is the registered owner of a Percentage Interest (obtained by dividing the denomination of this Certificate by the aggregate Certificate Principal Balance of the Class P Certificates as of the Closing Date) in that certain beneficial ownership interest evidenced by all the Class P Certificates in REMIC II created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class P Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-16-2 This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof equal to the denomination specified on the face hereof divided by the aggregate Certificate Principal Balance of the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer, the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. No transfer of this Certificate shall be made unless the transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), and an effective registration or qualification under applicable state securities laws, or is made in a transaction that does not require such registration or qualification. In the event that such a transfer of this Certificate is to be made without registration or qualification, the Trustee shall require receipt of (i) if such transfer is purportedly being made in reliance upon Rule 144A under the 1933 Act, written certifications from the Holder of the Certificate desiring to effect the transfer, and from such Holder's prospective transferee, substantially in the forms attached to the Agreement as Exhibit F-1, and (ii) in all other cases, an Opinion of Counsel satisfactory to it that such transfer may be made without such registration or qualification (which Opinion of Counsel shall not be an expense of the Trust Fund or of the Depositor, the Trustee or the Servicer in their respective capacities as such), together with copies of the written certification(s) of the Holder of the Certificate desiring to effect the transfer and/or such Holder's prospective transferee upon which such Opinion of Counsel is based. None of the Depositor or the Trustee is obligated to A-16-3 register or qualify the Class of Certificates specified on the face hereof under the 1933 Act or any other securities law or to take any action not otherwise required under the Agreement to permit the transfer of such Certificates without registration or qualification. Any Holder desiring to effect a transfer of this Certificate shall be required to indemnify the Trustee, the Depositor and the Servicer 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" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing (each, a "Plan"), any Person acting, directly or indirectly, on behalf of any such Plan or any Person acquiring this Certificate with "plan assets" of a Plan (within the meaning of the Department of Labor regulation promulgated at 29 C. F. R. ss. 2510.3-101 ("Plan Assets")), as certified by such transferee in the form of Exhibit G to the Agreement, unless the Trustee is provided with an Opinion of Counsel acceptable to and in form and substance satisfactory to the Depositor, the Trustee and the Servicer to the effect that the purchase and 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 Depositor, the Servicer, the Trustee or the Trust Fund 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 Depositor, the Servicer, the Trustee or the Trust Fund. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the A-16-4 owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-16-5 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Signatory A-16-6 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------------- TEN ENT - as tenants by the entireties (Cust) (Minor) under Uniform Gifts JT TEN - as joint tenants with right to Minors Act if survivorship and not as tenants in common --------------------- (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-16-7 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-16-8 EXHIBIT A-17 FORM OF CLASS R CERTIFICATE THIS CERTIFICATE MAY NOT BE TRANSFERRED TO A NON-UNITED STATES PERSON. SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC"), AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"). ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE MAY BE MADE ONLY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. 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 THAT 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 AGREEMENT. NO TRANSFER OF THIS CERTIFICATE TO AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR THE CODE WILL BE REGISTERED EXCEPT IN COMPLIANCE WITH THE PROCEDURES DESCRIBED HEREIN. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE MAY BE MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES (I) AN AFFIDAVIT TO THE TRUSTEE THAT (A) SUCH TRANSFEREE IS NOT (1) THE UNITED STATES OR ANY POSSESSION THEREOF, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING, (2) ANY ORGANIZATION (OTHER THAN A COOPERATIVE DESCRIBED IN SECTION 521 OF THE CODE) THAT 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, (3) ANY ORGANIZATION DESCRIBED IN SECTION 1381(A)(2)(C) OF THE CODE (ANY SUCH PERSON DESCRIBED IN THE FOREGOING CLAUSES (1), (2) OR (3) SHALL HEREINAFTER BE A-17-1 REFERRED TO AS A "DISQUALIFIED ORGANIZATION") OR (4) AN AGENT OF A DISQUALIFIED ORGANIZATION AND (B) NO PURPOSE OF SUCH TRANSFER IS TO IMPEDE THE ASSESSMENT OR COLLECTION OF TAX, AND (II) SUCH TRANSFEREE SATISFIES CERTAIN ADDITIONAL CONDITIONS RELATING TO THE FINANCIAL CONDITION OF THE PROPOSED TRANSFEREE. NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OF 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 HEREOF SHALL BE DEEMED TO HAVE CONSENTED TO THE PROVISIONS OF THIS PARAGRAPH AND THE PROVISIONS OF SECTION 5.02(D) OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. ANY PERSON THAT IS A DISQUALIFIED ORGANIZATION IS PROHIBITED FROM ACQUIRING BENEFICIAL OWNERSHIP OF THIS CERTIFICATE. Series 2006-NC1 Aggregate Percentage Interest of the Class R Certificates as of the Closing Date: 100.00% Cut-off Date and date of Pooling and Servicing Agreement: February 1, 2006 Servicer: New Century Mortgage Corporation First Distribution Date: March 25, 2006 Trustee: Wells Fargo Bank, N.A. No.1 Closing Date: February 8, 2006 A-17-2 ASSET BACKED PASS-THROUGH CERTIFICATE evidencing a beneficial ownership interest in a portion of a Trust Fund (the "Trust Fund") consisting primarily of a pool of conventional one- to four-family, adjustable-rate and fixed-rate, interest-only and fully-amortizing, first lien and second lien mortgage loans (the "Mortgage Loans") formed and sold by STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN STANWICH ASSET ACCEPTANCE COMPANY, L.L.C., THE SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. This certifies that Greenwich Residual Venture, LLC is the registered owner of a Percentage Interest (as specified above) in that certain beneficial ownership interest evidenced by all the Certificates of the Class to which this Certificate belongs created pursuant to a Pooling and Servicing Agreement, dated as specified above (the "Agreement"), among Stanwich Asset Acceptance Company, L.L.C. (hereinafter called the "Depositor," which term includes any successor entity under the Agreement), the Servicer and 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, distributions 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 (a "Distribution Date"), commencing on the First Distribution Date specified above, to the Person in whose name this Certificate is registered on the Record Date, in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to the Holders of Class R Certificates on such Distribution Date pursuant to the Agreement. All distributions to the Holder of this Certificate under the Agreement will be made or caused to be made by the Trustee by wire transfer in immediately available funds to the account of the Person entitled thereto if such Person shall have so notified the Trustee in writing at least five Business Days prior to the Record Date immediately prior to such Distribution Date or otherwise by check mailed by first class mail 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 by the Trustee 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 as provided in the Agreement. A-17-3 This Certificate is one of a duly authorized issue of Certificates designated as Asset Backed Pass-Through Certificates of the Series specified on the face hereof (herein called the "Certificates") and representing a Percentage Interest in the Class of Certificates specified on the face hereof. 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. As provided in the Agreement, withdrawals from the Collection Account and the Distribution Account may be made from time to time for purposes other than distributions to Certificateholders, such purposes including reimbursement of advances made, or certain expenses incurred, with respect to the Mortgage Loans. The Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor, the Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Depositor, the Servicer and the Trustee with the consent of the Holders of Certificates entitled to at least 66% of the Voting Rights. 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 this Certificate. The Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Holders of any of the 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 as provided in the Agreement, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of the same Class in authorized denominations evidencing the same aggregate Percentage Interest will be issued to the designated transferee or transferees. No transfer of this Certificate shall be made unless the transfer is made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), and an effective registration or qualification under applicable state securities laws, or is made in a transaction that does not require such registration or qualification. In the event that such a transfer of this Certificate is to be made without registration or qualification, the Trustee shall require receipt of (i) if such transfer is purportedly being made in reliance upon Rule 144A under the 1933 Act, written certifications from the Holder of the Certificate desiring to effect the transfer, and from such Holder's prospective transferee, substantially in the forms attached to the Agreement as Exhibit F-1, and (ii) in all other cases, an Opinion of Counsel satisfactory to it that such transfer may be made without such registration or qualification (which Opinion of Counsel shall not be an expense of the Trust Fund or of the Depositor, the Trustee or the Servicer in their respective capacities as such), together with copies of the written certification(s) of the Holder of the Certificate desiring to effect the transfer and/or such Holder's prospective transferee upon which such Opinion of Counsel is based. None of the Depositor or the Trustee is obligated to register or qualify the Class of Certificates specified on the face hereof under the 1933 Act or A-17-4 any other securities law or to take any action not otherwise required under the Agreement to permit the transfer of such Certificates without registration or qualification. Any Holder desiring to effect a transfer of this Certificate shall be required to indemnify the Trustee, the Depositor and the Servicer 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" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing (each, a "Plan"), any Person acting, directly or indirectly, on behalf of any such Plan or any Person acquiring this Certificate with "plan assets" of a Plan (within the meaning of the Department of Labor regulation promulgated at 29 C. F. R. ss. 2510.3-101 ("Plan Assets")), as certified by such transferee in the form of Exhibit G to the Agreement, unless the Trustee is provided with an Opinion of Counsel acceptable to and in form and substance satisfactory to the Depositor, the Trustee and the Servicer to the effect that the purchase and 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 Depositor, the Servicer, the Trustee or the Trust Fund 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 Depositor, the Servicer, the Trustee or the Trust Fund. If this Certificate or any interest therein is acquired or held in violation of the provisions of Section 5.02(c) of the Agreement, the next preceding permitted beneficial owner will be treated as the beneficial owner of this Certificate retroactive to the date of transfer to the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of any this Certificate or any interest therein was effected in violation of the provisions of Section 5.02(c) of the Agreement shall indemnify and hold harmless the Depositor, the Servicer, the Trustee and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or holding. The Certificates are issuable in fully registered form only without coupons in Classes and denominations representing Percentage Interests specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, the Certificates are exchangeable for new Certificates of the same Class in authorized denominations evidencing the same 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 of Certificates, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Certificates. Prior to registration of any transfer, sale or other disposition of this Certificate, the proposed transferee shall provide to the Trustee (i) an affidavit to the effect that such transferee is any Person other than a Disqualified Organization or the agent (including a broker, nominee or middleman) of a Disqualified Organization, and (ii) a certificate that acknowledges that (A) the A-17-5 Class R Certificates have been designated as a residual interest in a REMIC, (B) it will include in its income a pro rata share of the net income of the Trust Fund and that such income may be an "excess inclusion," as defined in the Code, that, with certain exceptions, cannot be offset by other losses or benefits from any tax exemption, and (C) it expects to have the financial means to satisfy all of its tax obligations including those relating to holding the Class R Certificates. Notwithstanding the registration in the Certificate Register of any transfer, sale or other disposition of this Certificate to a Disqualified Organization or an agent (including a broker, nominee or middleman) 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, including, but not limited to, the receipt of distributions in respect of this Certificate. The Holder of this Certificate, by its acceptance hereof, shall be deemed to have consented to the provisions of Section 5.02 of the Agreement and to any amendment of the Agreement deemed necessary by counsel of the Depositor to ensure that the transfer of this Certificate to any Person other than a Permitted Transferee or any other Person will not cause the Trust Fund to cease to qualify as a REMIC or cause the imposition of a tax upon the REMIC. The Depositor, the Servicer, the Trustee and any agent of the Depositor, the Servicer or the Trustee may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. The obligations created by the Agreement and the Trust Fund created thereby shall terminate upon payment to the Certificateholders of all amounts held by the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan and REO Property remaining in REMIC I and (ii) the purchase by the party designated in the Agreement at a price determined as provided in the Agreement from REMIC I of all the Mortgage Loans and all property acquired in respect of such Mortgage Loans. The Agreement permits, but does not require, the party designated in the Agreement to purchase from REMIC I all the Mortgage Loans and all property acquired in respect of any Mortgage Loan at a price determined as provided in the Agreement. The exercise of such right will effect early retirement of the Certificates; however, such right to purchase is subject to the aggregate Stated Principal Balance of the Mortgage Loans at the time of purchase being less than 10% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date. The recitals contained herein shall be taken as statements of the Depositor and the Trustee assumes no responsibility for their correctness. Unless the certificate of authentication hereon has been executed by the Trustee, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. A-17-6 IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: February 8, 2006 WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Officer CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WELLS FARGO BANK, N.A., as Trustee By: ----------------------------- Authorized Signatory A-17-7 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------------------- TEN ENT - as tenants by the entireties (Cust) (Minor) under Uniform Gifts JT TEN - as joint tenants with right to Minors Act if survivorship and not as tenants in common --------------------- (State) Additional abbreviations may also be used though not in the above list. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto --------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Please print or typewrite name, address including postal zip code, and Taxpayer Identification Number of assignee) a Percentage Interest equal to ----% evidenced by the within Asset Backed Pass-Through Certificates and hereby authorize(s) the registration of transfer of such interest to assignee on the Certificate Register of the Trust Fund. I (we) further direct the Trustee to issue a new Certificate of a like Percentage Interest 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 A-17-8 DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available funds 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. A-17-9 EXHIBIT B FORM OF CUSTODIAL AGREEMENT [To be attached] B-1 EXHIBIT C [RESERVED] C-1 EXHIBIT D FORM OF MORTGAGE LOAN PURCHASE AGREEMENT [To be attached] D-1 EXHIBIT E REQUEST FOR RELEASE (for Trustee/Custodian) Loan Information Name of Mortgagor: ------------------------------------- Master Servicer Loan No.: ------------------------------------- Trustee/Custodian Name: ------------------------------------- Address: ------------------------------------- ------------------------------------- Trustee/Custodian Mortgage File No.: Trustee Name: ------------------------------------- Address: ------------------------------------- ------------------------------------- Depositor Name: STANWICH ASSET ACCEPTANCE COMPANY, L.L.C. Address: ------------------------------------- ------------------------------------- Certificates: Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates The undersigned Servicer hereby acknowledges that it has received from -----------------------, as Trustee for the Holders of Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates the documents referred to below (the "Documents"). All capitalized terms not otherwise defined in this Request for Release shall have E-1 the meanings given them in the Pooling and Servicing Agreement, dated as of February 1, 2006, among the Trustee, the Depositor and the Servicer (the "Pooling and Servicing Agreement"). ( ) Promissory Note dated ---------------, 20--, in the original principal sum of $----------, made by ---------------------, payable to, or endorsed to the order of, the Trustee. ( ) Mortgage recorded on ------------------------- as instrument no. ------------------ in the County Recorder's Office of the County of -----------------, State of ------------------ in book/reel/docket ----------------- of official records at page/image -------------. ( ) Deed of Trust recorded on ------------------- as instrument no. ---------------- in the County Recorder's Office of the County of -----------------, State of -------------------- in book/reel/docket ----------------- of official records at page/image --------------. ( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded on --------------- as instrument no. --------- in the County Recorder's Office of the County of ---------------, State of ----------------------- in book/reel/docket ------------ of official records at page/image ------------. ( ) Other documents, including any amendments, assignments or other assumptions of the Mortgage Note or Mortgage. ( ) -------------------------------------------- ( ) -------------------------------------------- ( ) -------------------------------------------- ( ) -------------------------------------------- The undersigned Servicer hereby acknowledges and agrees as follows: (1) The Servicer shall hold and retain possession of the Documents in trust for the benefit of the Trustee, solely for the purposes provided in the Agreement. (2) The Servicer shall not cause or permit the Documents to become subject to, or encumbered by, any claim, liens, security interest, charges, writs of attachment or other impositions nor shall the Servicer assert or seek to assert any claims or rights of setoff to or against the Documents or any proceeds thereof. (3) The Servicer shall return each and every Document previously requested from the Mortgage File to the Trustee when the need therefor no longer exists, unless the Mortgage Loan relating to the Documents has been liquidated and the proceeds thereof have been remitted to the Collection Account and except as expressly provided in the Agreement. E-2 (4) The Documents and any proceeds thereof, including any proceeds of proceeds, coming into the possession or control of the Servicer shall at all times be earmarked for the account of the Trustee, and the Servicer shall keep the Documents and any proceeds separate and distinct from all other property in the Servicer's possession, custody or control. Dated: NEW CENTURY MORTGAGE CORPORATION By: ------------------------------ Name: Title: E-3 EXHIBIT F-1 FORM OF TRANSFEROR REPRESENTATION LETTER [Date] Wells Fargo Bank, N.A. Sixth and Marquette Minneapolis, MN 55749-0113 Attention: Corporate Trust Services - Carrington Mortgage Loan Trust, 2006-NC1 Re: Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates, Class ---, representing a ---% Class Percentage Interest Ladies and Gentlemen: In connection with the transfer by ---------------- (the "Transferor") to ---------------- (the "Transferee") of the captioned mortgage pass-through certificates (the "Certificates"), the Transferor hereby certifies as follows: Neither the Transferor 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, (e) has taken any other action, that (in the case of each of subclauses (a) through (e) above) would constitute a distribution of the Certificates under the Securities Act of 1933, as amended (the "1933 Act"), or would render the disposition of any Certificate a violation of Section 5 of the 1933 Act or any state securities law or would require registration or qualification pursuant thereto. The Transferor will not act, nor has it authorized or will it authorize any person to act, in any manner set forth in the foregoing sentence with respect to any Certificate. The Transferor will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of that certain Pooling and Servicing Agreement, dated as of February 1, 2006, among Stanwich Asset Acceptance Company, L.L.C. as Depositor, New Century Mortgage Corporation as Servicer and Wells Fargo Bank, N.A. as Trustee (the "Pooling and Servicing Agreement"), pursuant to which Pooling and Servicing Agreement the Certificates were issued. F-1-1 Capitalized terms used but not defined herein shall have the meanings assigned thereto in the Pooling and Servicing Agreement. Very truly yours, [Transferor] By: ------------------------------ Name: Title: F-1-2 FORM OF TRANSFEREE REPRESENTATION LETTER [Date] Wells Fargo Bank, N.A. Sixth and Marquette Minneapolis, MN 55749-0113 Attention: Corporate Trust Services - Carrington Mortgage Loan Trust, 2006-NC1 Re: Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates, Class ---, representing a ---% Percentage Interest Ladies and Gentlemen: In connection with the purchase from ---------------------- (the "Transferor") on the date hereof of the captioned trust certificates (the "Certificates"), --------------- (the "Transferee") hereby certifies as follows: The Transferee is a "qualified institutional buyer" as that term is defined in Rule 144A ("Rule 144A") under the Securities Act of 1933 (the "1933 Act") and has completed either of the forms of certification to that effect attached hereto as Annex 1 or Annex 2. The Transferee is aware that the sale to it is being made in reliance on Rule 144A. The Transferee is acquiring the Certificates for its own account or for the account of a qualified institutional buyer, and understands that such Certificate 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. 2. The Transferee has been furnished with all information regarding (a) the Certificates and distributions thereon, (b) the nature, performance and servicing of the Mortgage Loans, (c) the Pooling and Servicing Agreement referred to below, and (d) any credit enhancement mechanism associated with the Certificates, that it has requested. All capitalized terms used but not otherwise defined herein have the respective meanings assigned thereto in the Pooling and Servicing Agreement, dated as of February 1, 2006, among Stanwich Asset Acceptance Company, L.L.C. as Depositor, New Century Mortgage Corporation as Servicer and Wells Fargo Bank, N.A. as Trustee, pursuant to which the Certificates were issued. [TRANSFEREE] By: ------------------------------ Name: Title: F-1-3 ANNEX 1 TO EXHIBIT F-1 QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A [For Transferees Other Than Registered Investment Companies] The undersigned hereby certifies as follows to [name of Transferor] (the "Transferor") and Wells Fargo Bank, N.A., as Trustee, with respect to the mortgage pass-through certificates (the "Certificates") described in the Transferee Certificate to which this certification relates and to which this certification is an Annex: 1. As indicated below, the undersigned is the President, Chief Financial Officer, Senior Vice President or other executive officer of the entity purchasing the Certificates (the "Transferee"). 2. In connection with purchases by the Transferee, the Transferee is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because (i) the Transferee owned and/or invested on a discretionary basis $----------------------(1) in securities (except for the excluded securities referred to below) as of the end of the Transferee's most recent fiscal year (such amount being calculated in accordance with Rule 144A) and (ii) the Transferee satisfies the criteria in the category marked below. --- CORPORATION, ETC. The Transferee is a corporation (other than a bank, savings and loan association or similar institution), Massachusetts or similar business trust, partnership, or any organization described in Section 501(c)(3) of the Internal Revenue Code of 1986. --- BANK. The Transferee (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 Transferee (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 --- BROKER-DEALER. The Transferee is a dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934. --------------------- (1) Transferee must own and/or invest on a discretionary basis at least $100,000,000 in securities unless Transferee is a dealer, and, in that case, Transferee must own and/or invest on a discretionary basis at least $10,000,000 in securities. $25,000,000 as demonstrated in its latest annual financial statements, A COPY OF WHICH IS ATTACHED HERETO. F-1-4 --- INSURANCE COMPANY. The Transferee 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, territory or the District of Columbia. --- STATE OR LOCAL PLAN. The Transferee 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 Transferee is an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974. --- INVESTMENT ADVISOR. The Transferee is an investment advisor registered under the Investment Advisers Act of 1940. 3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i) securities of issuers that are affiliated with the Transferee, (ii) securities that are part of an unsold allotment to or subscription by the Transferee, if the Transferee is a dealer, (iii) securities issued or guaranteed by the U.S. or any instrumentality thereof, (iv) bank deposit notes and certificates of deposit, (v) loan participations, (vi) repurchase agreements, (vii) securities owned but subject to a repurchase agreement and (viii) 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 Transferee, the Transferee used the cost of such securities to the Transferee and did not include any of the securities referred to in the preceding paragraph. Further, in determining such aggregate amount, the Transferee may have included securities owned by subsidiaries of the Transferee, but only if such subsidiaries are consolidated with the Transferee in its financial statements prepared in accordance with generally accepted accounting principles and if the investments of such subsidiaries are managed under the Transferee's direction. However, such securities were not included if the Transferee is a majority-owned, consolidated subsidiary of another enterprise and the Transferee is not itself a reporting company under the Securities Exchange Act of 1934. 5. The Transferee acknowledges that it is familiar with Rule 144A and understands that the Transferor 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 Transferee may be in reliance on Rule 144A. --- --- Will the Transferee be purchasing the Certificates Yes No only for the Transferee's own account? 6. If the answer to the foregoing question is "no", the Transferee agrees that, in connection with any purchase of securities sold to the Transferee for the account of a third party (including any separate account) in reliance on Rule 144A, the Transferee 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 Transferee agrees that the Transferee will not purchase securities for a third party unless the Transferee has obtained a current representation letter from such third party or taken other appropriate steps contemplated by Rule 144A to F-1-5 conclude that such third party independently meets the definition of "qualified institutional buyer" set forth in Rule 144A. 7. The Transferee 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 Transferee's purchase of the Certificates will constitute a reaffirmation of this certification as of the date of such purchase. In addition, if the Transferee is a bank or savings and loan as provided above, the Transferee agrees that it will furnish to such parties updated annual financial statements promptly after they become available. Dated: ---------------------------------- Print Name of Transferee By: ------------------------------ Name: Title: F-1-6 ANNEX 2 TO EXHIBIT F-1 QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A [For Transferees That Are Registered Investment Companies] The undersigned hereby certifies as follows to [name of Transferor] (the "Transferor") and Wells Fargo Bank, N.A., as Trustee, with respect to the mortgage pass- through certificates (the "Certificates") described in the Transferee Certificate to which this certification relates and to which this certification is an Annex: 1. As indicated below, the undersigned is the President, Chief Financial Officer or Senior Vice President of the entity purchasing the Certificates (the "Transferee") or, if the Transferee is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because the Transferee is part of a Family of Investment Companies (as defined below), is such an officer of the investment adviser (the "Adviser"). 2. In connection with purchases by the Transferee, the Transferee is a "qualified institutional buyer" as defined in Rule 144A because (i) the Transferee is an investment company registered under the Investment Company Act of 1940, and (ii) as marked below, the Transferee alone, or the Transferee'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 Transferee's most recent fiscal year. For purposes of determining the amount of securities owned by the Transferee or the Transferee's Family of Investment Companies, the cost of such securities was used. ---- The Transferee owned $------------------- in securities (other than the excluded securities referred to below) as of the end of the Transferee's most recent fiscal year (such amount being calculated in accordance with Rule 144A). ---- The Transferee 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 Transferee's most recent fiscal year (such amount being calculated in accordance with Rule 144A). 3. 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). 4. The term "SECURITIES" as used herein does not include (i) securities of issuers that are affiliated with the Transferee or are part of the Transferee's Family of Investment Companies, (ii) securities issued or guaranteed by the U.S. or any instrumentality thereof, (iii) bank deposit notes and certificates of deposit, (iv) loan participations, (v) repurchase agreements, F-1-7 (vi) securities owned but subject to a repurchase agreement and (vii) currency, interest rate and commodity swaps. 5. The Transferee is familiar with Rule 144A and understands that the parties to which this certification is being made are relying and will continue to rely on the statements made herein because one or more sales to the Transferee will be in reliance on Rule 144A. In addition, the Transferee will only purchase for the Transferee's own account. 6. The undersigned will notify the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice, the Transferee's purchase of the Certificates will constitute a reaffirmation of this certification by the undersigned as of the date of such purchase. Dated: -------------------------------------- Print Name of Transferee or Advisor By: ---------------------------------- Name: Title: IF AN ADVISER: -------------------------------------- Print Name of Transferee F-1-8 FORM OF TRANSFEREE REPRESENTATION LETTER The undersigned hereby certifies on behalf of the purchaser named below (the "Purchaser") as follows: 1. I am an executive officer of the Purchaser. 2. The Purchaser is a "qualified institutional buyer", as defined in Rule 144A, ("Rule 144A") under the Securities Act of 1933, as amended. 3. As of the date specified below (which is not earlier than the last day of the Purchaser's most recent fiscal year), the amount of "securities", computed for purposes of Rule 144A, owned and invested on a discretionary basis by the Purchaser was in excess of $100,000,000. Name of Purchaser By: ------------------------------ Name: Title: Date of this certificate: Date of information provided in paragraph 3: F-1-9 EXHIBIT F-2 FORM OF TRANSFER AFFIDAVIT AND AGREEMENT STATE OF NEW YORK ) COUNTY OF NEW YORK ) --------------------------, being duly sworn, deposes, represents and warrants as follows: 1. I am a ------------------------ of --------------------------- (the "Owner") a corporation duly organized and existing under the laws of --------------, the record owner of Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates, Class R-I Certificates and the Class R-II, (the "Class R Certificates"), on behalf of whom I make this affidavit and agreement. Capitalized terms used but not defined herein have the respective meanings assigned thereto in the Pooling and Servicing Agreement pursuant to which the Class R Certificates were issued. 2. The Owner (i) is and will be a "Permitted Transferee" as of ------------, 20-- and (ii) is acquiring the Class R Certificates for its own account or for the account of another Owner from which it has received an affidavit in substantially the same form as this affidavit. A "Permitted Transferee" is any person other than a "disqualified organization" or a possession of the United States. For this purpose, a "disqualified organization" means 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. The Owner either (i) is not a Plan, any Person acting, directly or indirectly, on behalf of any such Plan or any Person acquiring the Class R Certificates with "plan assets" of a Plan (within the meaning of the Department of Labor regulation promulgated at 29 C. F. R. ss. 2510.3-101), or (ii) has provided the Trustee with an Opinion of Counsel acceptable to and in form and substance satisfactory to the Depositor, the Trustee and the Servicer to the effect that the purchase and holding of the Class R Certificates are 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 Depositor, the Servicer, the Trustee or the Trust Fund 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 Depositor, the Servicer, the Trustee or the Trust Fund. F-2-1 4. The Owner is aware (i) of the tax that would be imposed on transfers of the Class R Certificates to disqualified organizations under the Internal Revenue Code of 1986 that applies to all transfers of the Class R Certificates after March 31, 1988; (ii) that such tax would be on the transferor or, if such transfer is through an agent (which person includes a broker, nominee or middleman) for a non-Permitted Transferee, on the agent; (iii) that the person 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 a Permitted Transferee and, at the time of transfer, such person does not have actual knowledge that the affidavit is false; and (iv) that each of the Class R Certificates may be a "noneconomic residual interest" within the meaning of proposed Treasury regulations promulgated under 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 is to impede the assessment or collection of tax. 5. The Owner is aware of the tax imposed on a "pass-through entity" holding the Class R Certificates if, at any time during the taxable year of the pass-through entity, a non-Permitted Transferee 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.) 6. The Owner is aware that the Trustee will not register the transfer of any Class R Certificate unless the transferee, or the transferee's agent, delivers to the Trustee, among other things, an affidavit in substantially the same form as this affidavit. 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. 7. 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 a Permitted Transferee. 8. The Owner's taxpayer identification number is ---------------. 9. The Owner has reviewed the restrictions set forth on the face of the Class R Certificates and the provisions of Section 5.02(d) of the Pooling and Servicing Agreement under which the Class R Certificates were issued (in particular, clauses (iii)(A) and (iii)(B) of Section 5.02(d) 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 that the Owner holds such Certificate in violation of Section 5.02(d)); and that the Owner expressly agrees to be bound by and to comply with such restrictions and provisions. 10. The Owner is not acquiring and will not transfer the Class R Certificates in order to impede the assessment or collection of any tax. 11. The Owner anticipates that it will, so long as it holds the Class R Certificates, have sufficient assets to pay any taxes owed by the holder of such Class R Certificates, and hereby represents to and for the benefit of the person from whom it acquired the F-2-2 Class R Certificates that the Owner intends to pay taxes associated with holding such Class R Certificates as they become due, fully understanding that it may incur tax liabilities in excess of any cash flows generated by the Class R Certificates. 12. The Owner has no present knowledge that it may become insolvent or subject to a bankruptcy proceeding for so long as it holds the Class R Certificates. 13. 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. 14. The Owner is not acquiring the Class R Certificates with the intent to transfer the Class R Certificates to any person or entity that will not have sufficient assets to pay any taxes owed by the holder of such Class R Certificates, or that may become insolvent or subject to a bankruptcy proceeding, for so long as the Class R Certificates remain outstanding. 15. The Owner will, in connection with any transfer that it makes of the Class R Certificates, obtain from its transferee the representations required by Section 5.02(d) of the Pooling and Servicing Agreement under which the Class R Certificate were issued and will not consummate any such transfer if it knows, or knows facts that should lead it to believe, that any such representations are false. 16. The Owner will, in connection with any transfer that it makes of the Class R Certificates, deliver to the Trustee an affidavit, which represents and warrants that it is not transferring the Class R Certificates to impede the assessment or collection of any tax and that it has no actual knowledge that the proposed transferee: (i) has insufficient assets to pay any taxes owed by such transferee as holder of the Class R Certificates; (ii) may become insolvent or subject to a bankruptcy proceeding for so long as the Class R Certificates remains outstanding; and (iii) is not a "Permitted Transferee". 17. The Owner is a citizen or resident of the United States, a corporation, partnership or other entity created or organized in, or under the laws of, the United States or any political subdivision thereof, or an estate or trust whose income from sources without the United States may be included in gross income for United States federal income tax purposes regardless of its connection with the conduct of a trade or business within the United States. 18. The Owner of the Class R Certificate, hereby agrees that in the event that the Trust Fund created by the Pooling and Servicing Agreement is terminated pursuant to Section 9.01 thereof, the undersigned shall assign and transfer to the Holders of the Class CE Certificates (with respect to a termination of REMIC I) any amounts in excess of par received in connection with such termination. Accordingly, in the event of such termination, the Trustee is hereby authorized to withhold any such amounts in excess of par and to pay such amounts directly to the Holders of the Class CE Certificates. This agreement shall bind and be enforceable against any successor, transferee or assigned of the undersigned in the Class R Certificate. In connection with any transfer of the Class R Certificate, the Owner shall obtain an agreement substantially similar to this clause from any subsequent owner. F-2-3 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 [Vice] President, attested by its [Assistant] Secretary, this ---- day of ----------, 20--. [OWNER] By: ------------------------------ Name: Title: [Vice] President ATTEST: By: ----------------------------------- Name: Title: [Assistant] Secretary Personally appeared before me the above-named, known or proved to me to be the same person who executed the foregoing instrument and to be a [Vice] President of the Owner, and acknowledged to me that [he/she] executed the same as [his/her] free act and deed and the free act and deed of the Owner. Subscribed and sworn before me this ---- day of ----------, 20---. ---------------------------------- Notary Public County of ------------------ State of ------------------- My Commission expires: F-2-4 FORM OF TRANSFEROR AFFIDAVIT STATE OF NEW YORK ) COUNTY OF NEW YORK ) --------------------------, being duly sworn, deposes, represents and warrants as follows: 1. I am a --------------------- of ---------------------------- (the "Owner"), a corporation duly organized and existing under the laws of --------------, on behalf of whom I make this affidavit. 2. The Owner is not transferring the Class R Certificates (the "Residual Certificates") to impede the assessment or collection of any tax. 3. The Owner has no actual knowledge that the Person that is the proposed transferee (the "Purchaser") of the Residual Certificates: (i) has insufficient assets to pay any taxes owed by such proposed transferee as holder of the Residual Certificates; (ii) may become insolvent or subject to a bankruptcy proceeding for so long as the Residual Certificates remain outstanding and (iii) is not a Permitted Transferee. 4. The Owner understands that the Purchaser has delivered to the Trustee a transfer affidavit and agreement in the form attached to the Pooling and Servicing Agreement as Exhibit F-2. The Owner does not know or believe that any representation contained therein is false. 5. At the time of transfer, the Owner has 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 Owner has determined that the Purchaser has historically paid its debts as they became 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 Owner understands that the transfer of a Residual Certificate may not be respected for United States income tax purposes (and the Owner may continue to be liable for United States income taxes associated therewith) unless the Owner has conducted such an investigation. 6. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Pooling and Servicing Agreement. F-2-5 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 [Vice] President, attested by its [Assistant] Secretary, this ---- day of -----------, 20--. [OWNER] By: ------------------------------ Name: Title: [Vice] President ATTEST: By: ----------------------------------- Name: Title: [Assistant] Secretary Personally appeared before me the above-named , known or proved to me to be the same person who executed the foregoing instrument and to be a [Vice] President of the Owner, and acknowledged to me that [he/she] executed the same as [his/her] free act and deed and the free act and deed of the Owner. Subscribed and sworn before me this ---- day of ----------, 20---. ---------------------------------- Notary Public County of ------------------ State of ------------------- My Commission expires: F-2-6 EXHIBIT G FORM OF CERTIFICATION WITH RESPECT TO ERISA AND THE CODE -------------, 20-- Wells Fargo Bank, N.A. Sixth and Marquette Minneapolis, MN 55479-0113 Attention: Corporate Trust Services-Carrington Mortgage Loan Trust, 2006-NC1 Re: Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates Dear Sirs: ----------------------- (the "Transferee") intends to acquire from --------------------- (the "Transferor") $------------ Initial Certificate Principal Balance of Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates, Class [CE] [P] [R](the "Certificates"), issued pursuant to a Pooling and Servicing Agreement (the "Pooling and Servicing Agreement") dated as of February 1, 2006, among Stanwich Asset Acceptance Company, L.L.C. as depositor (the "Depositor"), New Century Mortgage Corporation as servicer (the "Servicer") and Wells Fargo Bank, N.A. as trustee (the "Trustee"). Capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in the Pooling and Servicing Agreement. The Transferee hereby certifies, represents and warrants to, and covenants with the Depositor, the Trustee and the Servicer that: The Certificates or any interest therein are not being transferred to (i) any "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA, any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), that is subject to Section 4975 of the Code or any entity deemed to hold plan assets of any of the foregoing (each, a "Plan"), (ii) any Person acting, directly or indirectly, on behalf of any such Plan or (iii) any Person acquiring the Certificates with "plan assets" of a Plan (within the meaning of the Department of Labor regulation promulgated at 29 C.F.R. ss. 2510.3-101). G-1 Very truly yours, ---------------------------------- By: ------------------------------ Name: Title: G-2 EXHIBIT H FORM OF LOST NOTE AFFIDAVIT Loan #: ------------ Borrower: ------------- LOST NOTE AFFIDAVIT I, as ------------------ of --------------------, a --------------- corporation am authorized to make this Affidavit on behalf of ----------------- (the "Seller"). In connection with the administration of the Mortgage Loans held by --------------------, a ----------------- corporation as Seller on behalf of Stanwich Asset Acceptance Company, L.L.C., a Delaware limited liability company (the "Purchaser"), --------------------- (the "Deponent"), being duly sworn, deposes and says that: 1. The Seller's address is: ---------------------------------------- ---------------------------------------- ---------------------------------------- 2. The Seller previously delivered to the Purchaser a signed Initial Certification with respect to such Mortgage and/or Assignment of Mortgage; 3. Such Mortgage Note and/or Assignment of Mortgage was assigned or sold to the Purchaser by ------------------------, a ------------ corporation pursuant to the terms and provisions of a Mortgage Loan Purchase Agreement dated as of ---------- --, -----; 4. Such Mortgage Note and/or Assignment of Mortgage is not outstanding pursuant to a request for release of Documents; 5. Aforesaid Mortgage Note and/or Assignment of Mortgage (the "Original") has been lost; 6. Deponent has made or caused to be made a diligent search for the Original and has been unable to find or recover same; 7. The Seller was the Seller of the Original at the time of the loss; and 8. Deponent agrees that, if said Original should ever come into Seller's possession, custody or power, Seller will immediately and without consideration surrender the Original to the Purchaser. 9. Attached hereto is a true and correct copy of (i) the Note, endorsed in blank by the Mortgagee and (ii) the Mortgage or Deed of Trust (strike one) which secures the Note, which Mortgage or Deed of Trust is recorded in the county where the property is located. H-1 10. Deponent hereby agrees that the Seller (a) shall indemnify and hold harmless the Purchaser, its successors and assigns, against any loss, liability or damage, including reasonable attorney's fees, resulting from the unavailability of any Notes, including but not limited to any loss, liability or damage arising from (i) any false statement contained in this Affidavit, (ii) any claim of any party that has already purchased a mortgage loan evidenced by the Lost Note or any interest in such mortgage loan, (iii) any claim of any borrower with respect to the existence of terms of a mortgage loan evidenced by the Lost Note on the related property to the fact that the mortgage loan is not evidenced by an original note and (iv) the issuance of a new instrument in lieu thereof (items (i) through (iv) above hereinafter referred to as the "Losses") and (b) if required by any Rating Agency in connection with placing such Lost Note into a Pass-Through Transfer, shall obtain a surety from an insurer acceptable to the applicable Rating Agency to cover any Losses with respect to such Lost Note. 11. This Affidavit is intended to be relied upon by the Purchaser, its successors and assigns. ---------------------, a -------------- corporation represents and warrants that is has the authority to perform its obligations under this Affidavit of Lost Note. Executed this ---- day, of ----------- ------. SELLER By: ------------------------------ Name: Title: On this ----- day of --------, -----, before me appeared ----------- to me personally known, who being duly sworn did say that he is the --------------------- of -------------------- a -------------- corporation and that said Affidavit of Lost Note was signed and sealed on behalf of such corporation and said acknowledged this instrument to be the free act and deed of said corporation. Signature: [Seal] H-2 EXHIBIT I-1 FORM OF FORM 10-K CERTIFICATE I, [identify the certifying individual], certify that: (i) I have reviewed this report on Form 10-K and all reports on Form 10-D required to be filed in respect of the period covered by this report on Form 10-K of the trust (the Exchange Act periodic reports) of Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates; (ii) Based on my knowledge, Exchange Act periodic reports, taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (iii) Based on my knowledge, all of the distribution, servicing and other information required to be provided under Form 10-D for the period covered by this report is included in the Exchange Act periodic reports; (iv) I am responsible for reviewing the activities performed by the Servicer and based on my knowledge and the compliance review conducted in preparing the servicer compliance statement required in this report under Item 1123 of Regulation AB and except as disclosed in the Exchange Act periodic reports, the Servicer has fulfilled its obligations under the Agreement; and 5. All of the reports on assessment of compliance with servicing criteria for asset-backed securities and their related attestation reports on assessment of compliance with servicing criteria for asset-backed securities required to be included in this report in accordance with Item 1122 of Regulation AB and Exchange Act Rules 13a-18 and 15d-18 have been included as an exhibit to this report, except as otherwise disclosed in this report. Any material instances of noncompliance described in such reports have been disclosed in this report on Form 10-K. In giving the certifications above, I have reasonably relied on information provided to me by the following unaffiliated parties: Wells Fargo Bank, N.A. NEW CENTURY MORTGAGE CORPORATION By: ------------------------------ Name: Title: Date: I-1-1 EXHIBIT I-2 FORM OF CERTIFICATION TO BE PROVIDED TO SERVICER BY THE TRUSTEE Re: Carrington Mortgage Loan Trust, Series 2006-NC1 Asset-Backed Pass-Through Certificates I, [identify the certifying individual], a [title] of Wells Fargo Bank, N.A., as Trustee of the Trust, hereby certify to New Century Mortgage Corporation (the "Servicer"), and its officers, directors and affiliates, and with the knowledge and intent that they will rely upon this certification, 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 February 1, 2006 (the "Agreement") by and among Stanwich Asset Acceptance Company, L.L.C. as depositor (the "Depositor"), New Century Mortgage Corporation as servicer (the "Servicer") and Wells Fargo Bank, N.A. as trustee (the "Trustee"); 2. Based on my knowledge, the information in these distribution reports prepared by the Trustee, 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 that annual report; and 3. Based on my knowledge, the distribution information required to be provided by the Trustee under the Pooling and Servicing Agreement is included in these reports. Capitalized terms used but not defined herein have the meanings ascribed to them in the Agreement. WELLS FARGO BANK, N.A., as Trustee By: ------------------------------ Name: Title: Date: I-2-1 EXHIBIT J FORM OF SERVICING CRITERIA TO BE ADDRESSED IN ASSESSMENT OF COMPLIANCE The assessment of compliance to be delivered by [New Century Mortgage Corporation. (the "Servicer")/Wells Fargo Bank, N.A. (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 -------------------------------------------------------------------------------------------------------------- Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the Servicer, 1122(d)(1)(i) transaction agreements. Trustee -------------------------------------------------------------------------------------------------------------- 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 Servicer, activities. Trustee -------------------------------------------------------------------------------------------------------------- 1122(d)(1)(iii) Any requirements in the transaction agreements to maintain a back-up servicer for the pool assets are maintained. Servicer -------------------------------------------------------------------------------------------------------------- 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 Servicer reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction 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 Servicer, 1122(d)(2)(i) days specified in the transaction agreements. Trustee -------------------------------------------------------------------------------------------------------------- Disbursements made via wire transfer on behalf of an obligor or to Servicer, 1122(d)(2)(ii) an investor are made only by authorized personnel. Trustee -------------------------------------------------------------------------------------------------------------- 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 Servicer, 1122(d)(2)(iii) transaction agreements. Trustee -------------------------------------------------------------------------------------------------------------- The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of Trustee 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 Servicer, institution" with respect to a foreign financial institution means Trustee a foreign financial institution that meets the requirements of Rule 1122(d)(2)(v) 13k-1(b)(1) of the Securities Exchange Act. -------------------------------------------------------------------------------------------------------------- Unissued checks are safeguarded so as to prevent unauthorized Servicer, 1122(d)(2)(vi) access. Trustee -------------------------------------------------------------------------------------------------------------- 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 Servicer, days specified in the transaction agreements; (C) reviewed and Trustee 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. -------------------------------------------------------------------------------------------------------------- J-1 -------------------------------------------------------------------------------------------------------------- APPLICABLE SERVICING SERVICING CRITERIA CRITERIA -------------------------------------------------------------------------------------------------------------- REFERENCE CRITERIA -------------------------------------------------------------------------------------------------------------- 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 Trustee 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 1122(d)(3)(i) servicer. -------------------------------------------------------------------------------------------------------------- Amounts due to investors are allocated and remitted in accordance with timeframes, distribution priority and other terms set forth in Trustee 1122(d)(3)(ii) 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 Trustee 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 Trustee 1122(d)(3)(iv) statements. -------------------------------------------------------------------------------------------------------------- POOL ASSET ADMINISTRATION -------------------------------------------------------------------------------------------------------------- Collateral or security on pool assets is maintained as required by 1122(d)(4)(i) 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 -------------------------------------------------------------------------------------------------------------- Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or Servicer 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 Servicer receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items 1122(d)(4)(iv) (e.g., escrow) in accordance with the related pool asset documents. -------------------------------------------------------------------------------------------------------------- The servicer's records regarding the pool assets agree with the servicer's records with respect to an obligor's unpaid principal Servicer 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 Servicer and approved by authorized personnel in accordance with the 1122(d)(4)(vi) transaction agreements 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 Servicer 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 Servicer 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 1122(d)(4)(viii) temporary (e.g., illness or unemployment). -------------------------------------------------------------------------------------------------------------- Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset Servicer 1122(d)(4)(ix) documents. -------------------------------------------------------------------------------------------------------------- J-2 -------------------------------------------------------------------------------------------------------------- APPLICABLE SERVICING SERVICING CRITERIA CRITERIA -------------------------------------------------------------------------------------------------------------- REFERENCE CRITERIA -------------------------------------------------------------------------------------------------------------- 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) Servicer 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 1122(d)(4)(x) of 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 Servicer payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such 1122(d)(4)(xi) other number of days 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 Servicer not charged to the obligor, unless the late payment was due to the 1122(d)(4)(xii) 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, Servicer or such other number of days specified in the transaction 1122(d)(4)(xiii) agreements. -------------------------------------------------------------------------------------------------------------- Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction Servicer, 1122(d)(4)(xiv) agreements. Trustee -------------------------------------------------------------------------------------------------------------- Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained Trustee 1122(d)(4)(xv) as set forth in the transaction agreements. -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- [NEW CENTURY MORTGAGE CORPORATION, as Servicer/ WELLS FARGO BANK, N.A., as Trustee] -------------------------------------------------------------------------------- Date:----------------- By:------------------------ Name: Title: -------------------------------------------------------------------------------- J-3 EXHIBIT K FORM OF CAP CONTRACT AGREEMENT (Available Upon Request) K-1 EXHIBIT L FORM OF REPORT PURSUANT TO SECTION 13.01 DATA TO BE PROVIDED TO CLASS CE CERTIFICATE HOLDER: Loan Number: Original Loan Amount: Current Loan Amount: Original Appraisal Value: Original LTV: Current Interest Rate: First Payment Date: Last Payment Date: Current P&I Payment Amount: Origination Date: Loan Term: Product Type (adjustable rate or fixed rate): Property Type: Street Address: Zip Code: State: Delinquency Status: Foreclosure Flag: Bankruptcy Flag: Payment Plan Flag (forbearance): MI Certificate Number: Foreclosure Start Date (Referral Date): Foreclosure Actual Sale Date: NOD Date: REO List Date: REO List Price: Occupancy Status: Eviction Status: REO Net Sales Proceeds: REO Sales Price: Current Market Value: Prepayment Flag: Prepayment Expiration Date: Prepayment Charges Collected: Prepayment Premium Waived: Prepayment Calculation: Senior Lien Position: Senior Lien Holder: Senior Lien Balance: Estimated Senior Lien Foreclosure Sale Date: Senior Lien in Foreclosure - Flag: L-1 Schedule 1 MORTGAGE LOAN SCHEDULE [FILED BY PAPER] Schedule 1-1 Schedule 2 SCHEDULE OF PREPAYMENT CHARGES (Available Upon Request) Schedule 2-1 Schedule 3 PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS The Depositor hereby represents, warrants, and covenants as follows on the Closing Date and on each Distribution Date thereafter: General 2. This Agreement creates a valid and continuing security interest (as defined in the applicable Uniform Commercial Code ("UCC")) in the Mortgage Loans in favor of the Trustee which security interest is prior to all other liens, and is enforceable as such as against creditors of and purchasers from the Depositor. 3. The Mortgage Loans constitute "general intangibles" or "instruments" within the meaning of the applicable UCC. 4. The Custodial Account and all subaccounts thereof constitute either a deposit account or a securities account. 5. To the extent that payments and collections received or made with respect to the Mortgage Loans constitute securities entitlements, such payments and collections have been and will have been credited to the Custodial Account. The securities intermediary for the Custodial Account has agreed to treat all assets credited to the Custodial Account as "financial assets" within the meaning of the applicable UCC. Creation 6. The Depositor owns and has good and marketable title to the Mortgage Loans free and clear of any lien, claim or encumbrance of any Person, excepting only liens for taxes, assessments or similar governmental charges or levies incurred in the ordinary course of business that are not yet due and payable or as to which any applicable grace period shall not have expired, or that are being contested in good faith by proper proceedings and for which adequate reserves have been established, but only so long as foreclosure with respect to such a lien is not imminent and the use and value of the property to which the lien attaches is not impaired during the pendency of such proceeding. 7. The Depositor has received all consents and approvals to the transfer of the Mortgage Loans hereunder to the Trustee required by the terms of the Mortgage Loans that constitute instruments. 8. To the extent the Custodial Account or subaccounts thereof constitute securities entitlements, certificated securities or uncertificated securities, the Depositor has received all consents and approvals required to transfer to the Trustee its interest and rights in the Custodial Account hereunder. Schedule 3-1 Perfection 9. The Depositor has caused or will have caused, within ten days after the effective date of this Agreement, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the transfer of the Mortgage Loans from the Depositor to the Trustee and the security interest in the Mortgage Loans granted to the Trustee hereunder. 10. With respect to the Custodial Account and all subaccounts that constitute deposit accounts, either: (i) the Depositor has delivered to the Trustee a fully-executed agreement pursuant to which the bank maintaining the deposit accounts has agreed to comply with all instructions originated by the Trustee directing disposition of the funds in the Custodial Account without further consent by the Depositor; or (ii) the Depositor has taken all steps necessary to cause the Trustee to become the account holder of the Custodial Account. 11. With respect to the Custodial Account or subaccounts thereof that constitute securities accounts or securities entitlements, either: (i) the Depositor has caused or will have caused, within ten days after the effective date of this Agreement, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Custodial Account granted by the Depositor to the Trustee; or (ii) the Depositor has delivered to the Trustee a fully-executed agreement pursuant to which the securities intermediary has agreed to comply with all instructions originated by the Trustee relating to the Custodial Account without further consent by the Trustee; or (iii) the Depositor has taken all steps necessary to cause the securities intermediary to identify in its records the Trustee as the person having a security entitlement against the securities intermediary in the Custodial Account. Priority 12. Other than the transfer of the Mortgage Loans to the Trustee pursuant to this Agreement, the Depositor has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Mortgage Loans. The Depositor has not authorized the filing of, or is not aware of any financing statements against the Depositor that include a description of collateral covering the Mortgage Loans other than any financing statement relating to the security interest granted to the Trustee hereunder or that has been terminated. 13. The Depositor is not aware of any judgment, ERISA or tax lien filings against the Depositor. Schedule 3-2 14. The Trustee has in its possession all original copies of the Mortgage Notes that constitute or evidence the Mortgage Loans. To the Depositor's knowledge, none of the instruments that constitute or evidence the Mortgage Loans has any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Trustee or its designee. All financing statements filed or to be filed against the Depositor in favor of the Trustee in connection herewith describing the Mortgage Loans contain a statement to the following effect: "A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Trustee." 15. Neither the Custodial Account nor any subaccount thereof is in the name of any person other than the Depositor or the Trustee or in the name of its nominee. The Depositor has not consented for the securities intermediary of the Custodial Account to comply with entitlement orders of any person other than the Trustee or its designee. 16. Survival of Perfection Representations. Notwithstanding any other provision of this Agreement or any other transaction document, the Perfection Representations contained in this Schedule shall be continuing, and remain in full force and effect (notwithstanding any replacement of the Servicer or termination of the Servicer's rights to act as such) until such time as all obligations under this Agreement have been finally and fully paid and performed. 17. No Waiver. The parties to this Agreement (i) shall not, without obtaining a confirmation of the then-current rating of the Certificates waive any of the Perfection Representations, and (ii) shall provide the Rating Agencies with prompt written notice of any breach of the Perfection Representations, and shall not, without obtaining a confirmation of the then-current rating of the Certificates (as determined after any adjustment or withdrawal of the ratings following notice of such breach) waive a breach of any of the Perfection Representations. 17. Depositor to Maintain Perfection and Priority. The Depositor covenants that, in order to evidence the interests of the Depositor and the Trustee under this Agreement, the Depositor shall take such action, or execute and deliver such instruments (other than effecting a Filing (as defined below), unless such Filing is effected in accordance with this paragraph) as may be necessary or advisable (including, without limitation, such actions as are requested by the Trustee) to maintain and perfect, as a first priority interest, the Trustee's security interest in the Mortgage Loans. The Depositor shall, from time to time and within the time limits established by law, prepare and present to the Purchaser or its designee to authorize (based in reliance on the Opinion of Counsel hereinafter provided for) the Depositor to file, all financing statements, amendments, continuations, initial financing statements in lieu of a continuation statement, terminations, partial terminations, releases or partial releases, or any other filings necessary or advisable to continue, maintain and perfect the Trustee's security interest in the Mortgage Loans as a first-priority interest (each a "Filing"). The Depositor shall present each such Filing to the Trustee or its designee together with (x) an Opinion of Counsel to the effect that such Filing is (i) consistent with the grant of the security interest to the Trustee pursuant to Section 11.09 of this Agreement, (ii) satisfies all requirements and conditions to such Filing in this Agreement and (iii) satisfies the requirements for a Filing of such type under the Uniform Commercial Code in the applicable jurisdiction (or if the Uniform Commercial Code does not apply, the applicable statute governing the perfection of security interests), and (y) a form of authorization for the Schedule 3-3 Trustee's signature. Upon receipt of such Opinion of Counsel and form of authorization, the Trustee shall promptly authorize in writing the Depositor to, and the Depositor shall, effect such Filing under the UCC without the signature of the Depositor or the Trustee where allowed by applicable law. Notwithstanding anything else in the transaction documents to the contrary, the Depositor shall not have any authority to effect a Filing without obtaining written authorization from the Trustee or its designee. Schedule 3-4 Schedule 4 STANDARD FILE LAYOUT DATA ELEMENTS ------------------------------------------------------------------------------------------------------- COLUMN NAME DESCRIPTION DECIMAL COMMENT MAX SIZE ------------------------------------------------------------------------------------------------------- LOAN-NBR A unique identifier Text up to 10 digits 10 assigned to each loan by the originator. ------------------------------------------------------------------------------------------------------- SER-INVESTOR-NBR A value assigned by the Text up to 10 digits 20 Servicer to define a group of loans. ------------------------------------------------------------------------------------------------------- SERVICER-LOAN-NBR A unique number assigned Text up to 10 digits 10 to a loan by the Servicer. This may be different than the LOAN-NBR. ------------------------------------------------------------------------------------------------------- BORR-NEXT -PAY-DUE-DATE The date at the end of MM/DD/YYYY 10 processing cycle that the Borrower's next payment is due to the Servicer, as reported by Servicer. ------------------------------------------------------------------------------------------------------- NOTE-INT-RATE The loan interest rate as 4 Max length of 6 6 reported by the Servicer. ------------------------------------------------------------------------------------------------------- ACTL-END -PRIN-BAL The Borrower's actual 2 No commas(,) or dollar 11 principal balance at the signs ($) end of the processing cycle. ------------------------------------------------------------------------------------------------------- SCHED-END-PRIN-BAL The scheduled principal 2 No commas(,) or dollar 11 balance due to the signs ($) investors at the end of a processing cycle. ------------------------------------------------------------------------------------------------------- ACTL-BEG -PRIN-BAL The Borrower's actual 2 No commas(,) or dollar 11 principal balance at the signs ($) beginning of the processing cycle. ------------------------------------------------------------------------------------------------------- SCHED-BEG-PRIN-BAL The scheduled outstanding 2 No commas(,) or dollar 11 principal amount due at signs ($) the beginning of the cycle date to be passed through to the investors. ------------------------------------------------------------------------------------------------------- SCHED-PAY-AMT The scheduled monthly 2 No commas(,) or dollar 11 principal and scheduled signs ($) interest payment that a Borrower is expected to pay; P&I constant. ------------------------------------------------------------------------------------------------------- SCHED-PRIN- AMT The scheduled principal 2 No commas(,) or dollar 11 amount as reported by the signs ($) Servicer for the current cycle. ------------------------------------------------------------------------------------------------------- SERV-CURT -AMT-1 The first curtailment 2 No commas(,) or dollar 11 amount to be applied. signs ($) ------------------------------------------------------------------------------------------------------- SERV-CURT -AMT-2 The second curtailment 2 No commas(,) or dollar 11 amount to be applied. signs ($) ------------------------------------------------------------------------------------------------------- SERV-CURT -AMT-3 The third curtailment 2 No commas(,) or dollar 11 amount to be applied. signs ($) ------------------------------------------------------------------------------------------------------- ACTION-CODE The standard FNMA numeric Action Code Key: 2 code used to indicate the 15=Bankruptcy, default/delinquent status 30=Foreclosure, of a particular loan. 70=REO, 60=PIF, 63= Substitution, 65=Repurchase; ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- PIF-AMT The loan "paid in full" 2 No commas(,) or dollar 11 amount as reported by the signs ($) Servicer. ------------------------------------------------------------------------------------------------------- PIF-DATE The paid in full date as MM/DD/YYYY 10 reported by the Servicer. ------------------------------------------------------------------------------------------------------- SCHED-GROSS-INTEREST-AMT The amount of interest 2 No commas(,) or dollar 11 due on the outstanding signs ($) scheduled principal balance in the current cycle. ------------------------------------------------------------------------------------------------------- LOAN-FEE-AMT The monthly loan fee 2 No commas(,) or dollar 11 amount expressed in signs ($) dollars and cents. ------------------------------------------------------------------------------------------------------- Schedule 4-1 ------------------------------------------------------------------------------------------------------- SERV-FEE-RATE The Servicer's fee rate 4 Max length of 6 6 for a loan as reported by the Servicer. ------------------------------------------------------------------------------------------------------- CR-LOSS-AMT The amount of loss that 2 No commas(,) or dollar 11 is classified as a credit. signs ($) ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- FRAUD-LOSS-AMT The amount of loss that 2 No commas(,) or dollar 11 is attributable to a signs ($) fraud claim. ------------------------------------------------------------------------------------------------------- BANKRUPTCY-LOSS-AMT The amount of loss due to 2 No commas(,) or dollar 11 bankruptcy. signs ($) ------------------------------------------------------------------------------------------------------- SPH-LOSS-AMT The amount of loss that 2 No commas(,) or dollar 11 is classified as a signs ($) special hazard. ------------------------------------------------------------------------------------------------------- PREPAY-PENALTY- AMT The penalty amount 2 No commas(,) or dollar 11 received when a Borrower signs ($) prepays on his loan as reported by the Servicer. ------------------------------------------------------------------------------------------------------- PREPAY-PENALTY- WAIVED The prepayment penalty 2 No commas(,) or dollar 11 amount for the loan signs ($) waived by the Servicer. ------------------------------------------------------------------------------------------------------- MOD-DATE The effective payment MM/DD/YYYY 10 date of the modification for the loan. ------------------------------------------------------------------------------------------------------- MOD-TYPE The modification type. Varchar - value can be 30 alpha or numeric ------------------------------------------------------------------------------------------------------- DELINQ-P&I-ADVANCE-AMT The current outstanding 2 No commas(,) or dollar 11 principal and interest signs ($) advances made by the Servicer. ------------------------------------------------------------------------------------------------------- Schedule 4-2

Exhibit 10.29   AMENDED AND RESTATED LEASE AGREEMENT   THIS AMENDED AND RESTATED LEASE AGREEMENT (the “Lease”) is made and entered into as of this day of March, 2005, by and between Eugene M. Komblum, Trustee of THE EUGENE M. KORNBLUM TRUST AGREEMENT DATED JULY 18, 1997, as to an undivided 25% interest as tenants in common; Helen H. Komblum, Trustee of THE HELEN H. KORNBLUM TRUST AGREEMENT DATED JULY 11, 1997, as to an undivided 25% interest as tenants in common; and Carole A, Simon, Trustee of THE CAROLE A. SIMON REVOCABLE TRUST U/T/A dated November 27,1991, as to an undivided 50% interest as tenants in common (hereinafter collectively referred to as “Landlord”), and ST. LOUIS MUSIC, INC., a corporation existing under the laws of the State of Missouri (hereinafter referred to as “Tenant”).   RECITALS:   A.       Landlord and Tenant entered into that certain Commercial Lease (“Original Lease”) dated as of December 20, 2001.   B.        Landlord and Tenant now wish to amend and restate the Original Lease as set forth herein.   NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual covenants and obligations contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged and confessed, Landlord and Tenant agree as follows:   1.         Description of Premises.   Landlord, for and in consideration of the rents, covenants and agreements hereinafter mentioned and hereby agreed to be paid, kept and performed by Tenant, has leased and by these presents does lease unto Tenant a certain brick warehouse and office building together with all land surrounding the same, containing approximately 3.47 acres in total, known and numbers as 1400 Ferguson, in the City of Pagedale and State of Missouri (hereinafter referred to as the “Premises”).   2.         Lease Term.   This lease (hereinafter referred to as the “Lease”) shall commence on the            day of March, 2005, and shall end on the 29th day of February, 2008, unless sooner terminated pursuant to other provisions of this Lease.   3.         Use of Premises.   Tenant shall be entitled to have and to hold the Premises, subject to the conditions herein contained, for any use permitted by law. Landlord and Tenant shall comply with, and shall maintain the Premises in compliance with, all laws and all requirements of all governmental authorities applicable to the Premises and to the use thereof, and shall maintain the Premises in   --------------------------------------------------------------------------------   compliance with the requirements of the insurance companies providing the insurance required by subparagraph (b)(3) of Paragraph 4 below.   4.         Rental.   (a)       As fixed annual rent Tenant shall pay directly to Landlord, or to such other person as Landlord designates, without previous demand therefore, the sum of One Hundred Thirty Thousand One Hundred Six and 08/100 Dollars ($130,106.08) per year, payable in equal monthly installments of Ten Thousand Eight Hundred Forty-two and 17/100 Dollars ($ 10,842.17) in advance on the first day of each and every month during the term of the Lease.   (b)       As additional rental during the term of this Lease, Tenant shall fully pay all costs and charges in connection with or arising out of the following:   (1)       All taxes, assessments and other governmental charges levied, during the term hereof, on the Premises or any part thereof, including, but not limited to, all general and special assessments, sewer taxes, water licenses, and any other taxes, penalties, fines, interests and costs imposed upon or against the Premises or against any of the personal property placed upon the Premises;   (2)       All electricity, water, sewer use, gas, costs of operation of heating and air conditioning and other utilities used on the Premises during the full term at this Lease;   (3)       All insurance premiums for the following described insurance which Tenant hereby agrees to maintain on the Premises, in the name of Landlord or such other person or entity as Landlord may designate:   (A)      Insurance for all risks of direct physical loss or damage to the Premises (subject to standard policy exclusions) in an amount representing the full replacement costs of the improvements located on the Premises, in insurance companies approved by Landlord and authorized to do business in the State of Missouri; and   (B)       Insurance for public liability coverage, protecting both Landlord and Tenant against any and all claims for personal injury, loss of life or damage to property sustained or claimed to have been sustained in, on or about the Premises or the building, improvements and appurtenances located thereon or upon the adjoining sidewalks, streets or alleyways. Such insurance shall be in such amounts and contain such coverages as Landlord may reasonably require; and   (C)       A certificate or certificates of the insurers that such insurance is in force and effect shall be deposited with Landlord and shall contain an undertaking by the respective insurers that the insurance policies shall not be canceled or modified adversely to the interests of Landlord without at least thirty (30) days’ prior notice to Landlord. Prior to the expiration of any such policy, Tenant shall furnish Landlord with evidence satisfactory to Landlord that the policy has been renewed or replaced or is no longer required by this Lease.   2 --------------------------------------------------------------------------------   (4)       All other expenses and charges which shall be Incurred or shall be required in connection with the possession, occupation, operation, alteration, maintenance, repair, protection, preservation and use of the Premises (except as is otherwise specifically provided for herein), it being intended that this Lease shall be a net net lease to Landlord and that, except as is otherwise specifically provided for herein, Landlord shall have no cost or expense in connection with the Premises leased hereunder.   5.         Maintenance, Repairs, Alterations and Restorations.   (a)       Tenant shall, at its sole cost and expense, maintain and care for the building and improvements located on the Premises, including landscaped areas, roadways and the parking areas, except as otherwise provided in subparagraph (b) below. Tenant shall, at its sole cost and expense, maintain and care for the interiors of the building and improvements, including all plumbing, heating, air conditioning, electrical and sewer systems, devices and installations. Tenant agrees to keep the Premises free from any nuisance or filth upon or adjacent thereto, Except as otherwise provided in subparagraph (b) below, all repairs and alterations deemed necessary to the exterior and interior of the buildings and improvements located on the Premises shall be made or constructed by Tenant with the consent of Landlord; and all repairs, alterations, restorations, buildings and other improvements so made or constructed shall remain as or become, as the case may be, a part of the realty.   (b)       Landlord shall conduct all maintenance and repairs to the roof of the building (including the replacement thereof, should Landlord in its reasonable discretion determine that any material defect thereto could not otherwise be repaired), and all structural maintenance and repairs to the foundation and the exterior walls of the building, as may be required for the preservation, protection or restoration of the Premises, unless any such maintenance and/or repair is required as a result of damage caused by the negligence or willful acts and/or omissions of Tenant, its employees or invitees, on or after the date of this Lease. Landlord shall also (i) conduct all maintenance and repairs to the Premises that are required as a result of damage caused prior to the date of this Lease and (ii) perform any such alterations to the Premises as are required by law, except and to the extent such alterations are so required due to improvements or intended improvements to the Premises by Tenant.   (c)       All repairs, alterations, restorations, buildings and other improvements made or constructed to or on the Premises shall be performed by the responsible party in a good and workmanlike manner, shall be pursued by the responsible party with due diligence until the Premises will again be fit for occupancy of Tenant, or until said construction shall be reasonably deemed completed by Landlord, and shall be performed in conformity with all applicable laws, ordinances, rules and regulations. Tenant shall not, under any circumstances, allow or permit any lien for labor end material to attach to the Premises.   (d)       Subject to paragraph 6(b) below, Tenant shall pay for all costs and expenses incurred by Tenant arising out of Tenant’s obligations to make the repairs or maintenance described in subparagraph (a) above. Landlord shall also pay for all costs and expenses incurred by Landlord arising out of Landlord’s obligations to make the repairs or maintenance described in subparagraph (b) above.   3 --------------------------------------------------------------------------------   6.         Indemnification.   (a)       Tenant agrees that it will protect, indemnify and save Landlord harmless from and against any penalty, damage or charge imposed for any violation of any law or ordinance by Tenant, its agents, employees or anyone acting on behalf of Tenant. Tenant further agrees that it will protect, indemnify and save Landlord harmless from and against any and all claims, suits, demands, causes of action, costs and liabilities arising from Tenant’s use of the Premises on or after the date of this Lease, or from any act permitted, or any omission to act, in or about the Premises by Tenant or its employees or invitees on or after the date of this Lease, or from any breach or default by Tenant of this Lease, except to the extent caused by Landlord’s negligence or willful misconduct.   (b)       Landlord agrees that it will protect, indemnify and save Tenant harmless from and against any and all claims, suits, demands, causes of action, costs and liabilities arising from any breach or default by Landlord of this Lease, except to the extent caused by Tenant’s negligence or willful misconduct. Landlord further agrees that it will protect, indemnify and save Tenant harmless from and against any and all claims, suits, demands, causes of action, costs and liabilities associated with, related to, or arising out of (i) the maintenance and repair of the roof, including without limitation any removal, disposal or other remediation required by law with respect to any asbestos containing materials (“ACMs”) or presumed ACMs that may be present in the roof; (ii) any underground storage tanks that may be or have been present on the Premises; and (iii) without limitation to item (i) above, the presence of any ACMs or presumed aCMs on the Premises; provided, however that Landlord shall have no such indemnification obligation with respect to any remediation, maintenance, encapsulation, removal, disposal, labeling or other actions with respect to any ACMs, presumed ACMs or underground storage tanks except to the extent such action is required under applicable laws.   7.         Damage to Person or Property.   Landlord shall not be liable to Tenant or any other person or corporation, including Tenant’s employees, for any damage to their person or property caused by water, rain, snow, float, fire, storm and accidents, or by breakage, stoppage or leakage of water, gas, heating and sewer pipes, air conditioning units or plumbing upon about or adjacent to the Promises, except and to the extent such damage is caused by Landlord’s failure to perform its obligations under this Lease.   8.         Destruction and Eminent Domain.   (a)       Should the entire area of the Premises, or such portion thereof as to interfere materially with or curtail the operations of Tenant’s business for a period in excess of sixty (60) days, be destroyed by fire or other cause or be acquired or taken by condemnation by any public or quasi-public authority or under the power of eminent domain, this Lease may at the option of Tenant, be terminated and of no further force and effect from and after the date of such total destruction or the effective date of the taking by such public or quasi-public authority.   4 --------------------------------------------------------------------------------   Tenant shall have no interest in nor shall it share in any insurance proceeds or condemnation award received by Landlord for the Premises.   (b)       Should only a portion of the Premises be so destroyed, acquired or condemned, and the portion thus destroyed or taken be of such an amount as not to interfere materially with or curtail the operations of Tenant’s business for a period in excess of sixty (60) days, then this Lease shall continue in full force and effect as to the portion not so destroyed or taken with a reduction in the fixed annual rent proportionate to the area of the Premises so destroyed or taken for a period up to, but not exceeding, six (6) months, provided that Landlord has in force business interruption insurance payable to the lender of any indebtedness of Landlord which is secured by the premises in an amount sufficient to pay the debt service on such indebtedness during the period of rent reduction. The parties shall make all of the repairs and improvements deemed necessary in order to restore the Premises to its original condition and shall perform, pursue and complete said repairs and improvements in accordance with the terms and provisions of Paragraph 5 above. The costs and expenses incurred by Tenant in making said repairs and improvements shall be paid for by Tenant and shall be reimbursed by Landlord, but only to the extent paid for by the insurance proceeds or condemnation award received by Landlord. Upon completion of said repairs and improvements in accordance with and as determined by the terms and provisions of Paragraph 5 above, the fixed annual rent, if reduced under the terms of this subparagraph (b), shall be increased to the amount set forth in Paragraph 4.   (c)       The fact of whether such destruction, acquisition or condemnation has materially interfered with or curtailed the operations of Tenant’s business for a period in excess of sixty (60) days shall be determined by the mutual decision of Landlord and Tenant. If Landlord and Tenant cannot agree as to whether such destruction, acquisition or condemnation has materially interfered with or curtailed the operations of Tenant’s business for a period in excess of sixty (60) days, the fact shall be determined by arbitration in accordance with and as provided by the Missouri Uniform Arbitration Act, Section 435.350 et seq. R. S. Mo. 1994.   9.         Default   (a)       In the event that Tenant shall fail to pay any installment of rent within ten (10) days from the date that the same shall become due hereunder or shall fail to pay any insurance premiums or taxes and assessments within ten (10) days after written notice from Landlord that the same shall be due, or in the event that Tenant shall fail in the observance of performance of any of the other terms, conditions and provisions of this Lease for more than thirty (30) days after written notice of such default shall have been mailed to Tenant (provided, however, that if Tenant stall promptly proceed to correct such failure upon notice thereof then said thirty (30) day period if insufficient, shall be extended for such reasonable time as may be necessary), or in the event that Tenant shall be adjudicated insolvent or bankrupt pursuant to the provisions of any state or federal insolvency or bankruptcy act, or if Tenant shall make a general assignment for the benefit of creditors, or if a receiver of the property of Tenant shall be appointed and such appointment shall not be vacated within 120 days after it is made, or if Tenant shall allow or permit any lien for labor or material to attach to the Premises, then Landlord, besides other rights or remedies Landlord may have, shall have the immediate right to   5 --------------------------------------------------------------------------------   pursue any one or more of the following remedies without notice or demand whatsoever, which remedies are cumulative and not alternative:   (i)        LandLord shall have the right to remedy or attempt to remedy any default of Tenant, and in so doing to make any payments due or alleged to be due by Tenant to third parties and to enter upon the Premises to do any work or other things therein, and in such event all reasonable expenses of Landlord in remedying or attempting to remedy such default shall be payable by Tenant to Landlord on demand. All sums so paid by Landlord and all expenses in connection therewith, shall bear interest thereon at the rate of fifteen percent (15%) per annum or the highest legal rate if less and if not otherwise demanded by Landlord shall be deemed additional rent;   (ii)       Landlord shall have the right to terminate this Lease or terminate Tenant’s right to possession of the Premises without terminating this Lease forthwith by leaving upon the Premises or by affixing to an entrance door to the Premises notice terminating the Lease or. Upon the giving by Landlord of a notice in writing terminating this Lease or terminating Tenant’s right to possession of the Premises, Tenant shall remain liable for and shall pay on demand by Landlord (A) the full amount of all Rent which accrues or which would have accrued until the date on which this Lease would have expired had termination not occurred, and any and all damages and expenses incurred by Landlord in re-entering and repossessing the Premises in making good any default of the Tenant, in making any alterations, remodeling or new tenant finish to the Premises, and any and all expenses which Landlord may incur during the occupancy of any new tenant, less (B) the net proceeds of any re-letting of the Premises which has occurred at the time of the aforesaid demand by Landlord to Tenant. Landlord shall be entitled to any excess with no credit to Tenant Landlord may, in its sole discretion, make demand on Tenant as aforesaid on any one or more occasions, and any suit brought by Landlord to enforce collection of such difference for any subsequent month or months. Tenant’s liability shall survive the institution of summary proceedings and the issuance of any warrant hereunder; and   (iii)      Landlord shall have the right of injunction and the right to invoke any other remedy allowed at law or in equity, and mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy at law or in equity.   (b)       In fee event that Tenant shall fail in the observance of performance of any of the terms, conditions or provisions of this Lease, including but not limited to payments or money to Landlord or any other person or entity, and Landlord engages the services of an attorney to enforce such terms, conditions or provisions, then and in such event, Landlord shall be entitled to recover from Tenant the entire cost of collection or other enforcement, including reasonable attorneys’ fees, which if not otherwise demanded by Landlord shall be deemed additional rent hereunder. In the event that Landlord shall fail in the observance or performance of any of the terms, conditions or provisions of this Leaser on its part to be performed, and Tenant engages the services of an attorney to enforce such terms, conditions or provisions, then and in such event, Tenant shall be entitled to recover from Landlord the entire cost of enforcement, including reasonable attorneys’ fees.   6 --------------------------------------------------------------------------------   10.       Assignment and Subletting.   Tenant shall not transfer, assign or sublease this Lease or its Interest hereunder, nor permit the same to be transferred or assigned by operation of law without the consent of Landlord, which consent shall not be unreasonably conditioned, delayed of withheld by Landlord. No transfer or assignment by Tenant of this Lease or its interest hereunder and no subletting by Tenant of the Premises of any portion thereof shall operate to release Tenant from the fulfillment on Tenant’s part of its obligations under this Lease, nor affect Landlord’s right to exercise any of Landlord’s rights or remedies hereunder, without the consent of or notice to any assignee or sublessee.   11.       Waiver and Severability.   (a)       No waiver of any forfeiture, by acceptance of rent or otherwise, shall waive any subsequent cause of forfeiture or breach of any condition of this Lease; nor shall any consent when applicable by Landlord to any assignment or subletting of the Premises, or any part thereof, be held to waive or release any assignee or sublessee from any of the foregoing conditions or covenants as against him or them; but every such assignee and sublessee shall be expressly subject thereto,   (b)       If any term, covenant or condition of this Lease, or the application thereof to any parson or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition of this Lease, shall be valid and be enforced to the fullest extent permitted by law.   12.       Limitation of Liability. Tenant agrees that it shall look solely to Landlord’s estate and interest in the Premises (or the proceeds thereof) for the satisfaction of any right of Tenant for the collection of a judgment or other judicial process requiring the payment of money by Landlord. No other property or assets of Landlord, its partners, its joint venturers or any officers, directors or employees of any of the foregoing, shall be subject to any enforcement procedures for the satisfaction of any of Tenant’s rights and remedies under or as to; (i) the Lease, (ii) the relationship of Landlord and Tenant under this Lease or under law, (iii) Tenant’s use and occupancy of the Premises, or (iv) any other liability of Landlord to Tenant. This provision shall not be deemed, construed or interpreted to be or constitute an agreement, express or implied, between Landlord and Tenant that Landlord’s interest hereunder and in the Premises shall be subject to any equitable lien or other similar lien or charge. From and after the due date upon which Landlord shall convey the Premises to another party, Landlord shall be released from its obligations hereunder, provided that such third party shall assume all obligations of Landlord as set forth herein,   13.       Notices.   (a)       Any notices to be given by Landlord or Tenant to each other for any purpose connected with this Lease or otherwise, shall be in writing and deemed to have been properly given if served personally or if sent by United States registered or certified mail, return receipt request, to the Mowing address of Landlord and Tenant, respectively, or to such other persons and addresses as Landlord and Tenant may from time to time designate:   7 --------------------------------------------------------------------------------     Landlord: Eugene M. Kornblum and Helen H. Kornblum     7736 W. Biltmore     Clayton, Missouri 63105         Tenant: St. Louis Music, Inc.     1400 Ferguson Avenue     St. Louis, Missouri 63133   14.       Landlord Agreement. Landlord hereby agrees to execute and deliver to Tenant, contemporaneously with this Lease, that form of Landlord Agreement attached hereto as Exhibit A.   15.       Miscellaneous.   (a)       The terms and provisions of the Lease shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, assigns and personal representatives provided, however, that no assignment by, from, through or under Tenant in violation of any provisions hereof shall vest in such assignee any right, title or interest whatsoever.   (b)       Tenant may not record this Lease or a Memorandum or other notice of this Lease without Landlord’s prior written consent, which consent may not be unreasonably conditioned, delayed or withheld.   (c)       This Lease may not be modified or amended except by a written instrument executed by both Landlord and Tenant. This Lease shall be governed by and interpreted pursuant to the laws of the State of Missouri.   (d)       The invalidity of one or more of the provisions of this Lease shall not cause the invalidity of the remainder of this Lease.   (e)       In the event that either party hereto shall bring legal action against the other party, then the prevailing party shall be entitled to reimbursement from the other party for all expenses thus incurred, including a reasonable attorney’s fee.   (f)        The captions or other headings of any sections of this Lease are inserted for convenience only and shall not be considered in construing the provision hereof if any question of intent should arise.   (g)       All rights and remedies of Landlord herein enumerated shall be cumulative and shall not be construed to exclude any other remedies allowed at law or in equity, whether or not specified herein. The failure of Landlord to insist in any one or more cases upon the strict performance of any of the provisions of this Lease or to exercise any option under this Lease shall not be construed as a waiver or a relinquishment for the future of any such provision, and one or more waivers of any breach of any provision shall not be construed as a waiver of any   8 --------------------------------------------------------------------------------   subsequent breach of the same. The receipt and acceptance by Landlord of any partial payment under this Lease shall not be deemed a waiver of such breach or an accord and satisfaction.   [The remainder of this page is intentionally blank. The next page is the signature page.]   9 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties have duly executed this Lease as of the day and year first above written.   THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.   ST. LOUIS MUSIC, INC.   THE EUGENE M. KORNBLUM TRUST     AGREEMENT dated July 18, 1997 By:       Name:         Tile:     EUGENE M. KORNBLUM, Trustee                 THE HELEN H. KORNBLUM TRUST     AGREEMENT dated July 11, 1997                   HELEN H. KORNBLUM, Trustee                 THE CAROLE A. SIMON REVOCABLE     TRUST U/T/A dated November 27, 1991                   CAROLE A. SIMON, Trustee   10 --------------------------------------------------------------------------------   Printed and for Sale to the St. Louis Printing & Legal Firms Co., St. Louis, Mn.       FORM                   REVISED           A DIVISION OF [LOGO] CLASS A   COMMERCIAL LEASE       This Lease, made and entered into, this 20th day of DECEMBER 2001, by and between Eugene M. Kormblum, trustee of THE EUGENE M. KORNBLUM TRUST AGREEMENT DATED JULY 18, 1997, as to an undivided 25% interest as tenants in common; Helen M. Kornblum, Trustee of THE HELEN H. KORMBLUM TRUST AGREEMENT DATED JULY 11, 1997, as to an undivided 25% interest as tenants in common; and Carole A. Simon and Robert S. Simon, Trustees of THE CAROLE A. SIMON REVOCABLE TRUST U/T/A dated November 27, 1991, as to an undivided 50% interest as tenants in common.   Parties     Hereinafter called Lessor, and ST. LOUIS MUSIC, INC., hereinafter called Lessee, WITNESSETH, That the said Lessor for and in consideration of the rents, covenants and agreements hereinafter mentioned and herby agreed to be paid, kept and performed by said Lessee, or Lessees, successors and assigns has leased and by these presents do lease to said Lessee the following described premises, situated in the county of St. Louis, state of Missouri, to-wit:       Premises   A certain brick warehouse and office building together with all land surrounding the same, containing approximately 3.47 acres in total, known and number as 1400 Ferguson, in the City of Pagedale and State of Missouri.       Use of premises   To have and to hold the same, subject to the conditions herein contained, and for no other purpose or business than that of office, warehouse, and selling of any and all types of musical instruments and any and all types of kindred products.       Term and Rental   For and during the terms of three (3) years commencing on the 1st day of January 2002 and ending on the 31st day of December 2004 at the yearly rental of One Hundred Five Thousand One Hundred Six and 00/100 Dollars($103,106.00), payable in advance in equal monthly installments of Eight Thousand Seven Hundred Fifty-Eight and 83/100 Dollars (88,758.83)       Assignment or Sub-letting   On the first day of each and every month during the said term. This lease is not assignable, nor shall said premises or any part thereof be sublet used or permitted to be used for any purposes other than above set forth without the lease or any part thereof sublet without the written consent of the Lessor, or if the Lessee shall become the subject of a court proceeding in bankruptcy or liquidating receivership or shall make an assignment for the benefit of creditors, this lease may by such fact or unauthorized act be cancelled at the option of the Lessor. Any assignment of this lease or subletting or said premises or any part thereof with the written consent of the Lessor shall not operate to release the lessee from the fulfillment on Leasee’s part of the covenants and agreements herein contained to be by said Lessee performed, nor authorize any subsequent assignment or subletting without the written consent of the Lessor.       Repairs and Alternations   All repairs and alternations deemed necessary by Lessee shall be made by said Lessee at Leasee’s cost and expense with the consent of Lessor; and all repairs and alterations so made shall remain as a part of the realty all plate and other class now in said demised premises is at the risk of said Lessee, and if broken, is to be replaced by and at the expense of said Lessee.   --------------------------------------------------------------------------------       The Lessor reserves the right to prescribe the form, size, character and location of any and all awnings affixed to and all signs which may be placed or painted upon any part of the demised premises, and the              agrees not to place any awning or sign on any part of the demised premises without the written consent of the Lessor, or to bore or cut into any column, beam or any part of the demised premises without the written consent of Lessor. The Lessee and all holding under said Lessee agrees to use reasonable diligence in the care and protection of said premises during the term of this lease, to keep the water pipes, sewer drains, heating apparatus, elevator machinery and sprinkler system in good order and repair and to surrender said premises at the termination of this lease in substantially the same and in as good condition as received, ordinary wear and tear excepted.     The Lessee shall pay according to the rules and regulations of the water department for all water used in the demised premises. The Lessee will erect fire escapes on said premises at said Lessee’s own cost, according to law, should the proper authorities demand same.     The Lessee agrees to keep said premises in good order and repair and free from any               or              upon or adjacent thereto, and not to use or permit the use of the same or any part thereof for any purpose forbidden by law or ordinance now in force or hereafter enacted in respect to the use or occupancy of said premises. The Lessor or legal representatives may, at all reasonable hours, enter upon said premises for the purpose of examining the condition thereof and making such repairs as Lessor may see fit to make.     If the cost of Insurance to said Lessor on said premises shall be increased by reason of the occupancy and use of said demised premises by said Lessee or any other person under said Lessee, all such increase over the existing rate shall be paid by said Lessee to said Lessor on demand. The Leases agrees to pay double rent for each day the Lessee, or any one holding under the Lessee, shall retain the demised premises after the termination of this lease, whether by limitation or forfeiture. Damage to Tenants’ Property   Lessor shall not be liable to said Lessee or any other person or corporation, including employees, for any damage to their person or property caused by water, rain, snow, frost, fire, storm and accidents, or by breakage, stoppage or leakage of water, gas, heating and sewer pipes or plumbing, upon, about or adjacent to said premises.     The destruction of said building or premises by fire, or the elements, or                material injury thereto as to render said premises unquestionably untenantable for 45 days, shall at the option of said Lessor or Lessee produce and work a termination of this lease.     If the Lessor and Lessee cannot agree as to whether said building or premises are unquestionably untenantable for 45 days, the fact shall be determined by arbitration; the Lessor and the Lessee shall each choose an arbitrator within five days after either has notified the other in writing of such damage, the two so chosen, before entering on the discharge of their duties, shall elect a third, and the decision of any two of such arbitrators shall be conclusive and binding upon both parties hereto.     If it is determined by arbitration, or agreement between the Lessor and the Lessee, that said building is not unquestionably untenantable for 45 days, then said Lessor must restore said building at Lessor’s own expense, with all reasonable speed and promptness, and in such case a just and proportionate part of said rental shall be abated until said premises haw been restored.     Failure on the part of the Lessee to pay any installment of rent or increase in insurance rate promptly as above set out, as and when the same becomes due and payable, or failure of the Lessee promptly and faithfully to keep and perform each and every covenant, agreement and atipulation herein on the part of the Lessee to be kept and performed, shall at the option of the Lessor cause the forfeiture of this lease.     Possession of the within demised premises and all additions and permanent improvements thereof shall be delivered to Lessor upon ten days’ written notice that Lessor has exercised said option, and thereupon Lessor shall be entitled to and may take immediate possession of the demised premises, any other notice or demand being hereby waived.     Any and all notices to be served by the Lessor upon the Lessee for any breach of covenant of this lease, or otherwise, shall be served upon the Lessee in person, or loft with anyone in charge of the premises, or posted upon some conspicuous part of said premises. Re-Entry   Said Lessee will quit and deliver up the possession of said premises to the Lessor or Lessor’s heirs, successors, agents or assigns, when this lease terminates by limitation or forfeiture, with all window glass replaced, if broken, and with all keys, locks, bolts, plumbing fixtures, elevator, sprinkler, boiler and heating appliances in as good order and condition as the same are now, or may hereaftar be made by repair in compliance with all the covenants of this lease, save only the wear thereof from reasonable and careful use.     But it is hereby understood, and Lessee hereby covenants with the Lessor, that such forfeiture, annullment or voidance shall not relieve the Lessee from the obligation of the Lessee to make the monthly payments of rent hereinbefore reserved, at the times and in the manner aforesaid; and in case of any such default of the Lessee, the Lessor may re-let the said premises an the agent for and in the name of the Lessee, at any rental readily obtainable, applying the proceeds and avails thereof, first, to the payment of such expense as the Lessor may be put to in re-entering, and then to the payment of said rent as the same may from time to time become due, and toward the fulfillment of the other covenants and agreements of the Lessee herein contained, and the balance, if any, shall be paid to the Lessee; and the Lessee hereby covenants and agrees that if the Lessor shall recover or take possession of said premises as aforesaid, and be unable to re-let and rent the same so as to realise a sum equal to the rent hereby reserved, the Lessee shall and will pay to the Lessor any and all loss of difference of rent for the residue of the term. The Lessee hereby gives to the Lessor the right to place and maintain its usual “for rent” signs upon the demised premises, in the place that the same are usually displayed on property similar to that herein demised, for the last thirty days of this lease.           “No representation is made that permises are lead free or that these premises are legally habitable.”   --------------------------------------------------------------------------------       ADDITIONAL TERMS AND PROVISIONS           1.     Lessee shall have the option to renew the Lease after the expiration of the original term thereof for an additional term of two (2) years under the same terms and conditions, excepting that the annual rental for the premises during such renewal period shall be One Hundred Ten Thousand Three Hundred Sixty-One and 00/100 Dollars ($110,361.00), payable in equal monthly installments. Such renewal shall be exercised by notice in writing sent to Lessor at least sixty (60) days prior to the expiration of the original term.     2.     In addition to the rentals herein provided, Lessee shall pay all real estate taxes, whether general or special, assessed on the premises during the term of the lease, as well as the cost of all utility, water and sewer charges incurred with the use and occupancy of the building. Lessee shall pay for fire and extended coverage liability insurance on the building, naming the owners as an additional insured as their interest may appear.   No Constructive Waiver   No waiver of any forfeiture, by acceptance of rent or otherwise, shall waive any subsequent cause of forfeiture, or breach of any condition of this lease; nor shall any consent by the Lessor to any assignment or subletting of said premises, or any part thereof, be held to waive or release any assignee or sub-lessee from any of the foregoing conditions or covenants as against him or them; but every such assignee and sub-lessee shall be expressly subject thereto.     Whenever the word “Lessor” is used herein it shall be construed to include the heirs, executors, administrators, successors, assigns or legal representatives of the Lessor; and the word “Lessee” shall include the heirs, executors, administrators, successors, assigns or legal representatives of the Lessee and the words Lessor and Lessee shall include single and plural, individual or corporation, subject always to the restrictions herein contained, as to subletting or assignment of this lease.     IN WITNESS WHEREOF, the said parties aforesaid have duly executed the foregoing instrument or caused the same to be executed the day and year first above written.   Lessee: ST. LOUIS MUSIC, INC., Lessor: THE EUGENE M. KORNBLUM TRUST   A Missouri corporation   AGREEMENT DATED JULY 18, 1997               By: /s/ Eugene M. Kornblum     By: /s/ Eugene M. Kornblum         Eugene M. Kornblum, Trustee     Its President           THE HELEN H. KORNBLUM TRUST   ATTEST:   AGREEMENT DATED JULY 11, 1997               By: /s/ Helen H. Kornblum Trustee     By: /s/ Donald J. Collins         Helen H. Kornblum, Trustee     Its Secretary           THE CAROLE A. SIMON REVOCABLE TRUST U/T/A       DATED NOVEMBER 27, 1991               By: /s/ Robert S. Simon             Robert S. Simon, Trustee               By: /s/ Carole A. Simon,             Carole A. Simon, Trustee   --------------------------------------------------------------------------------   State of Missouri, of ) )      ss. ) On this 20 day of December, 2001,   before me personally appeared Eugene M. Kornblum, Trustee of THE EUGENE M. KORNBLUM TRUST AGREEMENT DATED JULY 18, 1997, and Helen H. Kornblum, Trustee of THE HELEN H. KORNBLUM TRUST AGREEMENT DATED JULY 11, 1997, to me known to be the persons described in and who executed the foregoing instrument, and acknowledged that they, executed the same as their free act and deed, in their capacity as Trustees of their respective Trusts.   IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal in the                      and State aforesaid, the day and year first above written.       /s/ Andrew Clones   Notary Public. My terms expires     ANDREW CLONES NOTARY PUBLIC STATE OF MISSOURI ST. LOUIS COUNTY MY COMMISSION EXP. MAR 23, 2008   State of Missouri, of ) )      ss. ) On this 20 day of December, 2001,   before me appeared Eugene M. Kornblum to me personally known, who, being by me duly sworn, did say that he is the President of ST. LOUIS MUSIC, INC., a Corporation of the State of Missouri, and that the seal affixed to the foregoing instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation, by authority of its Board of Directors; and said President acknowledged sold instrument to be the free act and deed of said corporation.   IN TESTIMONY WHEREOF, I have hereinto set my hand and affixed my official seal in the                      and State aforesaid, the day and year first above written.       /s/ Andrew Clones   Notary Public. My terms expires     ANDREW CLONES NOTARY PUBLIC STATE OF MISSOURI ST. LOUIS COUNTY MY COMMISSION EXP.MAR 23, 2008   State of Missouri, of ) )      ss. ) On this 20 day of December, 2001,   before me personally appeared Carol A. Simon and Robert S. Simon, Trustees of THE CAROLE A. SIMON REVOCABLE TRUST U/T/A dated November 27, 1991 to me known to be the persons described in and who executed the foregoing instrument, and acknowledged that they executed the same as their free act and deed, in their capacity as Trustees of the Trust.   IN TESTIMONY WHEREOF, I have hereinto set my hand and affixed my official seal in the                      and State aforesaid, the day and year first above written.       /s/ Andrew Clones   Notary Public. My terms expires     ANDREW CLONES NOTARY PUBLIC STATE OF MISSOURI ST. LOUIS COUNTY MY COMMISSION EXP. MAR 23, 2008   LEASE         TO         Premises No.      Begins      Ends        $ per month   --------------------------------------------------------------------------------

EXHIBIT 10.48 EXECUTION VERSION CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT REQUEST PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE OMITTED CONFIDENTIAL INFORMATION APPEARS ON EIGHT (8) PAGES OF THIS EXHIBIT   -------------------------------------------------------------------------------- LOAN AGREEMENT [N330AT] dated as of August 31, 2006 among AIRTRAN AIRWAYS, INC., as Borrower, THE PARTIES IDENTIFIED IN SCHEDULE 1 HERETO AS LENDERS, as Lenders, and THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, as Security Agent   -------------------------------------------------------------------------------- One (1) Boeing model 737-7BD aircraft equipped with Two (2) CFM International model CFM56-7B20 engines   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS   1.      DEFINITIONS AND CONSTRUCTION    1 2.      SECURED LOANS; CLOSING    1   2.1        MAKING OF LOANS; ISSUANCE OF EQUIPMENT NOTES.    1   2.2        PROCEDURE FOR FUNDING OF SECURED LOANS.    2   2.3        TERMS OF REPAYMENT.    4   2.4        CLOSING.    5   2.5        COMMITMENT TERMINATION.    6   2.6        NO WINGLET NOTICE.    6   2.7        PRO RATA TREATMENT AND PAYMENTS.    7   2.8        USE OF PROCEEDS.    7 3.      CLOSING CONDITIONS    7   3.1        CONDITIONS TO EACH LENDER’S OBLIGATIONS.    7   3.2        CONDITIONS TO BORROWER’S OBLIGATIONS.    11   3.3        POST-REGISTRATION OPINION.    11 4.      FEES, COSTS, FIXED RATE OPTION AND ILLEGALITY    11   4.1        TRANSACTION EXPENSES.    11   4.2        [INTENTIONALLY OMITTED].    11   4.3        COMMITMENT FEE.    11   4.4        INCREASED COSTS/CAPITAL ADEQUACY    12   4.5        FIXED RATE OPTION.    14   4.6        PAST DUE INTEREST.    15   4.7        ILLEGALITY.    16   4.8        CLEAR MARKET.    16 5.      REPRESENTATIONS AND WARRANTIES.    16   5.1        BORROWER’S REPRESENTATIONS AND WARRANTIES.    16   5.2        LENDER’S REPRESENTATIONS AND WARRANTIES.    20 6.      CERTAIN COVENANTS OF THE PARTIES.    20   6.1        BORROWER COVENANTS.    20   6.2        MERGER OF BORROWER.    23   6.3        LENDER COVENANTS.    24   6.4        SECURITY AGENT COVENANTS.    25 7.      ASSIGNMENT OR TRANSFER OF INTEREST; SALE-LEASEBACK TRANSACTIONS; JUNIOR LOANS; TERMINATION OF CROSS-COLLATERALIZATION AND CROSS-DEFAULT    25   7.1        LENDERS.    25   7.2        EFFECT OF TRANSFER; COSTS.    27   7.3        JUNIOR LOANS.    27   7.4        SALE-LEASEBACK TRANSACTION.    28   7.5        TERMINATION OF CROSS-COLLATERALIZATION AND CROSS-DEFAULTS.    29 8.      CONFIDENTIALITY    30 9.      INDEMNIFICATION AND EXPENSES    30   9.1        GENERAL INDEMNITY.    30   9.2        EXPENSES.    35   9.3        GENERAL TAX INDEMNITY.    35   9.4        PAYMENTS.    45   i --------------------------------------------------------------------------------    9.5    INTEREST.    46    9.6    BENEFIT OF INDEMNITIES.    46 10.    SECURITY AGENT.    46    10.1    APPOINTMENT AND POWERS.    46    10.2    LIMITATION ON SECURITY AGENT’S LIABILITY.    47    10.3    RIGHTS AS LENDER.    47    10.4    INDEMNIFICATION.    48    10.5    NON-RELIANCE ON SECURITY AGENT AND OTHER LENDERS.    48    10.6    SUCCESSOR SECURITY AGENT.    48    10.7    NOTICE OF DEFAULT.    50    10.8    INSTRUCTIONS FROM A MAJORITY IN INTEREST OF LENDERS.    50    10.9    REPORTS, NOTICES, ETC.    50 11.    MISCELLANEOUS    50    11.1    AMENDMENTS.    50    11.2    SEVERABILITY.    51    11.3    SURVIVAL.    51    11.4    REPRODUCTION OF DOCUMENTS.    52    11.5    COUNTERPARTS.    52    11.6    NO WAIVER.    52    11.7    NOTICES.    52    11.8    GOVERNING LAW.    53    11.9    SUBMISSION TO JURISDICTION; WAIVERS.    53    11.10    THIRD-PARTY BENEFICIARY.    53    11.11    ENTIRE AGREEMENT.    54    11.12    ACKNOWLEDGMENTS.    54    11.13    FURTHER ASSURANCES.    54    11.14    SECTION 1110.    54    11.15    ADJUSTMENTS; SET-OFF.    54    11.16    SUCCESSORS AND ASSIGNS.    55    11.17    WAIVERS OF JURY TRIAL.    55    11.18    REGISTRATIONS WITH INTERNATIONAL REGISTRY.    56 ANNEX A – DEFINITIONS EXHIBIT A – FORM OF MORTGAGE EXHIBIT B – FORM OF DRAWDOWN NOTICE EXHIBIT C – FORM OF TRANSFER AGREEMENT EXHIBIT D – FORM OF CONSENT AND AGREEMENT EXHIBIT E – FORM OF ENGINE CONSENT AND AGREEMENT EXHIBIT F – FORM OF GEES ACKNOWLEDGMENT AND AGREEMENT SCHEDULE 1 – ACCOUNTS ADDRESSES SCHEDULE 2 – COMMITMENTS; TRANSACTION EXPENSES SCHEDULE 3 – PERMITTED COUNTRIES   ii -------------------------------------------------------------------------------- LOAN AGREEMENT [N330AT] THIS LOAN AGREEMENT [N330AT] (this “Agreement”) is entered into as of August 31, 2006 among (a) AIRTRAN AIRWAYS, INC. (“Borrower”), a Delaware corporation, (b) THE PARTIES IDENTIFIED IN SCHEDULE 1 HERETO AS LENDERS (the “Lenders”) and (c) THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, as agent for the Lenders (the “Security Agent”). RECITALS A. Borrower and Airframe Manufacturer have entered into the Purchase Agreement, pursuant to which Airframe Manufacturer agreed to manufacture and sell to Borrower, and Borrower agreed to purchase and take delivery of, among other things, one (1) Boeing model 737-7BD aircraft bearing manufacturer’s serial number 33935 and equipped with two (2) CFM International model CFM56-7B20 engines (the “Aircraft”). B. To enable Borrower to purchase and take delivery of the Aircraft on the Delivery Date, Borrower desires to borrow from Lenders, and Lenders desire to lend to Borrower, a portion of the purchase price of the Aircraft. C. The parties to this Agreement wish to set forth in this Agreement the terms and conditions upon and subject to which the foregoing transactions shall be effected. The parties hereto agree as follows: 1. DEFINITIONS AND CONSTRUCTION The terms defined in Annex A, when capitalized as in Annex A, have the same meanings when used in this Agreement. Annex A also contains rules of usage that control construction in this Agreement. 2. SECURED LOANS; CLOSING 2.1 Making of Loans; Issuance of Equipment Notes. Subject to the terms and conditions of this Agreement, on the Delivery Date (the “Closing Date”): (a) each Lender agrees to make a secured loan to Borrower in an amount not to exceed such Lender’s Commitment; and (b) pursuant to Article 2 of the Mortgage, Borrower shall issue an Equipment Note to each Lender making such loan, dated the Closing Date, for an aggregate principal amount equal to the amount of the secured loan made by such Lender. If any Lender shall default in its obligation to make the amount of its Commitment available pursuant to this Article 2, except as provided below in this Section 2.1 with respect to RBS, no other Lender shall have an obligation to increase the amount of its Commitment and,   1 -------------------------------------------------------------------------------- notwithstanding the further provisions of this paragraph, the obligations of the non-defaulting Lenders shall remain subject to the terms and conditions set forth in this Agreement. If a Lender to whom RBS has transferred its Commitment in whole or in part pursuant to Section 7.1 without the consent of Borrower fails to perform its obligation to make a secured loan on the Closing Date, RBS shall be obligated to make an additional secured loan on the Closing Date in an amount equal to the amount of the secured loan that such Lender was so obligated to, but did not, make. In the event that the preceding sentence is applicable and RBS is obligated to make an additional secured loan, the Commitment of RBS shall be increased by the amount of such additional secured loan, and the Commitment of the affected Lender shall be reduced by an equivalent amount, effective on the Closing Date. In the circumstances of the second preceding sentence, such Lender shall be liable to RBS (but not the Borrower) for any damages attributable to its failure to make the secured loan in question which was made, instead, by RBS. 2.2 Procedure for Funding of Secured Loans. (a) Notice of Scheduled Delivery Date. Borrower agrees to give each Lender written notice or telephonic notice (to be confirmed promptly in writing) of the date the Aircraft is scheduled to be delivered (the “Scheduled Delivery Date”) so that such notice is received by each Lender not later than 4:30 p.m., New York City time, on the tenth (10th) day prior to the Scheduled Delivery Date. Borrower undertakes to promptly notify each Lender of any amendment or change in the Scheduled Delivery Date. (b) Drawdown Notice. No later than 4:30 p.m., New York City time, on the fourth (4th) Business Day prior to the Scheduled Delivery Date, Borrower shall deliver to Security Agent on behalf of each Lender the Drawdown Notice, receipt of which shall, subject to the conditions contained in this Agreement, oblige Borrower to borrow an amount equal to the aggregate Commitment (or such lesser amount specified in such Drawdown Notice) on the date stated and on the terms herein contained. (c) Amortization Schedule. No later than 10:00 a.m., New York City time, on the Business Day prior to the Scheduled Delivery Date, Security Agent shall deliver the amortization schedule for the Aircraft to Borrower and Borrower shall no later than 5:00 p.m., New York City time, on such day deliver written confirmation of such amortization schedule to Security Agent. In the event a Postponement Notice is delivered pursuant to Section 2.2(e), Security Agent shall deliver to Borrower by 10:00 a.m., New York City time, on the Business Day prior to the date to which the Scheduled Delivery Date is so postponed or as promptly as practicable thereafter, an amortization schedule reflecting the postponed Scheduled Delivery Date for the Aircraft and Borrower shall deliver by 5:00 p.m., New York City time, on such day or as promptly as practicable thereafter, written confirmation of such schedule to Security Agent. (d) Prospective International Interest. Prior to the Scheduled Delivery Date, a Prospective International Interest in the Airframe and Engines constituted by the Mortgage shall have been duly registered on the International Registry. (e) Disbursement of Funds. Each Lender agrees, subject to the terms and conditions of this Agreement, to make its Commitment available for disbursement to or   2 -------------------------------------------------------------------------------- on behalf of Borrower, in each case in immediately available funds by 12:00 Noon, New York City time, on the Scheduled Delivery Date in the amount set out in the Drawdown Notice. In order to facilitate the timely closing of the transactions contemplated hereby, Borrower, by delivery of the Drawdown Notice to Security Agent, instructs, subject to its rights to postpone under Section 2.2(e) below, the Lenders to wire transfer (for receipt by no later than 12:00 Noon New York City time) on the Scheduled Delivery Date its Commitment by the wiring of immediately available funds to the account of Security Agent specified in Schedule 1 hereto (the “Account”). The funds so paid by each Lender (the “Deposit”) into the Account are to be held by Security Agent for the account of such Lender. Upon the fulfillment or waiver of the conditions precedent set forth in Article 3 hereof, such Lender shall instruct Security Agent to disburse the Deposit for application of its Commitment. Notwithstanding the foregoing, if a Postponement Notice postponing the Scheduled Delivery Date shall have been received by Security Agent by 3:30 p.m., New York City time, on the Business Day preceding the postponed Scheduled Delivery Date and if a Lender has not already wired its Commitment to the Account, (i) such Lender shall not make its Commitment available for disbursement on the postponed Scheduled Delivery Date and (ii) each such Lender shall cancel, terminate or otherwise unwind its funding arrangements made in the London interbank market to fund its Commitment on the Scheduled Delivery Date, subject, however, to such Lender’s continuing commitment to fund as provided herein. (f) Postponement of Scheduled Delivery Date. (1) Borrower may change or postpone (indefinitely, or to a specified date) the Scheduled Delivery Date by telephonic notice (to be confirmed promptly in writing) to Security Agent, provided such notice (specifying the new Delivery Date, if any) is received by Security Agent not later than 3:30 p.m. on such Scheduled Delivery Date being postponed (the “Postponement Notice”). Such revised Scheduled Delivery Date shall be deemed the “Scheduled Delivery Date” for all purposes of the Operative Agreements. (2) If the Scheduled Delivery Date is postponed and the Deposit has been paid by the Lenders into the Account, then the Deposit will, pending any return contemplated by Section 2.2(e)(4) below, be invested, together with earnings thereon, and reinvested by Security Agent at the sole direction, for the account, and at the risk of Borrower in an overnight investment selected by Borrower and acceptable to Security Agent (acting reasonably and in good faith). Upon Borrower’s oral (to be confirmed in writing) instructions, earnings on any such investments shall be applied to Borrower’s payment obligations to each Lender under Section 2.2(e)(3) to the extent of such earnings. (3) If the Scheduled Delivery Date is postponed and the Deposit has been paid by the Lenders into the Account, then Borrower shall pay interest hereunder to each Lender on the amount of its Deposit for the period from and including the original Scheduled Delivery Date to but excluding the earlier of (i) the actual Delivery Date or (ii) the date of return of the Deposit to such Lender pursuant to clause (4) below if such amounts are received by such Lender before   3 -------------------------------------------------------------------------------- 12:00 Noon, New York City time, on such date (and if such amounts are received by such Lender after 12:00 Noon, New York City time, the next succeeding Business Day). For each Lender, such interest shall accrue on the amount of such Lender’s Deposit at the applicable Debt Rate. Interest on the Deposit accrued pursuant to the preceding sentence shall (i) if accrued to the Delivery Date, be paid on the first Payment Date following such date and (ii) if accrued to the date of return of the Deposit, be paid to each Lender on such date. (4) If for any reason, other than the failure of any Lender to comply with the terms hereof, the Scheduled Delivery Date is postponed beyond the earliest of (x) three (3) Business Days after the Scheduled Delivery Date, (y) the Commitment Termination Date or (z) such earlier date as Borrower shall specify (the “Cutoff Date”), then each such Lender shall promptly cancel, terminate or otherwise unwind its funding arrangements made in the London interbank market or otherwise (including any Swap Transaction) to fund its Commitment, and such Lender shall notify Security Agent thereof, and Security Agent shall return its Deposit, subject, however, to such Lender’s continuing commitment to fund at a later Closing Date as provided herein. (5) In the event of the occurrence of the events described in Section 2.2(d)(ii) or clause (4) above, Borrower agrees to pay each Lender promptly (but in any event within three (3) Business Days of the relevant Cutoff Date) (i) as compensation for the cancellation or termination of its Commitment (in addition to interest owing under clause (3) above, if any), an amount of damages equal to any loss incurred in connection with the unwinding or liquidating of any deposits or funding or financing arrangement with its funding source and, if applicable, any Swap Break Amount, and (ii) without duplication of the amounts covered by the preceding clause (i) or to be paid pursuant to Section 4.1 hereof, the reasonable out-of-pocket costs and expenses of such Lender (including, without limitation, reasonable legal costs and expenses) incurred by such Lender in respect of such cancellation or termination to the extent described in the definition of Transaction Expenses. 2.3 Terms of Repayment. (1) Borrower shall make payments to Security Agent on each Equipment Note of principal scheduled to be paid thereon on such date in accordance with the amortization schedule attached thereto and accrued interest due and payable on such Equipment Note on such date. The amortization schedules in the aggregate for all Equipment Notes shall be calculated as follows: using the Debt Rate (calculated on the basis of a year of 360 days and actual number of days elapsed or if the Fixed Rate Option has been elected under Section 4.5, on the basis of a year of 360 days consisting of twelve 30-day months) for the Equipment Notes (being, if the Fixed Rate Option has been elected, the Fixed Rate for the Equipment Notes, otherwise, the initial Debt Rate for the Equipment Notes), mortgage-style (level pay) payments payable on each Payment Date from the Delivery Date through the Maturity Date, payments on   4 -------------------------------------------------------------------------------- each Payment Date during such period sufficient to amortize the Equipment Notes to an aggregate outstanding principal balance balloon payment due on the Maturity Date, after giving effect to the installment of principal due on such date, of Five Million Nine Hundred Thousand Dollars (US$5,900,000), or if Borrower shall have delivered a No-Winglet Notice pursuant to Section 2.6 hereof, of Five Million Eight Hundred Forty Thousand Dollars (US$5,840,000). In respect of the amortization schedule for any particular Equipment Note, the payments due on any Payment Date set forth on such amortization schedule shall be pro rated based on the ratio by which the Original Amount of such Equipment Note bears to the aggregate Original Amount of all of the Equipment Notes. (2) Interest on each Equipment Note will accrue at the Debt Rate for such Equipment Note (calculated on the basis of a year of 360 days and actual number of days elapsed or if the Fixed Rate Option has been elected under Section 4.5, on the basis of a year of 360 days consisting of twelve 30-day months) and will be payable on each Payment Date or other date for the payment of interest provided herein or in such Equipment Note. The interest payable on each Payment Date or other date, as aforesaid, for any Equipment Note shall include interest accrued to such Payment Date or other date, as aforesaid. (3) The Debt Rate for each Interest Period shall be established by Security Agent in accordance with relevant provisions of this Agreement. Security Agent shall give prompt notice to Borrower and the Lenders of the applicable Debt Rate determined by Security Agent from time to time in accordance with the applicable provisions hereof and the rate, if any, furnished by each Reference Bank and used by Security Agent for the purpose of determining the LIBOR Rate. Each determination by Security Agent of a Debt Rate pursuant hereto shall be presumed correct, absent manifest error. (4) Each payment received by Security Agent in respect of an Equipment Note shall be applied: first, to pay amounts due hereunder or under such Equipment Note other than as specified in the following clauses, second, to pay accrued interest and any Breakage Amount on such Equipment Note (as well as any interest on any overdue amount) to the date of such payment, third, to pay the principal of such Equipment Note then due, and fourth, the balance, if any, remaining thereafter, to pay installments of the principal of such Equipment Note remaining unpaid in the inverse order of its maturity. (5) Amounts repaid or prepaid on the Equipment Notes may not be reborrowed. 2.4 Closing. (a) Location. The closing (the “Closing”) of the Transactions shall take place on the Closing Date at the offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York 10017.   5 -------------------------------------------------------------------------------- (b) Funds. Except as provided above, all payments (including prepayments) by Borrower pursuant to this Article 2 and on any Equipment Note whether on account of principal, interest, Breakage Amount, fees or otherwise shall be made in immediately available funds without set-off, counterclaim or defense to the account of Security Agent as set forth in Schedule 1 hereto. (c) Business Days. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding sentence, interest thereon shall be payable at the Debt Rate during such extension. 2.5 Commitment Termination. Notwithstanding any provision in this Loan Agreement to the contrary, in the event the delivery of the Aircraft is postponed to a date that is three (3) months beyond the last day of the Scheduled Delivery Month but such date is prior to the Commitment Termination Date, Security Agent, acting at the written direction of all (and not less than all) of the Lenders committed to financing the acquisition of the Aircraft by Borrower, may terminate the Commitment under this Agreement upon written notice to Borrower within thirty (30) days of Security Agent’s receipt of written notice from Borrower informing Security Agent of such postponement. Notwithstanding any provision in this Agreement to the contrary, in the event the delivery of the Aircraft has been cancelled, Borrower may terminate the Commitment under this Loan Agreement, in whole, but not in part, upon written notice to Security Agent but Borrower may not otherwise reduce or terminate the Commitments under this Loan Agreement (except as provided in Section 2.6 hereof). If an Event of Default as defined in the form of Mortgage attached hereto as Exhibit A (determined without regard to Section 7.5 hereof) shall have occurred and be continuing, Security Agent (acting at the direction of the Majority in Interest of the Lenders) may, by written notice to the Borrower, cancel the Commitment(s), and upon such notice, such Commitment(s) shall be cancelled and of no further effect. If an Event of Default under Sections 5.1(e), (f) or (g) under the form of Mortgage, as aforesaid, shall have occurred and be continuing, the Commitment(s) shall automatically, without any action or notice, be cancelled and of no further effect. The day on which the Commitment(s) under this Agreement is terminated by Security Agent or Borrower pursuant to the foregoing shall for purposes of this Agreement be deemed a “Termination Date”. 2.6 No Winglet Notice. At any time (but in no event later than four (4) Business Days prior to the Scheduled Delivery Date) Borrower may deliver written notice to Security Agent of Borrower’s intent not to finance the acquisition of winglets for installation on the Aircraft (the “No Winglet Notice”), in which case the Commitment shall be adjusted as provided in Schedule 2 hereof and the Commitment Fee from and after the date on which Security Agent receives such notice shall be calculated based on the adjusted Commitment.   6 -------------------------------------------------------------------------------- 2.7 Pro Rata Treatment and Payments. (1) Each borrowing by Borrower from the Lenders hereunder, each payment by Borrower on account of any Commitment Fee and, except as provided in Section 2.5, any reduction of the Commitment of the Lenders shall be made pro rata according to the respective Commitment of the Lenders. (2) Each payment (including each prepayment) by Borrower on account of principal of and interest on the Equipment Notes shall be made pro rata according to the respective outstanding principal amounts of the Equipment Notes then held by the Lenders (except as otherwise provided in the Mortgage). 2.8 Use of Proceeds. Borrower agrees that it shall use the proceeds of each secured loan described in Section 2.1(a) to pay all or a portion of the amount, after giving effect to the return of any advance payments, of the remaining balance of the purchase price of the Aircraft to the Airframe Manufacturer. 3. CLOSING CONDITIONS 3.1 Conditions to each Lender’s Obligations. Each Lender’s obligation to make the secured loans described in Section 2.1(a) and to participate in the Transactions is subject to the fulfillment or waiver before or on the Closing Date of the following conditions: (a) Equipment Notes. Borrower tenders to such Lender the Equipment Notes in accordance with Article 2 of the Mortgage. (b) Delivery of Documents. Each Lender and Security Agent receives executed counterparts of the following documents and such counterparts (x) have been duly authorized, executed, and delivered by the parties thereto and (y) are in full force and effect: (1) the Mortgage and any supplement thereto; (2) the broker’s report and insurance certificates required by Section 4.6 of the Mortgage; (3) the Holdings Guarantee; (4) the Consent and Agreement, the Engine Consent and Agreement and the GEES Acknowledgment and Agreement; (5) the Bills of Sale;   7 -------------------------------------------------------------------------------- (6) (A) a copy of Borrower’s certificate of incorporation, by-laws, and resolutions, in each case certified as of the date of this Agreement and as of the Closing Date by the Secretary or an Assistant Secretary of Borrower, duly authorizing Borrower’s execution, delivery, and performance of the Operative Agreements to which it is party required to be executed and delivered by Borrower on or before the Closing Date in accordance with the provisions hereof and thereof; (B) incumbency certificate of Borrower as to the person(s) authorized to execute and deliver the Operative Agreements on its behalf; and (C) good-standing certificate from the Secretary of States of Delaware and Florida dated as of a date reasonably near the Closing Date, as to the due incorporation and good standing of Borrower; (7) Officer’s Certificate of Borrower, dated as of the Closing Date, stating that its representations and warranties in this Agreement are true and correct as of the Closing Date (or, to the extent that any such representation and warranty expressly relates to an earlier date, true and correct as of such earlier date) and that no Default or Event of Default exists as of such date; (8) the Financing Statements; (9) the following opinions of counsel, in each case in form and substance reasonably acceptable to Security Agent and dated as of the Closing Date: (A) an opinion of Smith, Gambrell & Russell, LLP, special counsel to Borrower; (B) an opinion of Borrower’s Legal Department; and (C) an opinion of FAA Counsel; (10) a copy of a duly-executed application for registration of the Aircraft with the FAA in Borrower’s name; (11) Holdings’s audited consolidated balance sheet for the most-recent fiscal year ended December 31, 2005 and for the most-recent fiscal year, and the related consolidated statements of operations and cash flows for the period then ended, prepared in accordance with GAAP; (12) a duly completed and executed Drawdown Notice; (13) the Entry Point Filing Forms; (14) Officer’s Certificate of Holdings, dated as of the Closing Date, (A) affirming the Holdings Guarantee after giving effect to the delivery of the Aircraft and the execution and delivery of the Operative Agreements related thereto; and (B) stating that its representations and warranties in the Holdings Guarantee are true and correct in all material respects as of the Closing Date (or, to the extent that any such representation and warranty expressly relates to an earlier date, true and correct in all material respects as of such earlier date); (15) (A) a copy of Holding’s articles of incorporation, by-laws, and resolutions, in each case certified as of the date of this Agreement and as of the   8 -------------------------------------------------------------------------------- Closing Date by the Secretary or an Assistant Secretary of Holdings, duly authorizing Holdings’ execution, delivery, and performance of the Holdings Guarantee required to be executed and delivered by Holdings on or before the Closing Date in accordance with the provisions hereof and thereof; (B) incumbency certificate of Holdings as to the person(s) authorized to execute and deliver the Holdings Guarantee on its behalf; and (C) good-standing certificate from the Secretary of State of Nevada dated as of a date reasonably near the Closing Date, as to the due incorporation and good standing of Holdings; (16) the Fee Letter; and (17) such other documents as Security Agent may reasonably request. (c) Perfected Security Interest and Registered International Interest. (1) After giving effect to the filing of the FAA-Filed Documents and the Financing Statements, Security Agent shall have a duly-perfected first-priority security interest in all of Borrower’s right, title, and interest in the Aircraft and all other then-existing Collateral, subject only to Permitted Liens. (2) Security Agent’s International Interest in the Airframe and each Engine shall have been duly registered with the International Registry (if a Prospective International Interest therein has not theretofore been registered with the International Registry), subject to no prior registered International Interest (or Prospective International Interest), and Security Agent shall have received a copy of the “priority search certificate” (as defined in the Regulations for the International Registry) as to each such Airframe and Engine evidencing the same. (d) Violation of Law. No change shall have occurred after the date of this Agreement in any applicable Law that makes it a violation of Law for (i) Holdings, Borrower, any Lender or Security Agent to execute, deliver, and perform the Operative Agreements to which any of them is a party or (ii) any Lender to make the loan contemplated to be made by it pursuant to Section 2.1 or to realize the benefits of the security afforded by the Mortgage. (e) Representations, Warranties and Covenants. The representations and warranties of the Borrower contained in Section 5(a) of this Agreement and the representations and warranties of Holdings contained in Section 9 of the Holdings Guarantee shall be true and accurate in all material respects as of the Closing Date (unless any such representation and warranty was made with reference to a specified date, in which case such representation and warranty shall be true and accurate in all material respects as of such specified date). (f) No Event of Default. On the Closing Date, no Default or Event of Default shall exist or would result from the borrowing hereunder and the mortgaging of the Aircraft and the other Collateral, the use of proceeds of such borrowing or the consummation of the Transactions contemplated in the Operative Agreements. (g) No Event of Loss. No Event of Loss with respect to the Airframe or any Engine shall have occurred, and no circumstance, condition, act, or event has occurred that, with the giving of notice or lapse of time, would give rise to or constitute an Event of Loss with respect to the Airframe or any Engine.   9 -------------------------------------------------------------------------------- (h) Title. Borrower shall have good and valid title (subject to filing of the FAA Bill of Sale with the FAA) to the Aircraft, free and clear of all Liens, except Permitted Liens. The sale of the Airframe and each Engine as evidenced by the Bills of Sale therefor shall have been, or shall be in the process of being, registered on the International Registry. (i) Certification. The Aircraft shall have been duly certificated by the FAA as to type and has (or, upon registration in Borrower’s name, will be eligible for) an FAA airworthiness certificate and Security Agent shall have received a copy of such certification. (j) Section 1110. Security Agent shall be entitled to the benefits of Section 1110 (as currently in effect) with respect to the right to take possession of the Airframe and Engines as provided in the Mortgage in the event of a case under Chapter 11 of the Bankruptcy Code in which Borrower is a debtor. (k) Filing. The FAA-Filed Documents shall be in the process of being duly filed for recordation with the FAA in accordance with the Transportation Code, and the Financing Statements shall have been duly filed or shall be in the process of being duly filed in the appropriate jurisdiction. (l) No Proceedings. No action or proceeding shall have been instituted, nor shall any action be, to the Actual Knowledge of Borrower or Holdings threatened, before any Governmental Entity, nor has any order, judgment, or decree been issued or proposed to be issued by any Governmental Entity, to set aside, restrain, enjoin, or prevent the completion and consummation of any Operative Agreement or the Transactions. (m) Governmental Actions. All appropriate action required to have been taken before the Closing Date by the FAA, or any other Governmental Entity of the United States, in connection with the Transactions has been taken, and all orders, permits, waivers, authorizations, exemptions, and approvals of such entities required to be in effect on the Closing Date in connection with the Transactions have been issued and all such orders, permits, waivers, authorizations, exemptions and approvals shall be in full force and effect on the Closing Date. (n) No Material Adverse Change. Since December 31, 2005, there shall have been no Material Adverse Change to Borrower or Holdings on the Closing Date, and each Lender and Security Agent shall have received Officer’s Certificates of Borrower and Holdings to such effect. (o) Fees. Security Agent shall have received payment of the fees then due and payable under the Fee Letter. (p) Delivery Condition. The Aircraft shall be new, ex factory, in a serviceable condition.   10 -------------------------------------------------------------------------------- 3.2 Conditions to Borrower’s Obligations. It is hereby agreed that Borrower’s obligation to participate in the Transactions is subject to the satisfaction (or waiver), on or before the Closing Date, of the conditions in this Section 3.2. (a) Documents. Borrower shall have received (or has waived receipt of) (i) executed original counterparts of the documents as described in Section 3.1(b) (other than the Equipment Notes, as to which it shall receive a copy only) and such documents shall be reasonably satisfactory to Borrower, (ii) an Officer’s Certificate of each Lender, dated as of the Closing Date, stating that its representations and warranties in this Agreement are true and correct as of the Closing Date (or, to the extent that any such representation and warranty expressly relates to an earlier date, true and correct as of such earlier date) and (cc) such other documents as Borrower may reasonably request from Security Agent or any Lender, unless the failure to receive any such document is the result of any action or inaction by Borrower. (b) Other Conditions. Each of the conditions in subsections (d), (e), (g), (i), (k), (l) and (m) of Section 3.1 are satisfied or have been waived by Borrower unless the failure of any such condition to be satisfied is the result of any action or inaction by Borrower. 3.3 Post-Registration Opinion. Promptly after the registration of the Aircraft and the recordation of the FAA-Filed Documents, Borrower will cause FAA Counsel to deliver to Borrower, each Lender and Security Agent a favorable opinion or opinions addressed to each of them with respect to such registration and recordation. 4. FEES, COSTS, FIXED RATE OPTION AND ILLEGALITY 4.1 Transaction Expenses. If the Transactions are consummated, or do not close for any reason other than any Lender’s breach of its obligations under Article 2 hereof, Borrower agrees to the pay the Transaction Expenses, subject to the limits set forth in Section 3 of Schedule 2. 4.2 [Intentionally Omitted]. 4.3 Commitment Fee. Borrower agrees to pay a Commitment Fee to Security Agent in arrears on the last day of the calendar quarter following the date of this Agreement and on the last day of each calendar quarter thereafter and on the Closing Date or the Termination Date (as the case may be), such Commitment Fee shall be calculated on the basis of a year of 360 days and actual number of days elapsed and shall accrue from the date of this Agreement until the Closing Date or Termination Date (as the case may be). The Commitment Fee shall be payable by Borrower to Security Agent on the due date thereof in immediately available funds no later than 12:00 Noon,   11 -------------------------------------------------------------------------------- New York City time, on such date to the account of Security Agent on Schedule 1. Security Agent shall distribute the Commitment Fee when received to the Lenders in the manner provided in Section 2.7(1). The Commitment Fee shall abate for any day that interest is accruing pursuant to Section 2.2(e)(3) on the Deposit funded. 4.4 Increased Costs/Capital Adequacy (a) Subject to the provisions of Section 4.4(e) below, Borrower shall promptly pay directly to each Lender such amounts as are reasonably necessary to compensate such Lender for any increase in costs which are attributable to such Lender’s making, maintaining or continuing of its Commitment or the loans evidenced by its Equipment Notes or funding arrangements utilized in connection with such loans (including any hedging arrangement relating to any Fixed Rate), or any reduction in any amount receivable by such Lender hereunder in respect of its Commitment or under the Equipment Notes, such loans or such arrangements (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), applicable to the period commencing thirty (30) days prior to Lender’s notification thereof pursuant to Section 4.4(c) and resulting from the adoption of or any change after the date hereof in Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of Law but, if not having the force of Law, is generally applied by Lender with respect to similar credits under similar circumstances) from any central bank or other Governmental Entity made subsequent to the date hereof that: (1) shall impose any tax that is the functional equivalent of any reserve, special deposit or similar requirements of the sort covered by clause (2) below; or (2) shall impose or modify any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender; or (3) imposes any other condition affecting this Agreement or its Equipment Notes (or any of such extensions of credit or liabilities) or any such obligation. (b) Without duplication of any amounts payable by Borrower under Section 4.4(a), if any Lender shall have determined, acting reasonably and in good faith, that after the date hereof, the adoption of or any change in any Law regarding capital adequacy or in the interpretation or application thereof, or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of Law but, if not having the force of law, is generally applied by such Lender with respect to similar credits under similar circumstances) from any Governmental Entity made subsequent to the date hereof, shall have the effect of reducing the rate of return on such Lender’s or such corporation’s capital as a consequence of its obligations hereunder to a level below that which such   12 -------------------------------------------------------------------------------- Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or such corporation’s policies with respect to capital adequacy) by an amount deemed by such Lender to be material acting reasonably and in good faith, then from time to time, after submission by such Lender to Borrower (with a copy to Security Agent) of a written request therefor, Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction attributable to the period commencing thirty (30) days prior to Lender’s notification thereof pursuant to Section 4.4(c). (c) Each Lender will furnish to Borrower (with a copy to Security Agent) an Officer’s Certificate setting forth in reasonable detail (i) the events giving rise to the request by such Lender for compensation under subsection (a) or (b) of this Section 4.4, (ii) the basis for determining such compensation and (iii) the amount of each request by such Lender for compensation under subsection (a) or (b) of this Section 4.4, together with a statement that the determinations made in respect of the such compensation comply with the provisions of this Section 4.4 and that none of the exceptions set forth in Section 4.4(d) apply with respect to such compensation. Determinations set forth in such Officer’s Certificate shall be presumed correct, absent manifest error. (d) Borrower shall not be required to make payments under this Section 4.4 to any Lender if (i) a claim hereunder arises through circumstances peculiar to such Lender and which do not affect commercial banks in the same jurisdiction generally, or (ii) the claim arises out of a relocation by such Lender of its lending office (except any such relocation effected pursuant to Section 4.4(e)), or (iii) if a comparably situated borrower is being treated more favorably by such Lender (as reasonably determined by such Lender) in respect of a claim made hereunder. (e) Each Lender will, if requested by Borrower, to the extent not inconsistent with any applicable legal or regulatory restrictions and subject to the overall policy considerations of such Lender, use commercially reasonable efforts to designate a different lending office for the Equipment Notes of such Lender affected by such event or, failing that, to take other reasonable measures requested by Borrower (including transferring such Equipment Notes pursuant to Section 7.1(d) hereof) to mitigate the amount of payment of Additional Costs or other amounts under this Section 4.4, if as a result thereof the additional amounts that would otherwise be required to be paid to such Lender pursuant to this Section 4.4 would be reduced or eliminated and if the making, funding or maintaining of its interest in the Equipment Notes through such other lending office or the taking of such other reasonable measures would not, in the good faith judgment of such Lender, result in any economic, legal or regulatory disadvantage (other than de minimis disadvantages) or adverse tax consequences to such Lender (other than adverse tax consequences for which Borrower agrees to indemnify such Lender); provided, that such Lender will not be obligated to utilize such other lending office pursuant to this Section 4.4 unless Borrower agrees to pay all incremental out-of-pocket expenses, if any, reasonably incurred by such Lender as a result of utilizing such other lending office as described above; provided, further, that such Lender shall have no obligation to designate another lending office that does not maintain loans comparable to the loan evidenced by such Lender’s Equipment Note. An Officer’s Certificate as to the   13 -------------------------------------------------------------------------------- amount of any such expenses (setting forth in reasonable detail the basis for requesting such amount and the calculation thereof) submitted by such Lender to Borrower shall be presumed correct, absent manifest error. If after using commercially reasonably efforts as aforesaid such Lender is not able to mitigate the amount of or the need for the Additional Costs to the reasonable satisfaction of Borrower within thirty (30) days of such Lender’s notice described in Section 4.4(c) hereof, Borrower may prepay in accordance with Section 2.10 of the Mortgage the unpaid Original Amount of the affected Equipment Notes plus interest accrued thereon. Nothing in this Section shall affect or postpone any of the obligations of Borrower or the rights of any Lender pursuant to this Section 4.4. 4.5 Fixed Rate Option. (a) At Borrower’s written request, which shall be made in the Drawdown Notice in accordance with Article 2 hereof (the “Fixed Rate Option”), each Lender agrees that the Equipment Notes shall bear interest at a Fixed Rate. If Borrower exercises the Fixed Rate Option, the aggregate Commitment shall be reduced to the amount specified in Section 2 of Schedule 2 of this Agreement. If such request is so made by Borrower, Borrower shall conduct a swap auction in which each Lender and Acceptable Potential Swap Counterparty selected by Borrower shall be invited to submit its fixed-rate quote to act as Swap Counterparty in the Swap Transaction with each Lender. At Borrower’s option, Borrower shall have the right to conduct a second swap auction on the second Business Day before the scheduled Closing Date in which each Lender and Acceptable Potential Swap Counterparty selected by Borrower shall be invited to submit its fixed-rate quote to act as Swap Counterparty in the Swap Transaction. Three basis points shall be added to the fixed rate quote submitted by each Acceptable Potential Swap Counterparty that is not a Lender (such quote as so adjusted, the “Adjusted Fixed Rate Quote”). Subject to the next succeeding sentence, the institution submitting the lowest fixed-rate quote (as adjusted in accordance with the immediately preceding sentence) in such swap auction (or, if a second swap auction is held, such second swap auction) shall be the Swap Counterparty, and (1) if such institution is a Lender, its quote in such swap auction (or, if a second swap auction is held, such second swap auction) shall be the Debt Rate for the Equipment Notes, or (2) if such institution is not a Lender, its Adjusted Fixed Rate Quote in such swap auction (or, if a second swap auction is held, such second swap auction) shall be the Debt Rate for the Equipment Notes. (b) If a Lender submits a fixed-rate quote equal to the lowest Adjusted Fixed Rate Quote submitted by a non-Lender and no other Lender has submitted a lower fixed-rate quote, then such Lender shall be the Swap Counterparty; provided, if there shall be two or more such Lenders, each such Lender shall be a Swap Counterparty for a pro rata portion of the Swap Transaction with each Lender. Security Agent and Borrower shall promptly notify the Lenders of the Debt Rate determined in accordance with the above procedures and the identity of the “winning” Swap Counterparty and at the Closing Date, each Lender shall enter into a Swap Transaction with each such Swap Counterparty.   14 -------------------------------------------------------------------------------- (c) Each Lender agrees that (A) on the date of any redemption or prepayment (whether voluntary or mandatory) of the Equipment Notes for any reason (including any redemption of the Equipment Notes effected pursuant to Sections 2.9 and 2.10 of the Mortgage) each such Lender will, and (B) upon or at any time following the acceleration of the Equipment Notes upon or following the occurrence of an Event of Default, such Lender may ask the Swap Counterparty to settle-out the Swap Transaction, and in furtherance thereof will request the Swap Counterparty to notify Borrower and such Lender by 1:00 p.m., New York time, on such date (the “Settlement Date”) of the Swap Break Amount; provided, that if the Obligations are paid in full and the Lien of the Mortgage is discharged, then such Lender will promptly settle-out the Swap Transaction. (d) Subject to due compliance with and after payment in full of all amounts then due and owing to all Lenders under the Equipment Notes and if no Default or Event of Default has occurred and is continuing, each Lender shall pay over to Borrower any Swap Breakage Gain that it receives from the Swap Counterparty as a result of a payment contemplated by Section 4.5(c), promptly after such Lender receives such payment, in immediately available funds, to such account as Borrower directs; provided, if a Default or Event of Default is then in existence, such payment shall be made to Security Agent as security for Borrower’s obligations under the Operative Agreements, and at such time as such Default or Event of Default no longer exists, such payment and any gain realized as a result of investments required to be made pursuant to Article 6 of the Mortgage shall be (to the extent not applied as provided in the Mortgage) paid over to Borrower. (e) If a Lender (or any of its Affiliates) is the “winning” Swap Counterparty with respect to such Lender’s Equipment Notes, then: (1) such Lender shall be deemed to have entered into a Swap Transaction with itself (or its Affiliate) satisfying in each case the terms and conditions of Section 4.5(a); and (2) such Lender (in its capacity as Swap Counterparty) agrees, or will cause its Affiliate to agree, to the swap settlement and unwind procedures contained in Section 4.5(c), and covenants to pay any Swap Breakage Gain promptly as if it were a third party Swap Counterparty (and in its capacity as a Lender to apply such amounts as provided in the Operative Agreements) and to comply with all of the terms and conditions thereof applicable to the Swap Counterparty. 4.6 Past Due Interest. Any amounts not paid under the Operative Agreements by Borrower when due shall bear interest at the Past-Due Rate (calculated on the basis of a year of 360 days and actual number of days elapsed or if the Fixed Rate Option has been elected under Section 4.5, on the basis of a year of 360 days consisting of twelve 30-day months), and shall be payable on demand.   15 -------------------------------------------------------------------------------- 4.7 Illegality. In the event that at any time any Lender shall determine that due to a change of Law it shall become unlawful for any Lender to make or maintain or fund all or a portion of the Equipment Notes it holds in the manner contemplated by the Operative Agreements, then such Lender shall give prompt notice thereof to Borrower. Thereafter, the affected Lender agrees that it will, if requested by Borrower, to the extent not inconsistent with any applicable legal or regulatory restrictions and subject to the overall policy considerations of such Lender, use commercially reasonable efforts to avoid such illegality by designating a different lending office for the affected Equipment Notes of such Lender affected by such illegality or, failing that, shall take other reasonable measures requested by Borrower (including transferring such Equipment Notes pursuant to Section 7.1(d) hereof) to avoid such illegality and if the making, funding and maintaining of its interest in the affected Equipment Notes through such other lending office or the taking of such other reasonable measures would not, in the good faith judgment of such Lender, result in any economic, legal or regulatory disadvantage (other than a de minimis disadvantage) or adverse tax consequences to such Lender (other than adverse tax consequences for which Borrower agrees to indemnify such Lender); provided, that such Lender shall not be obligated to utilize such other lending office pursuant to this Section 4.7 unless Borrower agrees to pay all incremental out-of-pocket expenses, if any, reasonably incurred by such Lender as a result of utilizing such other lending office as described above; provided, further that such Lender shall have no obligation to designate another lending office that does not maintain loans comparable to the loan evidenced by such Lender’s Equipment Note. If after using commercially reasonable efforts as aforesaid such Lender is not able to avoid such illegality within thirty (30) days after such Lender’s notice thereof to Borrower, the affected Equipment Notes may be prepaid by Borrower in accordance with Section 2.10 of the Mortgage. 4.8 Clear Market. Borrower agrees that no other long-term debt financing for aircraft shall be launched, mandated, arranged, syndicated or privately placed by or on behalf of Borrower in the debt or capital markets until October 19, 2006 with respect to aircraft scheduled to be delivered to Borrower under the Purchase Agreement from and after January 1, 2008. 5. REPRESENTATIONS AND WARRANTIES. 5.1 Borrower’s Representations and Warranties. Borrower represents and warrants to each Lender and Security Agent that: (a) Organization; Qualification. Borrower is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware, and has the corporate power and authority to conduct the business in which it is currently engaged and to own or hold under lease its properties and to enter into and perform its obligations under each of the Operative Agreements to which Borrower is or will be a party. Borrower is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which the nature and extent of the business conducted by it, or the ownership of its properties, requires such qualification, except where the failure to be so qualified does not constitute or would not give rise to a Material Adverse Change with respect to Borrower.   16 -------------------------------------------------------------------------------- (b) Corporate Authorization. The execution and delivery by Borrower of, and performance by Borrower of its obligations under, this Agreement and the other Operative Agreements to which Borrower is a party will have been, duly authorized by all necessary corporate action on the part of Borrower and do not require any stockholder approval, or approval or consent of any trustee or holder of any indebtedness or obligations of Borrower, except such as have been duly obtained and are in full force and effect. (c) No Violation. Borrower’s execution and delivery of, and performance of its obligations under, this Agreement do not, and, on the Closing Date, each of the other Operative Agreements to which Borrower is a party will not, (1) violate any provision of Borrower’s certificate of incorporation or by-laws, (2) violate any Law applicable to or binding on Borrower, or (3) violate or constitute any default under, or result in the creation of any Lien (other than as permitted under the Mortgage) upon the Aircraft or the other Collateral under, any material lease, loan or other agreement to which Borrower is a party or by which Borrower or any of its properties is bound. (d) Approvals. Borrower’s execution and delivery of, and performance of its obligations under, this Agreement do not, and, on the Closing Date, each of the other Operative Agreements to which Borrower is a party and the consummation by Borrower of any transactions contemplated hereby or thereby will not, require the consent or approval of, the giving of notice to, the registration with, the recording or filing of any documents with, or the taking of any other action in respect of (1) any trustee or other holder of any debt of Borrower, or (2) any Government Entity, other than (x) the FAA-Filed Documents and the Financing Statements (and continuation statements related thereto), (y) the registrations described herein with the International Registry and (z) filings, recordings, notices, or other ministerial actions pursuant to any routine recording, contractual, or regulatory requirements. (e) Valid and Binding Agreements. This Agreement and each of the other Operative Agreements to which Borrower is or is to become a party have been duly authorized and when duly executed and delivered by Borrower, assuming the due authorization, execution, and delivery thereof by the other parties hereto and thereto, this Agreement constitutes, and, on the Closing Date, each of the other Operative Agreements to which Borrower is a party will constitute, legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, and other similar Laws affecting the rights of creditors generally or by general principles of equity. (f) Litigation. Except as set forth in Holdings’ most recent annual report on Form 10-K, quarterly report on Form 10-Q or current report on Form 8-K filed by Holdings with the SEC on or prior to December 31, 2005, no action, claim or proceeding is now pending or, to Borrower’s Actual Knowledge, threatened, against Borrower before any Governmental Entity, that is reasonably likely to be determined adversely to Borrower and if determined adversely to Borrower would result in a Material Adverse Change with respect to Borrower, and there is no action, suit or proceeding now pending, or to the Actual Knowledge of Borrower threatened, before or by any court, arbitrator or administrative agency, body or official to which Borrower is subject, that questions the validity of the Operative Agreements.   17 -------------------------------------------------------------------------------- (g) Financial Condition. The financial statements delivered by Borrower pursuant to Section 3.1(b)(11) have been prepared in accordance with GAAP and fairly present in all material respects in accordance with GAAP the financial condition of Holdings and its consolidated subsidiaries as of such dates and the results of its operations and cash flows for such periods, and since the date of such balance sheet, there has been no material adverse change in such financial condition or results of operations, except for matters disclosed in (1) the financial statements referred to above, or (2) any subsequent report filed with the SEC. (h) Registration and Recordation. (1) Except for the security interest and the International Interest granted to Security Agent for the ratable benefit of the Lenders pursuant to the Mortgage and except for Permitted Liens, Borrower will own each item of the Collateral free and clear of any and all Liens or claims of others. No financing statement or other public notice with respect to all or any part of the Collateral will then be on file or of record in any public office, except such as have been filed in favor of Security Agent, for the ratable benefit of the Lenders, pursuant to the Mortgage. On the Closing Date, except for (1) registering with the International Registry the sale of the ownership interest to the Borrower in the Airframe and each Engine effected by the Bills of Sale, and the filing with the FAA of the Entry Point Filing Forms (and the procurement of authorization codes) with respect thereto, (2) registering with the International Registry the International Interest of Security Agent with respect to the Airframe and each Engine, and the filing with the FAA of the Entry Point Filing Forms (and the procurement of authorization codes) with respect thereto, (3) registering the Aircraft with the FAA in Borrower’s name, (4) filing for recordation (and recording) the FAA-Filed Documents, (5) filing the Financing Statements (and continuation statements relating thereto at periodic intervals), and (6) affixing the nameplates referred to in Section 4.2(f) of the Mortgage, no further action, including filing or recording any document (including any financing statement under UCC Article 9) is necessary in order to establish and perfect Security Agent’s first priority Lien on the Aircraft and the other Collateral, as against Borrower and any other Person, in any applicable jurisdiction in the United States. The security interests and the International Interest granted pursuant to the Mortgage, upon completion of the filings specified in the prior sentence, will constitute valid first priority security interests in all of the Collateral and an International Interest in and to the Airframe and each Engine in favor of Security Agent, for the ratable benefit of the Lenders, as collateral security for the Obligations, enforceable in accordance with the terms hereof against all creditors of Borrower and any Persons purporting to purchase any Collateral from Borrower, in any applicable jurisdiction in the United States. (2) On the date hereof, Borrower’s jurisdiction of organization, identification number from the jurisdiction of organization (if any) and the location of Borrower’s chief executive office are as follows:   Jurisdiction of Organization:    Delaware Identification Number:    2350036 Chief Executive Offices:    9955 AirTran Blvd    Orlando, Florida 32827   18 -------------------------------------------------------------------------------- (i) Securities Law. Neither Borrower nor any Person authorized to act on its behalf has directly or indirectly offered any beneficial interest or Security relating to the ownership of the Aircraft or any interest in the Collateral, or any of the Equipment Notes, for sale to, or solicited any offer to acquire any such interest or security from, or has sold any such interest or security to, any Person in violation of the registration requirements of the Securities Act or in violation of the registration requirements of applicable state or foreign securities Laws. (j) Section 1110. Security Agent will be entitled to the benefits of Section 1110 (as currently in effect) with respect to the right to take possession of the Airframe and Engines and to enforce its other rights or remedies, as provided in the Mortgage, in the event of a case under Chapter 11 of the Bankruptcy Code in which Borrower is a debtor. (k) Title. On the Closing Date, Borrower will have good and valid title to the Aircraft, free and clear of all Liens except Permitted Liens. (l) Insurance. The insurance required by the Mortgage will be in full force and effect, and all premiums which have become due or are due with respect to the insurance required to be provided by Borrower in respect of the Aircraft or required under Section 4.6 of the Mortgage will have been paid. (m) Citizenship. Borrower is a Citizen of the United States and a U.S. Air Carrier. (n) Compliance with Laws. Borrower holds all material licenses, permits, and franchises from the appropriate Governmental Entities necessary to authorize Borrower to engage in air transportation and to carry on scheduled commercial passenger service as currently conducted. (o) Investment Company Act. Borrower is not an “investment company” or a company controlled by an “investment company” within the meaning of the Investment Company Act of 1940. (p) Broker’s Fees. No Person acting on behalf of Borrower is or will be entitled to any broker’s fee, commission, or finder’s fee in connection with the Transactions, other than Borrower’s Advisor. (q) Margin Requirements. Borrower will not directly or indirectly use any of the proceeds from the issuance of the Equipment Notes so as to result in a violation of Regulation T, U, or X of the Board of Governors of the Federal Reserve System. (r) No Defaults. Borrower is not (A) in default under any indenture, mortgage, lease or credit agreement or under any other agreement or instrument of a material nature to which Borrower is now a party or by which it is bound or (B) in   19 -------------------------------------------------------------------------------- violation of any law, order, injunction, decree, rule or regulation applicable to Borrower of any court or administrative body, which violation or default referred to in the preceding clause (A) or (B) (x) would reasonably be expected to result in a Material Adverse Change or (y) would involve a material risk of the sale, forfeiture or loss of or the creation of any Lien on, the Aircraft. (s) ERISA. Assuming the representations of the Lenders in Section 5.2(c) hereof are correct, none of the execution and delivery of this Agreement or any of the Operative Agreements or the consummation of the Transactions contemplated herein or therein will involve any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. 5.2 Lender’s Representations and Warranties. Each Lender represents and warrants to Borrower that: (a) Valid and Binding Agreements. This Agreement has been duly authorized, executed, and delivered by it and, assuming the due authorization, execution, and delivery thereof by the other parties hereto, this Agreement constitutes its legal, valid, and binding obligation enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, and other similar Laws affecting the rights of creditors generally or general principles of equity. (b) Broker’s Fees. No Person acting on behalf of it is or will be entitled to any broker’s fee, commission, or finder’s fee in connection with the Transactions (except any such fees which have been paid in full, in the case of Lenders other than The Royal Bank of Scotland plc New York Branch). (c) ERISA. Either (i) no portion of the funds used by it to purchase the Equipment Notes constitute “plan assets” (within the meaning of the Department of Labor regulations codified at 29 C.F.R. Section 2510.3-101) of any Plan or (ii) the purchase of the Equipment Notes do not constitute a non-exempt prohibited transaction under Section 406(a) of ERISA or Section 4975(c)(1)(A)-(D) of the Code. (d) Securities Laws. Neither it nor any Person authorized to act on its behalf has directly or indirectly offered any beneficial interest or Security relating to the ownership of the Aircraft or any interest in the Collateral or any of the Equipment Notes for sale to, or solicited any offer to acquire any such interest or security from, or has sold any such interest or security to, any Person in violation of the registration requirements of the Securities Act or in violation of the registration requirements of applicable state or foreign securities Laws. 6. CERTAIN COVENANTS OF THE PARTIES. 6.1 Borrower Covenants. Borrower agrees for the benefit of Security Agent and each applicable Lender as follows: (a) Corporate Existence, U.S. Air Carrier. Borrower shall at all times maintain its corporate existence, except as permitted by Section 4.7 of the Mortgage, and shall at all times remain a U.S. Air Carrier.   20 -------------------------------------------------------------------------------- (b) Notice of Change of Name or Location. Borrower will give to Security Agent timely written notice (but in any event at least thirty (30) days before the expiration of the period of time specified under applicable Law to prevent lapse of perfection) of any change of its name of or its jurisdiction of organization (as defined in UCC Article 9), and will promptly take any action required by Section 6.1(c)(3) as a result of such change of name or relocation. (c) Certain Assurances. (1) Borrower shall duly execute, acknowledge, and deliver (or cause to be executed, acknowledged, and delivered) all such further documents, and shall do and cause to be done such further things, as Security Agent reasonably requests to accomplish the purposes of the Operative Agreements, provided that any document so executed by Borrower will not expand any obligations or limit any rights of Borrower in respect of the Transactions. (2) Borrower shall, at its own cost, promptly take such action with respect to the recording, filing, re-recording, and re-filing of the Mortgage, and any supplements thereto, as shall be necessary to continue the perfection and priority of the Lien created by the Mortgage. (3) Borrower will cause the FAA-Filed Documents, the Financing Statement, all continuation statements (and any amendments necessitated by any combination, consolidation, or merger of Borrower, or any change in its name or of its jurisdiction of organization) in respect of the Financing Statements, to be prepared and duly and timely filed and recorded, or filed for recordation, to the extent permitted under the Transportation Code (with respect to the FAA-Filed Documents) or the UCC or similar law of any other applicable jurisdiction (with respect to such other documents). (4) Borrower, at its own cost and expense, from time to time, shall promptly enter into such amendments of the Operative Agreements or into new Operative Agreements (in form satisfactory to the parties), make or approve registrations, filings and recordings, and/or do or cause to be done such additional acts and things which may be reasonably requested by Security Agent as being required by or advisable under applicable Law, in order that (x) the Operative Agreements effectively constitute International Interests, while retaining the commercial and business agreements of the parties as described therein in any such new Operative Agreements, and provide to the Lenders and the Security Agent the full benefit of the Cape Town Convention with respect to the Airframe and the Engines, and (y) the Operative Agreements contain such provisions as may be necessary to confirm the commercial and business agreements of the   21 -------------------------------------------------------------------------------- parties therein to the greatest extent permitted under the Cape Town Convention, including, without limitation, with respect to: (A) matters concerning the documentation and registration in the International Registry of International Interest(s) or Prospective International Interest(s) which are, or may be, vested in Security Agent or any Lender under this Agreement or any other Operative Agreements and the relative priority thereof contemplated in the Operative Agreements as against competing interests; (B) matters concerning Sales and Prospective Sales which are required or permitted by this Agreement or the other Operative Agreements, including with respect to documentation and registration in the International Registry and the relative priority thereof contemplated in the Operative Agreements as against competing interests; (C) matters concerning any Assignment of Associated Rights or Prospective Assignment of Associated Rights which is required or permitted or constituted by this Agreement or any other Operative Agreement, the documentation and registration thereof in the International Registry and the relative priority thereof contemplated in the Operative Agreements as against competing interests; and (D) subject to the preceding provisions of this Section 6.1(c)(4) and to the provisions of Section 5.4 of the Mortgage, including or excluding in writing the application of any provisions of the Cape Town Convention and/or the Protocol that Security Agent, acting reasonably may deem advisable in connection with the foregoing. Without limiting the generality of the foregoing or any other provisions of the Operative Agreements, the Borrower hereby consents, pursuant to Article XV of the Protocol, to any Assignment of Associated Rights within the scope of Article 33(1) of the Cape Town Convention which is permitted or required by the Operative Agreements and further agrees that the provisions of the preceding paragraph shall apply, in particular, with respect to Articles 31(4) and 36(1) of the Cape Town Convention to the extent applicable to any such Assignment of Associated Rights. (d) Securities Laws. Neither Borrower nor any Person authorized to act on its behalf will directly or indirectly offer any beneficial interest or Security relating to the ownership of the Aircraft or any interest in the Collateral or any of the Equipment Notes, for sale to, or solicit any offer to acquire any such interest or security from, or sell any such interest or security to, any Person in violation of the registration requirements of the Securities Act or in violation of the registration requirements of applicable state or foreign securities Laws.   22 -------------------------------------------------------------------------------- (e) Financial Information. (1) Borrower shall provide to Security Agent, copies of the (x) audited consolidated financial statements of Holdings for its financial year ended December 31, 2005 and for each financial year thereafter as soon as they are available but in any event not later than 120 days after the close of the relevant period and (y) the unaudited financial statements of Holdings for each quarterly period as soon as they are available but in any event not later than sixty (60) days after the close of the relevant period. Each financial statement provided hereunder shall have been prepared in accordance with GAAP and each annual financial statement shall be accompanied by an Officer’s Certificate of Borrower, stating that, based on an examination sufficient to enable such officer to make an informed statement, no Default or Event of Default under the Operative Agreements has occurred or is continuing or, if such is not the case, specifying such Default or Event of Default and its nature, when it occurred and the steps being taken by Borrower with respect thereto. Notwithstanding the foregoing to the contrary, if Holdings is subject to, and so long as Holdings is complying with the reporting requirements under the Securities and Exchange Act of 1934, the timely delivery (or public posting on the website of the Securities Exchange Commission (“SEC”) of a copy of Holdings’ report on Form 10-K (or any successor form) with respect to the relevant year shall satisfy the requirements of clause (x) and the timely delivery (or public posting on the SEC’s website) a copy of Holdings’ report on Form 10Q (or any successor form) for the relevant quarter shall satisfy the requirements of clause (y); and (2) Without limiting Security Agent’s inspection rights in the Mortgage, promptly upon the reasonable request of Security Agent, (x) such additional financial statements, financial information and other information regarding Borrower or Holdings that has been publicly disclosed and which Borrower or Holdings releases or otherwise makes available to lessors and/or creditors generally and (y) (i) so long as no Event of Default shall have occurred and be continuing, such other information regarding the Collateral which Borrower generally releases or otherwise makes available to lessors and/or creditors regarding similar property and (ii) if an Event of Default is in existence, other information (not subject to a confidentiality agreement that prohibits disclosure to the Lenders) regarding the Collateral. 6.2 Merger of Borrower. (a) In General. Borrower shall not convey all or substantially all of its assets in one or a series of related transactions to, or consolidate with or merge with or into any other Person under circumstances in which Borrower is not the surviving corporation, unless: (1) after giving effect to such conveyance, consolidation or merger, such Person is organized, existing, and in good standing under the Laws of the United States, any state of the United States, or the District of Columbia, and, upon consummation of such transaction, such Person will be a U.S. Air Carrier with respect to which, absent a change in law or court interpretation, Security Agent will be entitled to the benefits of Section 1110;   23 -------------------------------------------------------------------------------- (2) such Person executes and delivers to Security Agent a duly authorized, legal, valid and binding agreement, reasonably satisfactory in form and substance to Security Agent, containing an effective assumption by such Person of the due and punctual performance and observance of each covenant, agreement, and condition in the Operative Agreements to be performed or observed by Borrower, together with customary officer’s certificates and legal opinions in form and substance reasonably satisfactory to Security Agent; (3) such Person, immediately after giving effect to such conveyance, consolidation or merger, shall have a tangible net worth of not less than the lesser of (aa) Borrower’s tangible net worth (determined in each case in accordance with GAAP) as of the calendar quarter ending June 30, 2006 or (bb) Borrower’s tangible net worth (determined in each case in accordance with GAAP) immediately prior to such conveyance, consolidation or merger, and (4) immediately after giving effect to such conveyance, consolidation or merger, no Event of Default has occurred or is continuing, and (5) Borrower has at least thirty (30) days prior to such conveyance, consolidation or merger, given written notice of such transaction to Security Agent. (b) Effect of Merger. Upon any such conveyance, consolidation or merger of Borrower with or into any Person in accordance with this Section 6.2, such Person will succeed to, and be substituted for, and may exercise every right and power of, Borrower under the Operative Agreements with the same effect as if such Person had been named as “Borrower” therein. No such conveyance, consolidation or merger shall have the effect of releasing Borrower or such Person from any of the obligations, liabilities, covenants, or undertakings of Borrower under the Mortgage. 6.3 Lender Covenants. Each Lender agrees for the benefit of Borrower as follows: (a) Quiet Enjoyment. Notwithstanding the effect of any provision in the Cape Town Convention to the contrary, which by the terms of the Cape Town Convention may be derogated from or varied, it agrees that so long as no Event of Default shall have occurred and be continuing, it shall not, and shall not permit any Affiliate or other Person claiming by, through or under it to, and shall not instruct Security Agent to interfere with Borrower’s or any Permitted Lessee’s right of continuing possession, use and operation of, and quiet enjoyment of, the Aircraft subject to the restrictions therein provided in the Operative Agreements. (b) Liens. No Lender (1) will directly or indirectly create, incur, assume, or suffer to exist any Lien on all or any part of the Collateral arising as a result of (a) claims   24 -------------------------------------------------------------------------------- against such Lender not related to its interest in the Aircraft or the Collateral or the transactions contemplated by the Operative Agreements or (b) acts of such Lender not permitted by, or the failure of such Lender to take any action required by, the Operative Agreements and (2) will, at its own cost and expense, promptly take such action as is necessary to discharge any such Lien attributable to such Lender on all or any part of the Collateral. 6.4 Security Agent Covenants. Security Agent agrees for the benefit of Borrower and each Lender as follows: (a) Liens. Security Agent (1) will not directly or indirectly create, incur, assume, or suffer to exist any Lien on all or any part of the Collateral arising as a result of (a) claims against Security Agent not related to its interest in the Aircraft or the Collateral or the transactions contemplated by the Operative Agreements or (b) acts of the Security Agent not permitted by, or the failure of the Security Agent to take any action required by, the Operative Agreements and (2) will, at its own cost and expense, promptly take such action as is necessary to discharge any such Lien attributable to Security Agent on all or any part of the Collateral. (b) Securities Laws. Security Agent will not offer any beneficial interest or security relating to the ownership of the Aircraft or any interest in the Collateral, or any of the Equipment Notes for sale to, or solicit any offer to acquire any such interest or security from, or sell any such interest or security to, any Person in violation of the registration requirements of the Securities Act or in violation of the registration requirements of applicable state or foreign securities Laws. 7. ASSIGNMENT OR TRANSFER OF INTEREST; SALE-LEASEBACK TRANSACTIONS; JUNIOR LOANS; TERMINATION OF CROSS-COLLATERALIZATION AND CROSS-DEFAULT 7.1 Lenders. (a) Transfer. Subject to Section 7.1(b) and (c) below and Section 2.6 of the Mortgage, any Lender may, at any time, Transfer or grant participations in all or any portion of its Commitment, Equipment Notes or all or any portion of its interest in or represented by its Commitment or Equipment Notes to a Transferee; provided, that any participant in any such participation shall not have any direct rights under the Operative Agreements or any Lien on all or any part of the Aircraft or the Collateral except that each participant shall be entitled to the benefits of Sections 4.4, 9.3 and 11.15 to the same extent as if it were a Lender and had acquired its interest by Transfer pursuant to this Section 7.1; further provided, no such Transfer or participation shall diminish Borrower’s rights or increase Borrower’s liability or obligations or the amounts thereof (including with respect to withholding Taxes) above (x) in the case of a Transfer, that which would result had any such Transfer not occurred (except to the extent resulting from a change in Law after the date of such Transfer) or (y) in the case of a participation, that which would have resulted had the relevant Lender retained the interest in the Commitment or the Equipment Notes that is the subject of such participation. In the case of any Transfer, the   25 -------------------------------------------------------------------------------- Transferee, by execution and delivery of a Transfer Agreement in connection with such Transfer, shall be bound, to the extent provided therein, by all of the covenants of the transferring Lender in the Operative Agreements. In connection with any Transfer or participation, Article 8 shall continue to apply with respect to any confidential and proprietary information of Borrower and, prior to disclosing such information to a Transferee or participant or potential Transferee or participant, Lender shall obtain the agreements of Transferee(s) and such other Persons as contemplated by clause (b) of Article 8. Notwithstanding any provisions of the Operative Agreements to the contrary, no Lender shall be entitled to Transfer or grant participations to any Person in all or any portion of its Commitment, Equipment Notes or all or any portion of its beneficial interest in its Commitment or Equipment Notes, unless such Transfer or participation is in respect of a Commitment amount or an unpaid Original Amount that is greater than or equal to Five Million Dollars (US$5,000,000), or if less, the outstanding Original Amount of the Equipment Notes or the outstanding amount of such Lender’s Commitment, as the case may be. (b) Securities Law. Each Lender agrees that it will not Transfer or grant participations in its Commitment, any Equipment Note which it holds or any interest in, or represented by, its Commitment or any Equipment Note which it holds in violation of the registration requirements of the Securities Act or in violation of the registration requirements of applicable state or foreign securities Laws. (c) ERISA. Each Lender agrees that it will not Transfer any Equipment Note which it holds or any interest in, or represented by any Equipment Note which it holds unless the proposed Transferee thereof first provides Borrower with a written representation in the applicable Transfer Agreement that either (a) no portion of the funds used by it to purchase such Equipment Note constitutes “plan assets” (within the meaning of the Department of Labor regulations codified at 29 C.F.R. Section 2510.3-101) of any Plan, or (b) its purchase of such Equipment Note will not constitute a non-exempt prohibited transaction under Section 4975(c)(1)(A)-(D) of the Code or Section 406(a) of ERISA. (d) Transfer at Request of Borrower. In the event that Indemnified Withholding Taxes become payable by Borrower pursuant to Section 9.3(a) hereof with respect to payments by Borrower to a Lender under an Equipment Note or pursuant to any Operative Agreement and the elimination or sufficient reduction of such Indemnified Withholding Taxes pursuant to a transfer described in the last sentence of such Section 9.3(a) is not accomplished, such Lender shall, upon the written request of Borrower, sell in accordance with this Section 7.1 the affected Equipment Notes to a Person identified by Borrower to which payments under the Equipment Notes would not be subject to withholding Taxes under then applicable Law for an amount which, together with any supplemental payment by Borrower in connection with such sale, shall be equal to the par value of such affected Equipment Notes plus accrued but unpaid interest thereon plus any Breakage Amount. In the circumstances required in Section 4.4 and Section 4.7, the affected Lender shall, upon the written request of Borrower, sell in accordance with this Section 7 the affected Equipment Notes to a Person identified by Borrower for an amount which, together with any supplemental payment by Borrower in connection with such   26 -------------------------------------------------------------------------------- sale, shall be equal to the par value of such affected Equipment Notes plus accrued but unpaid interest thereon plus any Breakage Amount. Out-of-pocket costs and expenses, if any, (including reasonable fees and disbursements of counsel) reasonably incurred by any Lender or Security Agent in connection with any such transfer shall be for the account of Borrower. (e) Federal Reserve Bank. Any Lender may at any time pledge or grant a security interest in its interest in the Equipment Notes it holds and in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or grant of a security interest to secure obligations to a Federal Reserve Bank, and Section 7.1 shall not apply to any such pledge or grant of a security interest; provided that no such pledge or grant of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or grantee for such Lender as a party hereto; and provided, further, that no such pledge or grant shall diminish Borrower’s rights or increase Borrower’s liability or obligations or the amounts thereof (including with respect to withholding Taxes) above that which would result had any such pledge or grant not occurred (except to the extent resulting from a change in Law after the date of such pledge or grant) and that in connection with any such pledge or grant, (except to the Federal Reserve Bank, but subject to confidentiality arrangements as are customary in pledges or grants to the Federal Reserve Bank) Article 8 shall continue to apply with respect to any confidential and proprietary information of Borrower and, prior to disclosing such information to pledgee or grantee, Lender shall obtain the agreements of pledgee(s), grantee(s) and such other Persons as contemplated by clause (b) of Article 8. 7.2 Effect of Transfer; Costs. Upon any Transfer in accordance with Section 7.1 (other than any Transfer by any Lender to the extent it only grants participations in Equipment Notes it holds or in its interest therein or represented thereby), the Transferee shall be deemed a “Lender” for all purposes of the Operative Agreements, and the transferring Lender shall be released from all of its liabilities and obligations with respect to such transferred Equipment Note under the Operative Agreements to the extent such liabilities and obligations arise with respect to the period after such Transfer (or as otherwise agreed between the transferring Lender and the Transferee) and, in each case, to the extent such liabilities and obligations are assumed by the Transferee; provided, that such transferring Lender (and its Affiliates, successors, assigns, agents, representatives, directors, and officers) will continue to have the benefit of any rights or indemnities under any Operative Agreement vested or relating to circumstances, conditions, acts, or events before such Transfer (or as otherwise agreed between the transferring Lender and the Transferee). The transferring Lender agrees that it shall reimburse, or shall cause the Transferee to reimburse, Borrower and Security Agent for all of their reasonable out-of-pocket costs and expenses (including reasonable fees and disbursements of counsel) incurred in connection with any such Transfer. 7.3 Junior Loans. Notwithstanding anything to the contrary in any Operative Agreement upon not less than thirty (30) days’ prior written notice to the parties hereto, if no Event of Default has occurred and is continuing, Borrower shall have the right to issue, at any time within eighteen (18) months   27 -------------------------------------------------------------------------------- following the closing date of the financing of the final Eligible Aircraft, additional debt secured by a Lien on the Aircraft junior to the Lien of the Mortgage (a “Junior Loan”); provided, that there shall be no more than three (3) Eligible Aircraft secured by a Junior Loan at any time. In connection with any such Junior Loan with respect to the Aircraft, each of the parties hereto (or their successors) and the lender(s) providing such Junior Loan will execute and deliver an intercreditor agreement dealing with the terms of subordination and enforcement of remedies and other intercreditor matters in form and substance reasonably satisfactory to the parties hereto (or their successors) and the lender(s) providing such Junior Loan, which agreement shall ensure there is no diminution of Security Agent’s first priority and perfected Lien in the Aircraft and all other then-existing Collateral. Borrower shall reimburse Security Agent and the Lenders for all of their reasonable out-of-pocket fees and expenses (including reasonable fees and disbursements of counsel) incurred in connection with documenting any such Junior Loan. 7.4 Sale-Leaseback Transaction. Notwithstanding anything to the contrary in any Operative Agreement, upon not less than thirty (30) days’ prior written notice to the parties hereto, if no Event of Default has occurred and is continuing, Borrower shall have the right to sell, at any time within eighteen (18) months following the closing date of the financing of the final Eligible Aircraft, and transfer title to the Aircraft to an owner trustee for the benefit of an owner participant in a transaction in which such owner trustee assumes all of Borrower’s obligations under the Equipment Notes and the Mortgage on a non-recourse basis (with Borrower being released from such obligations, except to the extent accrued before the assumption), leases the Aircraft to Borrower, and assigns such lease to Security Agent pursuant to an amended and restated mortgage (a “Sale-Leaseback”); provided, that there shall be no more than three (3) Eligible Aircraft subject to a Sale-Leaseback at any time. In connection with such Sale-Leaseback with respect to the Aircraft, each of the parties hereto (or their successors) will execute and deliver appropriate documentation, if reasonably satisfactory in form and substance to it, permitting the owner trustee to assume Borrower’s obligations under the Equipment Notes and the Mortgage on a non-recourse basis, releasing Borrower from all obligations in respect of the Equipment Notes and Mortgage (except to the extent accrued before the assumption), and take all other actions as are reasonably necessary to permit such assumption by the owner trustee. In connection with any such Sale-Leaseback, (a) the documents, each in form and substance reasonably acceptable to Security Agent, shall include, but not be limited to, (1) a participation agreement among the parties hereto (or their successors), the owner trustee, and the owner participant, (2) a net lease agreement between Borrower and the owner trustee providing for minimum rent payments equal in timing and amounts to all required debt service payments under the Operative Agreements and for a covenant or obligation equivalent to all other financial and non-financial obligations of Borrower under the Operative Agreements, (3) an amended and restated mortgage (amending and restating the Mortgage) between Security Agent and owner trustee, (4) a purchase agreement assignment, and (5) a trust agreement between the owner trustee and the owner participant; and (b) the Equipment Notes shall be delivered to Security Agent for cancellation in exchange for new equipment notes to be issued to the Lenders by the owner trustee. Borrower shall reimburse Security Agent and the Lenders for all of their reasonable out-of-pocket fees and expenses (including reasonable fees and disbursements of counsel) incurred in connection with any such Sale-Leaseback.   28 -------------------------------------------------------------------------------- 7.5 Termination of Cross-Collateralization and Cross-Defaults. (a) Majority. If at any time a majority of the aggregate unpaid Original Amount of all Equipment Notes in respect of the Aircraft ceases to be held by the same Lender or Lenders as the “lender” or “lenders” holding a majority (or more) of the aggregate unpaid Original Amount of all Related Equipment Notes in respect of any one or more other Related Aircraft and/or holding a majority (or more) of the aggregate unpaid principal amount of all PDP Notes, then unless such change of holding occurred as the result of the lawful exercise of remedies following an Event of Default (x) the Related Equipment Notes issued, and the Related Mortgages entered into, in respect of such one or more other Related Aircraft and/or the PDP Notes and the PDP Security Agreements, as the case may be, shall, without further act of the parties hereto or thereto, no longer be deemed to be “Related Notes” or “Related Mortgages” for purposes of this Agreement or the Mortgage and (y) the Lenders accept and agree that, unless otherwise agreed therein, the Equipment Notes and the Mortgage shall, without further act of the parties hereto or thereto, no longer be deemed to be “Related Notes” or a “Related Mortgage” under the terms of the Related Mortgage(s) in respect of such one or more other Related Aircraft and/or the PDP Security Agreements, as the case may be. (b) Sale-Leaseback; Junior Loan. If the Aircraft is one of three (3) Eligible Aircraft which are subjected to a Sale-Leaseback pursuant to Section 7.4 or is one of three (3) Eligible Aircraft which are subjected to a Junior Loan pursuant to Section 7.3 then (x) the Related Equipment Notes issued, and the Related Mortgages entered into, in respect of the Eligible Aircraft not subjected to a Sale-Leaseback with the same owner participants (in the case of Section 7.4) or to a Junior Loan with the same lenders (in the case of Section 7.3) (for purposes of this Section 7.5(b) only, the “No-Cross Aircraft”) and the PDP Notes and PDP Security Agreements shall, without further act of the parties hereto or thereto, no longer be deemed to be “Related Notes” or “Related Mortgages” for purposes of this Agreement or the Mortgage and (y) the Lenders accept and agree that, unless otherwise agreed therein, the Equipment Notes and the Mortgage shall, without further act of the parties hereto or thereto, no longer be deemed to be “Related Notes” or a “Related Mortgage” under the terms of the Related Mortgage(s) in respect of the No-Cross Aircraft and the PDP Security Agreements. (c) Payment. If the unpaid Original Amount of (plus the unpaid and accrued interest thereon and all other amounts due under the Operative Agreements with respect to) all Equipment Notes are paid in full and the Lien of the Mortgage is discharged and terminated in accordance with the terms thereof, (x) then the Related Equipment Notes issued, and the Related Mortgages entered into, in respect of the Related Aircraft and the PDP Notes and the PDP Security Agreements shall, without further act of the parties hereto or thereto, no longer be deemed to be “Related Notes” or “Related Mortgages” for purposes of this Agreement or the Mortgage and (y) the Lenders accept and agree that, unless otherwise agreed therein, the Equipment Notes and the Mortgage shall, without further act of the parties hereto or thereto, no longer be deemed to be “Related Notes” or a “Related Mortgage” under the terms of the Related Mortgage(s) in respect of such one or more other Related Aircraft and the PDP Security Agreements.   29 -------------------------------------------------------------------------------- 8. CONFIDENTIALITY Each of Security Agent and each Lender agrees to keep confidential all non-public information provided to it by Borrower, Holdings, Security Agent or any Lender pursuant to or in connection with this Agreement that is designated by the provider thereof as confidential; provided that nothing herein shall prevent Security Agent or any Lender from disclosing any such information (a) to Security Agent, any other Lender or any Affiliate thereof or of such Lender, (b) subject to an agreement by such Transferee or participant to comply with the provisions of this Section, to any actual or prospective Transferee (and its employees, directors, agents, attorneys, accountants and advisors or those of any of its Affiliates) or participant, (c) to its employees, directors, agents, attorneys, accountants and other professional advisors or those of any of its Affiliates, (d) upon the request or demand of any Governmental Entity, (e) in response to any order of any court or other Governmental Entity or as may otherwise be required pursuant to any Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) that has been publicly disclosed by Borrower, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender, or (i) in connection with the exercise of any remedy hereunder or under any other Operative Agreement; provided, that any and all disclosures permitted by clauses (d), (e), (f), (h) or (i) above shall be made only to the extent reasonably deemed necessary to meet the specific requirements or needs of the Persons making such disclosures. If Borrower intends to issue any press release or make any public announcement of this transaction or its terms, Borrower agrees to present such press release or announcement to Security Agent for its review and approval prior to releasing any such press release or making any such announcement; provided, Borrower need not provide such release or announcement to Security Agent for review and approval so long as such release or announcement does not contain specific references to the Lenders or the Security Agent or to the economic terms of this transaction. 9. INDEMNIFICATION AND EXPENSES 9.1 General Indemnity. (a) Indemnity. Whether or not any of the Transactions are consummated, Borrower shall indemnify, protect, defend, and hold harmless each Indemnitee from, against, and in respect of, and shall pay on an After-Tax Basis, any and all Expenses of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against any Indemnitee, relating to, resulting from, or arising out of or in connection with any one or more of the following:     (1) the Operative Agreements or any of the transactions contemplated hereby or thereby or the enforcement of any of the Operative Agreements during the existence of a Default;     (2) the Aircraft, the Airframe, any Engine, or any Part or any engine installed on the Airframe or any airframe on which an Engine is installed, including, with respect thereto, (A) whether or not arising out of the   30 -------------------------------------------------------------------------------- manufacture, design, installation, purchase, acceptance, non-acceptance, rejection, ownership, registration, re-registration, deregistration, delivery, non-delivery, lease, sublease, assignment, possession, use, non-use, operation, maintenance, testing, repair, overhaul, condition, alteration, modification, addition, improvement, storage, airworthiness, replacement, financing, refinancing, sale, substitution, return, abandonment, redelivery, transfer of title or other disposition of the Aircraft, any Engine, or any Part, (B) any claim or penalty arising out of violations of applicable Laws by Borrower (or any Permitted Lessee), (C) tort liability, whether or not arising out of the negligence of any Indemnitee (whether active, passive, or imputed), (D) latent or other defects, whether or not discoverable, death or property damage of passengers, shippers, or others, (E) environmental control, noise, or pollution and any claim for patent, trademark or copyright infringement, (F) any Liens in respect of the Aircraft, any Engine, or any Part, and (G) the offer, sale or delivery by Borrower of any Equipment Notes issued on the Closing Date; and     (3) any breach of or failure to perform or observe, or any other noncompliance with, any covenant, agreement, or other obligation to be performed by Borrower under any Operative Agreement to which it is party or the falsity of any representation or warranty of Borrower in any Operative Agreement to which it is party, including, without limitation, any Default or Event of Default under any of the Operative Agreements. (b) Exceptions. Notwithstanding anything in Section 9.1(a), Borrower shall not be required to indemnify, protect, defend or hold harmless any Indemnitee pursuant to Section 9.1(a) against any Expense of such Indemnitee:     (1) for any Taxes or a loss of Tax Benefit, whether or not Borrower is required to indemnify therefor pursuant to Section 9.3;     (2) to the extent attributable to any Transfer (voluntary or involuntary) by or on behalf of such Indemnitee of any Equipment Note, Commitment or interest therein, except for reasonable out-of-pocket costs and expenses incurred as a result of any such Transfer requested in writing by Borrower or made or effected as required by or pursuant to the terms of the Operative Agreements or made or effected in connection with or pursuant to the exercise of remedies under any Operative Agreement;     (3) to the extent attributable to the gross negligence or willful misconduct of such Indemnitee or any “Related Indemnitee” (as defined at the end of this Section 9.1(b)) (other than gross negligence or willful misconduct imputed to such Person solely by reason of its interest in the Aircraft or being party to any Operative Agreement);   31 --------------------------------------------------------------------------------   (4) to the extent attributable to the incorrectness or breach of any representation or warranty of such Indemnitee or any Related Indemnitee, contained in or made pursuant to any Operative Agreement;     (5) to the extent attributable to the failure by such Indemnitee or any Related Indemnitee to perform or observe any express agreement, covenant, or condition on its part to be performed or observed in any Operative Agreement;     (6) to the extent attributable to the offer or sale by such Indemnitee or any Related Indemnitee of any interest in the Equipment Notes or its Commitment in violation of the registration requirements of the Securities Act or in violation of the registration requirements of any applicable state or foreign securities Laws (other than any thereof caused by acts or omissions of Borrower);     (7) to the extent attributable to Security Agent’s failure to distribute funds received and distributable by it in accordance with the Operative Agreements;     (8) other than during the existence of an Event of Default, to the extent attributable to the authorization or giving or withholding of any future amendments, supplements, waivers, or consents with respect to any Operative Agreement, other than any requested by Borrower or required by or made pursuant to the terms of the Operative Agreements (unless such requirement results from the actions of an Indemnitee not required by or made pursuant to the Operative Agreements);     (9) to the extent attributable to any amount which any Indemnitee expressly agrees to pay or such Indemnitee expressly agrees shall not be paid by or be reimbursed by Borrower;     (10) to the extent that it is an ordinary and usual operating or overhead expense;     (11) for any Lien attributable to such Indemnitee or any Related Indemnitee that Borrower is not obligated to discharge under the Operative Agreements;     (12) if another provision of an Operative Agreement specifies the extent of Borrower’s responsibility or obligation with respect to such Expense, to the extent arising from a cause other than Borrower’s failure to comply with such specified responsibility or obligation; or     (13) to the extent imposed on an Indemnitee as a result of any non-exempt “prohibited transaction” under 406(a) of ERISA or Section 4975(c)(1) of the Code caused by such Indemnitee.   32 -------------------------------------------------------------------------------- For purposes of this Section 9.1, a Person shall be considered a “Related Indemnitee” of an Indemnitee if that Person is an Affiliate or employer of such Indemnitee, a director, officer, employee, agent, or servant of such Indemnitee or any such Affiliate. (c) Separate Agreement. The provisions of this Section 9.1 constitute a separate agreement with respect to each Indemnitee, and is enforceable directly by each such Indemnitee. (d) Notice. If an Indemnitee makes a claim for any Expense indemnifiable under this Section 9.1, such Indemnitee shall give prompt written notice thereof to Borrower. Notwithstanding the foregoing, any Indemnitee’s failure to notify Borrower as provided in this Section 9.1(d), or in Section 9.1(e), shall not release Borrower from any of its obligations to indemnify such Indemnitee hereunder, except to the extent that such failure results in an additional Expense to Borrower (in which event Borrower shall not be responsible for such additional Expense) or materially impairs Borrower’s ability to contest such claim. (e) Notice of Proceedings; Defense of Claims; Limitations. (1) If any action, suit, or proceeding for which Borrower is responsible under this Section 9.1 is brought against any Indemnitee, such Indemnitee shall notify Borrower of the commencement thereof, and Borrower may, at its expense, participate in and, to the extent that it so desires (subject to the provisions of the following paragraph), assume and control the defense thereof and, subject to Section 9.1(e)(3), settle or compromise it. (2) Borrower or its insurer(s) shall have the right, at its or their cost and expense, to investigate and the right in Borrower’s sole discretion, acting through counsel reasonably satisfactory to the respective Indemnitee, if Borrower has acknowledged in writing that it will indemnify such Indemnitee for such Expense (except that such acknowledgment does not apply if its is determined that Borrower is not liable hereunder) (A) in any judicial or administrative proceeding that involves an Expense and other claims which do not involve such Indemnitee, to assume responsibility for and control of the defense thereof, (B) in any judicial or administrative proceeding that involves an Expense and other claims against such Indemnitee related or unrelated to the transactions contemplated by the Operative Agreements, (x) to assume responsibility for and control of the defense of such Expense to the extent that the same may be and is severed from such other claims (and such Indemnitee shall use its reasonable efforts to obtain such severance) or (y) if such Expense is not severable from other claims that are material to such Indemnitee in relation to the Equipment Notes held by such Indemnitee, to assume responsibility for and control of the defense of such Expense if such assumption would not, in such Indemnitee’s reasonable judgment, prejudice or impair in any material respect, such Indemnitee’s management of such other claims and (C) in any other case, to be consulted by such Indemnitee and in which case such Indemnitee agrees to cooperate with reasonable requests of Borrower, each such request at Borrower’s   33 -------------------------------------------------------------------------------- cost and expense, with respect to judicial proceedings subject to the control of such Indemnitee and to be allowed, at Borrower’s cost and expense, to participate therein. The Indemnitee may participate at its own cost and expense and with its own counsel in any judicial proceeding controlled by Borrower pursuant to the preceding provisions; provided that such Indemnitee’s participation does not, in Borrower’s reasonable judgment, prejudice or impair in any material respect the defense and management of such case. Borrower shall not be entitled to control the defense of any such action, suit, or proceeding, or to compromise any such Expense (and the relevant Indemnitee shall be entitled to assume such control), while (a) any Event of Default exists, or (b) if such proceedings will involve (i) a material risk of the sale, forfeiture, or loss of, or the creation of any Lien (other than Permitted Lien) on the Aircraft, or the Collateral, unless Borrower shall have posted a bond or other security or collateral reasonably satisfactory to such Indemnitee in respect to such risk, (c) if such proceedings are likely to entail any risk of criminal liability or material risk of civil liability being imposed on such Indemnitee that, in the case of civil liability in the reasonable opinion of such Indemnitee, adversely affects in any material respect the business reputation of such Indemnitee or if, in the reasonable opinion of such Indemnitee, control by Borrower would be inappropriate due to a conflict of interest. (3) In no event shall any Indemnitee enter into a settlement or other compromise with respect to any Expense without Borrower’s prior written consent (which shall not be unreasonably withheld or delayed), unless such Indemnitee waives its right to be indemnified with respect to such Expense under this Section 9.1 or is required by Law to do so. (4) To the extent that any Expense indemnified by Borrower hereunder may be covered by insurance maintained by Borrower, at Borrower’s expense, each Indemnitee agrees to cooperate with all reasonable requests of insurers in the exercise of their rights to investigate, defend, or compromise such Expense as may be required to retain the benefits of such insurance with respect to such Expense. (5) If an Indemnitee is not a party to this Agreement, Borrower may require such Indemnitee to agree in writing to the terms of this Section 9.1 and Section 11.8 before making any payment to such Indemnitee under this Article 9. (6) Nothing in this Section 9.1(e) shall require an Indemnitee to assume responsibility for or control of any judicial proceeding with respect thereto. (f) Information. Borrower will provide the relevant Indemnitee with such information not within the control of such Indemnitee (but in Borrower’s control or reasonably available to Borrower) which such Indemnitee reasonably requests, and will otherwise cooperate with such Indemnitee so as to enable such Indemnitee to fulfill its obligations under Section 9.1(e). The Indemnitee shall supply Borrower with such information not within the control of Borrower (but in such Indemnitee’s control or reasonably available to such Indemnitee) which Borrower reasonably requests to control or participate in any proceeding to the extent permitted by Section 9.1(e).   34 -------------------------------------------------------------------------------- (g) Effect of Other Indemnities. Upon payment in full by or on behalf of Borrower of any indemnity provided for under this Agreement, Borrower, without any further action and to the full extent permitted by Law, will be subrogated to all rights and remedies of the Person indemnified (other than with respect to any of such Indemnitee’s insurance policies or in connection with any indemnity claim of such Indemnitee under Section 10.4) in respect of the matter as to which such indemnity was paid. Each Indemnitee will give such further assurances or agreements and cooperate with Borrower to permit Borrower to pursue such claims, to the extent reasonably requested by Borrower and at Borrower’s expense. (h) Refunds. If an Indemnitee receives any refund from any party other than Borrower or its insurers, in whole or in part, with respect to any Expense paid by Borrower hereunder, that Indemnitee will promptly pay the amount refunded (but not an amount in excess of the amount Borrower or any of its insurers has paid in respect of such Expense) over to Borrower unless a Default or Event of Default exists, in which case such amount shall be paid over to Security Agent to hold as security for Borrower’s obligations under the relevant Operative Agreements until such time as such Default or Event of Default no longer exists, in which case such amount and any gain realized as a result of investments required to be made pursuant to Article 6 of the Mortgage shall be (except to the extent theretofore applied as provided in the Mortgage) paid over to Borrower. 9.2 Expenses. Except as otherwise provided with respect to particular matters in the Operative Agreements, Borrower shall pay all reasonable out-of-pocket costs and expenses (including the reasonable fees and disbursements of counsel) incurred by Security Agent in connection with any waiver, consent or approval or amendment or modification of any Operative Agreement requested by Borrower; and each Lender agrees that it shall reimburse Borrower and Security Agent for all reasonable out-of-pocket costs and expenses (including the reasonable fees and disbursements of counsel) incurred by Borrower and Security Agent in connection with any waiver, consent or approval or amendment or modification of any Operative Agreement requested by it. 9.3 General Tax Indemnity. (a) Withholding Taxes. Except as provided in Section 9.3(c), Borrower agrees that each payment paid by Borrower under the Equipment Notes, and any other payment or indemnity paid by Borrower to a Lender under any Operative Agreement, shall be free of all withholdings or deductions with respect to Taxes of any nature unless the withholding or deduction is required by law, and if any such withholding or deduction for any such payment is required by applicable Law, (1) all such withholdings or deductions shall be made as provided in Section 2.3(b) of the Mortgage, (2) if and to the extent that all or any portion of the required withholdings or deductions constitutes Indemnified   35 -------------------------------------------------------------------------------- Withholding Taxes, the amount payable by Borrower shall be increased so that, after making all required withholdings or deductions, such Lender receives the same amount that it would have received had no such withholdings or deductions with respect to such Indemnified Withholding Taxes been made, with the amount payable by Borrower with respect to such Indemnified Withholding Taxes being calculated on an After-Tax Basis and (3) Borrower or Security Agent, as the case may be, shall pay the full amount withheld or deducted to the relevant Taxing Authority in accordance with applicable law. The term “Indemnified Withholding Taxes” shall mean, with respect to any Equipment Note, withholding taxes imposed by any Government, other than United States withholding Taxes imposed as of the time the Lender owning such Equipment Note became a Lender (except to the extent that (i) such Lender acquired such Equipment Note by assignment from another Lender and (ii) immediately prior to such assignment Borrower was paying additional amounts to the assigning Lender pursuant to this Section 9.3(a) with respect to United States withholding Taxes that were Indemnified Taxes). For the avoidance of doubt, in the event that the amount of United States withholding Taxes payable with respect to an Equipment Note changes after the date the Lender owning such Equipment Note became a Lender, such United States withholding Taxes shall constitute Indemnified Withholding Taxes only to the extent that, as the result of a change in U.S. federal tax law or regulation or the interpretation thereof or a change in a tax treaty to which the United States is a party, in each case that occurs after the date the Lender owing such Equipment Notes becomes a Lender, such withholding Taxes become applicable with respect to a payment by Borrower to the Lender (if none had previously been imposed or required) or the rate applicable to a previously imposed or required withholding Tax is increased. In the event that Indemnified Withholding Taxes become payable by Borrower as provided above, the Lender will use commercially reasonable efforts to transfer the Equipment Notes to another jurisdiction that is mutually acceptable to Borrower and such Lender so that either (1) no such Indemnified Withholding Taxes would be applicable to subsequent payments to such Lender following such transfer (taking into account the provisions of Treas. Reg. § 1.881-3 and the limitation on benefits provisions of any applicable tax treaty) or (2) the rate of the Indemnified Withholding Taxes applicable to subsequent payments to such Lender following such transfer (taking into account the provisions of Treas. Reg. § 1.881-3 and the limitation on benefits provisions of any applicable tax treaty) would not exceed the rate of the Indemnified Withholding Taxes applicable to payments to such Lender prior to such transfer and, in the case of United States withholding Taxes, the applicable change in U.S. federal tax law or regulation or the interpretation thereof or change in tax treaty; provided that such Lender shall not be required to transfer the Equipment Notes as provided above in this sentence if such transfer would cause such Lender to suffer economic, legal or regulatory disadvantage that is not indemnified by Borrower in a manner reasonably acceptable to such Lender; and provided further, that nothing in this sentence shall affect or postpone any of the obligations of Borrower or the rights of such Lender pursuant to this Section 9.3(a) prior to such transfer of the affected Equipment Notes. (b) General Tax Indemnity. Except as provided in Section 9.3(c) and whether or not any of the transactions contemplated hereby are consummated, Borrower shall pay, indemnify, protect, defend, and hold harmless each Tax Indemnitee from all Taxes imposed by any Taxing Authority imposed on or asserted against any Tax Indemnitee or   36 -------------------------------------------------------------------------------- the Aircraft, the Airframe, any Engine, or any Part, or any interest in any of the foregoing (whether or not indemnified against by any other Person), upon or with respect to the Operative Agreements or the transactions or payments contemplated thereby, including any Tax imposed upon or with respect to (x) the Aircraft, the Airframe, any Engine, any Part, any Operative Agreement (including any Equipment Notes), any data, or any other thing delivered or to be delivered under an Operative Agreement, (y) the purchase, manufacture, acceptance, rejection, sale, transfer of title, return, ownership, mortgaging, delivery, transport, charter, rental, lease, re-lease, sublease, assignment, possession, repossession, presence, use, condition, storage, preparation, maintenance, modification, alteration, improvement, operation, registration, transfer or change of registration, re-registration, repair, replacement, overhaul, location, control, imposition of any Lien, financing, refinancing requested by Borrower, abandonment, or other disposition of the Aircraft, the Airframe, any Engine, any Part, any data, or any other thing delivered or to be delivered under an Operative Agreement or (z) interest, fees, or other income, proceeds, receipts, or earnings, whether actual or deemed, arising upon, in connection with, or in respect of any of the Operative Agreements (including the property or income or other proceeds with respect to property held as part of the Collateral) or the transactions contemplated thereby. (c) Certain Exceptions. The provisions of Section 9.3(a) and Section 9.3(b) shall not apply to, and Borrower shall have no liability hereunder for, Taxes: (1) imposed on a Tax Indemnitee by any Taxing Authority or governmental subdivision thereof or therein (A) on, based on, or measured by gross or net income or gross or net receipts, including capital gains taxes, excess profits taxes, minimum taxes from tax preferences, alternative minimum taxes, branch profits taxes, accumulated earnings taxes, personal holding company taxes, succession taxes and estate taxes, and any withholding taxes on, based on, or measured by gross or net income or receipts, or (B) on, or with respect to, or measured by capital or net worth or in the nature of a franchise tax or a tax for the privilege of doing business (other than, in the case of clause (A) or (B), (y) sales, use, license, or property Taxes, or (z) any Taxes imposed by any Taxing Authority (other than a Taxing Authority within whose jurisdiction such Tax Indemnitee (i) is incorporated or organized or maintains its principal place of business or (ii) maintains a permanent establishment in the United States, if and to the extent that the income, receipts or gains to which such Taxes relate are effectively connected with such permanent establishment, other than by reason of a change in law occurring after the date such Tax Indemnitee acquires an interest in the Commitment or an Equipment Note.) if such Tax Indemnitee would not have been subject to Taxes of such type by such jurisdiction but for (i) the location, use, or operation of the Aircraft, the Airframe, any Engine, or any Part thereof by an Borrower Person within the jurisdiction of the Taxing Authority imposing such Tax, or (ii) the activities of any Borrower Person in such jurisdiction, including use of any other aircraft by Borrower in such jurisdiction, (iii) the status of any Borrower Person as a foreign entity or as an entity owned in whole or in part by foreign persons, (iv) Borrower having made (or having been deemed to have made) payments to such Tax Indemnitee from the relevant   37 -------------------------------------------------------------------------------- jurisdiction, or (v) in the case of Lender, Borrower’s being incorporated or organized or maintaining a place of business or conducting activities in such jurisdiction); (2) on, with respect to, or measured by any fees, commissions, or compensation received by Security Agent; (3) that are being contested as provided in Section 9.3(e); (4) imposed on any Tax Indemnitee to the extent that such Taxes result from the gross negligence or willful misconduct of such Tax Indemnitee or any Affiliate thereof; (5) imposed on or with respect to a Tax Indemnitee (including the transferee in those cases in which the Tax on transfer is imposed on, or is collected from, the transferee) as a result of a transfer or other disposition (including a deemed transfer or disposition) by such Tax Indemnitee or a related Tax Indemnitee of any interest in the Aircraft, the Airframe, any Engine, or any Part, any interest arising under the Operative Agreements, or any Equipment Note, or as a result of a transfer or disposition (including a deemed transfer or disposition) of any interest in a Tax Indemnitee (other than (1) a substitution or replacement of the Aircraft, the Airframe, any Engine, or any Part by a Borrower Person that is treated for Tax purposes as a transfer or disposition, or (2) a transfer pursuant to an exercise of remedies upon a then-existing Event of Default); (6) in excess of those that would have been imposed had there not been a transfer or other disposition described in clause (6) of this Section 9.3(c) by or to such Tax Indemnitee or a related Tax Indemnitee (except to the extent resulting from a change in Law after the date of such transfer or disposition); (7) consisting of any interest, penalties, or additions to tax imposed on a Tax Indemnitee as a result (in whole or in part) of a failure of such Tax Indemnitee or a related Tax Indemnitee to file any return properly and timely, unless such failure is caused by Borrower’s failure to fulfill its obligations (if any) under Section 9.3(g) with respect to such return; (8) resulting from, or that would not have been imposed but for, any Liens arising as a result of claims against, or acts or omissions of, or otherwise attributable to such Tax Indemnitee or a related Tax Indemnitee that Borrower is not obligated to discharge under the Operative Agreements; (9) imposed on any Tax Indemnitee as a result of the breach by such Tax Indemnitee or a related Tax Indemnitee of any covenant of such Tax Indemnitee or any Affiliate thereof contained in any Operative Agreement or the inaccuracy of any representation or warranty by such Tax Indemnitee or any Affiliate thereof in any Operative Agreement;   38 -------------------------------------------------------------------------------- (10) in the nature of an intangible or similar Tax upon or with respect to the value or principal amount of the interest of any Lender in any Equipment Note or the loan evidenced thereby, but only if such Taxes are in the nature of franchise Taxes or result from the conduct of business by such Tax Indemnitee in the taxing jurisdiction and are imposed because of the place of incorporation or the activities unrelated to the Transactions in the taxing jurisdiction of such Tax Indemnitee; (11) imposed on a Tax Indemnitee by a Taxing Authority, to the extent that such Taxes result from a connection between the Tax Indemnitee or a related Tax Indemnitee and such jurisdiction imposing such Tax unrelated to the Transactions; or (12) to the extent imposed on an Indemnitee as a result of any non-exempt “prohibited transaction” under 406(a) of ERISA or Section 4975(c)(1) of the Code caused by such Indemnitee. For purposes hereof, a Tax Indemnitee and any other Tax Indemnitees who are successors, assigns, agents, or Affiliates of such Tax Indemnitee shall be related Tax Indemnitees. (d) Payment. (1) Borrower’s indemnity obligation to a Tax Indemnitee under this Section 9.3 shall equal the amount which, after taking into account any Tax imposed upon the receipt or accrual of the amounts payable under this Section 9.3 and any Tax Benefits realized by such Tax Indemnitee as a result of the indemnifiable Tax (including any benefits realized as a result of such Tax Indemnitee’s use of an indemnifiable Tax as a credit against Taxes not indemnifiable under this Section 9.3), shall equal the amount of the Tax indemnifiable under this Section 9.3. (2) At Borrower’s request, in the event there is a dispute with respect to the computation of the amount of any indemnity payment owed by Borrower or any amount owed by a Tax Indemnitee to Borrower pursuant to this Section 9.3 (including, without limitation, whether a Tax refund has been received that a Tax Indemnitee would be required to pay to Borrower pursuant to Section 9.3(f) and whether a Tax Benefit has been realized that a Tax Indemnitee would be required to pay to Borrower pursuant to Section 9.3(d)(5)) such computation shall be verified and certified by an independent public accounting firm selected by such Tax Indemnitee and reasonably satisfactory to Borrower. Each Tax Indemnitee shall upon request provide to such accounting firm such information in such Tax Indemnitee’s possession or control as is reasonably necessary (which such determination is in such accounting firm’s sole discretion, exercised in good faith), for the performance of such verification (subject to the accounting firm’s execution and delivery of a confidentiality agreement in form and substance reasonably acceptable to the Tax Indemnitee); provided, however, that in no event shall the tax returns, filings and confidential work papers of such Tax Indemnitee   39 -------------------------------------------------------------------------------- be required to be disclosed (provided that the disclosure of information set forth in such tax returns, filings and confidential work papers (as distinct from such returns, filings and work papers), shall be provided and shall not be protected from disclosure if needed for the verification of the computation of such indemnity payment or such amount owed to Borrower). For the avoidance of doubt, in no event shall Borrower have the right to receive any information provided to the accounting firm pursuant to the prior sentence. Such verification shall be binding. The costs of such verification (including the fee of such public accounting firm) shall be borne by Borrower unless such verification results in an adjustment in Borrower’s favor that exceeds the greater of (A) 7.5% of the net present value of the payment as computed by such Tax Indemnitee or (B) $15,000, in which case the costs shall be paid by such Tax Indemnitee. (3) Each Tax Indemnitee shall provide Borrower with such certifications, and such information and documentation in such Tax Indemnitee’s possession or control, and Borrower reasonably requests to minimize any indemnity payment pursuant to this Section 9.3. (4) Each Tax Indemnitee shall promptly forward to Borrower any written notice, bill, or advice that such Tax Indemnitee receives from any Taxing Authority concerning any Tax for which it seeks indemnification under this Section 9.3. Borrower shall pay any amount for which it is liable pursuant to this Section 9.3 directly to the appropriate Taxing Authority if legally permissible, or, upon demand of a Tax Indemnitee, to such Tax Indemnitee within thirty (30) days of such demand (or, if a contest occurs in accordance with Section 9.3(d), within thirty (30) days after a Final Determination (as defined below)), but in no event more than three (3) Business Days before the related Tax is due. If requested by a Tax Indemnitee in writing, Borrower shall furnish to the appropriate Tax Indemnitee the original or a certified copy of a receipt for Borrower’s payment of any Tax paid by Borrower (if such a receipt is reasonably obtainable from the applicable Taxing Authority), or such other evidence of payment of such Tax as is reasonably acceptable to such Tax Indemnitee. Borrower shall also furnish promptly upon written request such data as any Tax Indemnitee reasonably requires to enable such Tax Indemnitee to comply with the requirements of any taxing jurisdiction, unless such data are not within the possession or control of Borrower or (unless such data are specifically requested by a Taxing Authority) are not customarily furnished by U.S. domestic air carriers under similar circumstances. For purposes of this Section 9.3, a “Final Determination” is (A) a decision, judgment, decree, or other order by any court of competent jurisdiction that occurs pursuant to the provisions of Section 9.3(e), which decision, judgment, decree, or other order has become final and unappealable, (B) a closing agreement or settlement agreement entered into in accordance with Section 9.3(e) that has become binding and is not subject to further review or appeal (absent fraud, misrepresentation, etc.), or (C) the termination of administrative proceedings and the expiration of the time for instituting a claim in a court proceeding.   40 -------------------------------------------------------------------------------- (5) If any Tax Indemnitee actually realizes a Tax Benefit by reason of any Tax paid or indemnified by Borrower pursuant to this Section 9.3 (whether such tax savings arise by means of a foreign tax credit, depreciation or cost recovery deduction, or otherwise), and such Tax Benefit is not otherwise taken into account in computing such payment or indemnity, such Tax Indemnitee shall pay to Borrower an amount equal to the lesser of (A) the amount of such tax savings, plus any additional tax savings recognized as the result of any payment made pursuant to this sentence, and (B) the amount of all payments pursuant to this Section 9.3 by Borrower to such Tax Indemnitee (less any payments previously made by such Tax Indemnitee to Borrower pursuant to this Section 9.3(d)(5)) (and the excess, if any, of the amount described in clause (A) over the amount described in clause (B) shall be carried forward and applied to reduce pro tanto any subsequent obligations of Borrower to make payments to such Tax Indemnitee pursuant to this Section 9.3); provided, that such Tax Indemnitee shall not be required to make any payment pursuant to this sentence so long as an Event of Default of a monetary nature exists. If a Tax Benefit is later disallowed or denied, the disallowance or denial shall be treated as a Tax indemnifiable under Section 9.3(b) without regard to the provisions of Section 9.3(c) (other than Section 9.3(c)(5), (8) or (10)). Each such Tax Indemnitee shall in good faith use reasonable efforts in filing its tax returns and in dealing with Taxing Authorities to seek and claim any such Tax Benefit; provided that, notwithstanding the foregoing, the positions taken by such Tax Indemnitee on its Tax returns and filings, and, subject to the provisions of Section 9.3(e) hereof, in any Tax proceedings shall be within the sole, good-faith discretion of such Tax Indemnitee and, subject to the provisions of Section 9.3(d)(2) hereof, no Person shall have the right to require disclosure of the Tax returns or filings of such Tax Indemnitee. (e) Contest. (1) If a written claim is made against a Tax Indemnitee for Taxes with respect to which Borrower could be liable for payment or indemnity hereunder, or if a Tax Indemnitee determines that a Tax is due for which Borrower could have an indemnity obligation hereunder, such Tax Indemnitee shall promptly notify Borrower in writing of such claim (provided, that failure so to notify Borrower shall not relieve Borrower of its indemnity obligations hereunder except to the extent that such failure increases the amount of Taxes subject to such claim as the result of the imposition of penalties or interest or unless the failure to notify effectively forecloses Borrower’s rights to successfully contest such claim), and shall take no action with respect to such claim without Borrower’s prior written consent for thirty (30) days following Borrower’s receipt of such notice. In addition, such Tax Indemnitee shall (provided that Borrower shall have agreed to keep such information confidential other than to the extent necessary in order to contest the claim) furnish Borrower with copies of any requests for information from any Taxing Authority relating to such Taxes with respect to which Borrower may be required to indemnify hereunder. If requested by Borrower in writing within thirty (30) days after its receipt of such notice, such Tax Indemnitee shall, at Borrower’s expense (including all reasonable out-of-pocket costs and expenses,   41 -------------------------------------------------------------------------------- including reasonable attorneys’ and accountants’ fees and disbursements incurred in connection with, and reasonably allocable to, the contest of such Tax), in good faith contest (or, if permitted by applicable law and to the extent provided below, allow Borrower to contest) through appropriate administrative and judicial proceedings the validity, applicability, or amount of such Taxes by (x) resisting payment thereof, (y) not paying the Taxes except under protest if protest is necessary and proper, or (z) if the payment is made, using reasonable efforts to obtain a refund thereof in an appropriate administrative or judicial proceeding (with the determination of which alternative to be used made in the sole discretion of the party controlling the contest). If requested to do so by Borrower, the Tax Indemnitee shall appeal any adverse administrative or judicial decision, except that the Tax Indemnitee shall not be required to pursue any appeals to the United States Supreme Court. Borrower shall have the right, at its cost and expense, (A) in any judicial or administrative proceeding that involves an indemnified Tax and other Taxes which do not involve such Tax Indemnitee, to assume responsibility for and control of the defense thereof, (B) in any judicial or administrative proceeding that involves an indemnified Tax and other Taxes asserted against such Tax Indemnitee related or unrelated to the transactions contemplated by the Operative Agreements, (x) to assume responsibility for and control of the defense of such indemnified Tax to the extent that the same may be and is severed from such other claims (and such Tax Indemnitee shall use its reasonable efforts to obtain such severance) or (y) if such indemnified Tax is not severable from other claims with respect to Taxes asserted against such Tax Indemnitee that are material to such Tax Indemnitee, to assume responsibility for and control of the defense of such indemnified Tax if such assumption would not, in such Tax Indemnitee’s reasonable judgment, prejudice or impair in any material respect, such Tax Indemnitee’s management of such other claims and (C) in any other case, to be consulted by such Tax Indemnitee and in which case such Tax Indemnitee agrees to cooperate with reasonable requests of Borrower, each such request at Borrower’s cost and expense, with respect to judicial proceedings subject to the control of such Tax Indemnitee and to be allowed, at Borrower’s cost and expense, to participate therein. The Tax Indemnitee may participate at its own cost and expense and with its own counsel in any judicial proceeding controlled by Borrower pursuant to the preceding provisions; provided that such Tax Indemnitee’s participation does not, in Borrower’s reasonable judgment, prejudice or impair in any material respect the defense and management of such case. Borrower shall not be entitled to control the defense of any such judicial or administrative proceeding (and the relevant Tax Indemnitee shall be entitled to assume such control) if such proceedings are likely to entail any risk of criminal liability or material risk of civil liability being imposed on such Tax Indemnitee that, in the case of civil liability in the reasonable opinion of such Tax Indemnitee, adversely affects in any material respect the business reputation of such Tax Indemnitee or if, in the reasonable opinion of such Tax Indemnitee, control by Borrower would be inappropriate due to a conflict of interest. A Tax Indemnitee shall not fail to take any action expressly required by this Section 9.3(e) (including any action regarding any appeal of an adverse determination with   42 -------------------------------------------------------------------------------- respect to any claim) or settle or compromise any claim without Borrower’s prior written consent (except as contemplated by Sections 9.3(e)(2) or (3), which consent may not be unreasonably withheld). (2) Notwithstanding the foregoing, in no event shall a Tax Indemnitee be required to pursue any contest (or to permit Borrower to pursue any contest) unless (A) Borrower agrees to pay such Tax Indemnitee on demand all reasonable out-of-pocket costs and expenses that such Tax Indemnitee incurs in connection with contesting such Taxes, including all reasonable out-of-pocket costs and expenses and reasonable attorneys’ and accountants’ fees and disbursements, in each case, to the extent reasonably allocable to the contest of such Taxes, (B) if such contest involves the payment of the claim, Borrower advances the amount thereof (to the extent indemnified hereunder) that is required to be paid before commencing the contest on an interest-free After-Tax Basis to such Tax Indemnitee (and such Tax Indemnitee shall promptly pay to Borrower any net realized tax benefits resulting from such advance, including any Tax Benefits resulting from making such payment), (C) the action to be taken will not result in any material risk of forfeiture, sale, or loss of the Aircraft (unless Borrower makes provisions to protect the interests of any such Tax Indemnitee in a manner reasonably satisfactory to such Tax Indemnitee) (provided, that such Tax Indemnitee shall notify Borrower in writing promptly after it becomes aware of any such risk), (D) no Event of Default exists, unless Borrower has provided security for its obligations hereunder by advancing to such Tax Indemnitee, before proceeding or continuing with such contest, the amount of the Tax being contested, plus any interest and penalties and an amount estimated in good faith by such Tax Indemnitee for expenses, and (E) Borrower has acknowledged in writing its obligations to indemnify the Tax Indemnitee for the Tax to be contested; provided, however, that Borrower will not be bound by the acknowledgment of liability if the contest is resolved on a basis that clearly establishes that Borrower would not have been liable to the Tax Indemnitee under this Agreement in the absence of such acknowledgment. Notwithstanding the foregoing, if any Tax Indemnitee releases, waives, compromises, or settles any claim that may be indemnifiable by Borrower pursuant to this Section 9.3 without Borrower’s written permission (which permission may not be unreasonably withheld), Borrower’s obligation to indemnify such Tax Indemnitee with respect to such claim (and all directly-related claims, and claims based on the outcome of such claim) shall terminate, and such Tax Indemnitee shall repay to Borrower any amount previously paid or advanced to such Tax Indemnitee with respect to such claim, plus interest at the rate that would have been payable by the relevant Taxing Authority on a refund of such Tax. (3) Notwithstanding anything contained in this Section 9.3, a Tax Indemnitee will not be required to contest the imposition of any Tax, and shall be permitted to settle or compromise any claim without Borrower’s consent, if such Tax Indemnitee (A) waives its right to indemnity under this Section 9.3 with respect to such Tax (and any directly-related claim, and any claim the outcome of which is determined based upon the outcome of such claim), and (B) pays to   43 -------------------------------------------------------------------------------- Borrower any amount previously paid or advanced by Borrower pursuant to this Section 9.3 with respect to such Tax, plus interest at the rate that would have been payable by the relevant Taxing Authority on a refund of such Tax. (f) Refund. If in the ordinary course of administering its Tax affairs any Tax Indemnitee determines or discovers the existence of a refund, or that such Tax Indemnitee is entitled to a credit against other liability, which such refund or credit is in whole or in part directly attributable to any Taxes paid, reimbursed, or advanced by Borrower pursuant to Section 9.3, such Tax Indemnitee shall pay to Borrower within thirty (30) days of such receipt an amount equal to the lesser of (i) the amount of such refund or credit that is directly attributable to Taxes paid, reimbursed or advanced by Borrower, plus any net tax benefit (taking into account any Taxes incurred by such Tax Indemnitee by reason of the receipt of such refund or realization of such credit) actually realized by such Tax Indemnitee as a result of any payment by such Tax Indemnitee made pursuant to this sentence (including this clause (i)), and (ii) such tax payment, reimbursement, or advance by Borrower to such Tax Indemnitee theretofore made pursuant to this Section 9.3 (and the excess, if any, of the amount described in clause (i) over the amount described in clause (ii) shall be carried forward and applied to reduce pro tanto any subsequent obligation of Borrower to make payments to such Tax Indemnitee pursuant to this Section 9.3). If, in addition to such refund or credit, such Tax Indemnitee receives (or is credited with) an amount representing interest on the amount of such refund or credit, such Tax Indemnitee shall pay to Borrower within thirty (30) days after receiving or realizing such credit that proportion of such interest fairly attributable to Taxes paid, reimbursed, or advanced by Borrower before the receipt of such refund or realization of such credit. If a Tax Indemnitee pays Borrower any amount under this Section 9.3(f) and if and to the extent that it is subsequently determined pursuant to a contest conducted in accordance with Section 9.3(e) that such Tax Indemnitee was not entitled to the refund for which such Tax Indemnitee made such payment to Borrower, such determination shall be treated as the imposition of a Tax for which Borrower is obligated to indemnify such Tax Indemnitee pursuant to the provisions of Section 9.3(b), without regard to the provisions of Section 9.3(c) (other than Section 9.3(c)(5), (8) or (10)). Notwithstanding anything to the contrary herein, if Borrower provides a Tax Indemnitee with a written notice setting forth facts and circumstances which create a reasonable possibility of a refund of (or a credit against other liability with respect to) an indemnified Tax, such Tax Indemnitee shall make a determination as to whether it has received such a refund (or is entitled to such a credit). If a Tax Indemnitee determines that it has received such a refund (or is entitled to such a credit) it shall pay such refund (or the amount of such credit) to Borrower in accordance with the terms of this Section 9.3(f). For the avoidance of doubt, in no event shall any Tax Indemnitee be required to make available any of its Tax Documents (or any other information relating to its Taxes its deems confidential), to Borrower or any other Person (except as provided in Section 9.3(d)(2) of this Agreement). (g) Tax Filing. Borrower shall timely file any report, return, or statement that is required to be filed with respect to any Tax which is subject to indemnification under this Section 9.3 (except for any such report, return, or statement which a Tax Indemnitee has timely notified Borrower in writing that such Tax Indemnitee intends to file, or for   44 -------------------------------------------------------------------------------- which such Tax Indemnitee is required by law to file, in its own name); provided, that the relevant Tax Indemnitee shall furnish Borrower with any information in such Tax Indemnitee’s possession or control that is reasonably necessary to file any such return, report, or statement and that Borrower reasonably requests in writing. Borrower shall either file such report, return, or statement and send a copy to such Tax Indemnitee, or, if Borrower is not permitted to file such report, return, or statement, it shall notify such Tax Indemnitee in writing of such requirement and prepare and deliver such report, return, or statement to such Tax Indemnitee in a manner reasonably satisfactory to such Tax Indemnitee within a reasonable time before the time such report, return, or statement is to be filed; provided, that the relevant Tax Indemnitee shall furnish Borrower with any information in such Tax Indemnitee’s possession or control that is reasonably necessary to file any such return, report, or statement and that Borrower reasonably requests in writing. (h) Forms. Each Tax Indemnitee agrees to furnish from time to time to Borrower, Security Agent, or such other Person as Borrower or Security Agent shall designate, at Borrower’s or Security Agent’s request, such duly-executed and properly-completed forms as may be necessary or appropriate in order to claim any reduction of or exemption from any withholding or other Tax imposed by any Taxing Authority, if (i) such reduction or exemption is available to such Tax Indemnitee, and (ii) Borrower has provided such Tax Indemnitee with any information necessary to complete such form not otherwise reasonably available to such Tax Indemnitee. For the avoidance of doubt, by failing to comply with this Section 9.3(h) (whether by failing to provide a form when required to do so or by providing an inaccurate or invalid form), such Tax Indemnitee shall be in breach of the foregoing covenant and responsible for damages resulting therefrom. (i) Non-Parties. If a Tax Indemnitee is not a party to this Agreement, Borrower may require the Tax Indemnitee to agree in writing, in a form reasonably acceptable to Borrower, to the terms of this Section 9.3 and Section 11.8 before any payment shall be due to such Tax Indemnitee under this Section 9.3. (j) Subrogation. Upon payment of any Tax by Borrower pursuant to this Section 9.3 to or on behalf of a Tax Indemnitee, without any further action, Borrower shall be subrogated to any claims that such Tax Indemnitee may have relating to that Tax. Such Tax Indemnitee shall cooperate reasonably and in good faith with Borrower to permit Borrower to pursue such claims. 9.4 Payments. Except as otherwise provided herein, any payments which Borrower or an Indemnitee or Tax Indemnitee is obligated to make pursuant to Section 9.1 or Section 9.3 shall be paid on the thirtieth (30th) day after demand, but not before five (5) days before the date such Expense or Tax is due or payable by such Indemnitee or Tax Indemnitee, as applicable. If Borrower shall have requested to contest a Tax or Expense as provided in this Article 9 and shall have duly complied with all the terms of this Article 9, Borrower’s liability for indemnification under this Article 9 shall, at Borrower’s election, be deferred until a final determination is made with   45 -------------------------------------------------------------------------------- respect to such contest. At such time, Borrower shall become obligated for the payment of any indemnification hereunder resulting from the outcome of such contest, and within fifteen (15) days following such final determination, any amounts so due hereunder shall be paid by Borrower to the Indemnitee or Tax Indemnitee, as applicable. Such payments shall be made directly to the relevant Indemnitee or Tax Indemnitee or to Borrower, in immediately available funds at such bank or to such account as specified by such Indemnitee or Tax Indemnitee or Borrower (as applicable) in written directives to the payor, or, if no such direction has been given, by check of the payor payable to the order of, and mailed to, such Indemnitee or Tax Indemnitee or Borrower (as applicable) by certified mail, postage prepaid, at its address as set forth in this Agreement. 9.5 Interest. If any amount, payable by Borrower, any Indemnitee, or any Tax Indemnitee under Section 9.1 or Section 9.3 is not paid when due, the Person obligated to make such payment shall pay on demand, to the extent permitted by Law, to the Person entitled thereto, interest on any such amount for the period from and including the due date for such amount to but excluding the date the amount is paid, at the Past-Due Rate. Such interest shall be paid in the same manner as the unpaid amount in respect of which such interest is due. 9.6 Benefit of Indemnities. Borrower’s obligations for indemnities, obligations, adjustments, and payments in Section 9.1 or Section 9.3 are expressly made for the benefit of, and shall be enforceable by, the Indemnitee or Tax Indemnitee entitled thereto as and to the extent provided herein, notwithstanding any provision of the Mortgage. 10. SECURITY AGENT. 10.1 Appointment and Powers. Each Lender hereby and by acceptance of an Equipment Note irrevocably appoints, designates and authorizes The Royal Bank of Scotland plc New York Branch as Security Agent under this Agreement and under each other Operative Agreement, irrevocably appoints The Royal Bank of Scotland plc New York Branch as a “secured party” and “representative” of the Lenders within the meaning of Section 9-102 of the UCC and irrevocably authorizes Security Agent to take such action on its behalf under the provisions of this Agreement and each other Operative Agreements and to exercise the powers and perform the duties as are expressly delegated to it by the terms of this Agreement or any other Operative Agreement, together with such powers as are reasonably incidental thereto. Security Agent hereby accepts such appointments, designations and authorizations. Further, each Lender hereby and by the acceptance of an Equipment Note authorizes The Royal Bank of Scotland plc New York Branch (and its successors and assigns as secured party) to act as its “representative” and “secured party” on its behalf under the terms of any Related Mortgage under which such Lender holds secured obligations thereunder. Notwithstanding any provision to the contrary contained in this Agreement or in any other Operative Agreement, Security Agent shall not have any duties or responsibilities, except those expressly set forth herein and in the Operative Agreements, nor   46 -------------------------------------------------------------------------------- shall Security Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Operative Agreement or otherwise exist against Security Agent. 10.2 Limitation on Security Agent’s Liability. Neither Security Agent nor any of its directors, officers, employees or agents shall be liable or responsible to any Lender for any action taken or omitted to be taken by it or them under or in connection with the Operative Agreements, except for its or their own gross negligence, willful misconduct or knowing violations of Law. Security Agent shall not be responsible to any Lender for (a) any recitals, statements, representations or warranties contained in the Operative Agreements or in any certificate or other document referred to or provided for in, or received by any of the Lenders under, the Operative Agreements, (b) the value, validity, effectiveness, genuineness or enforceability of the Operative Agreements or any such certificate or other document, (c) the value or sufficiency of the Collateral or (d) any failure by Borrower to perform any of its obligations under the Operative Agreements. Security Agent may exercise any of its duties under this Agreement and the other Operative Agreements by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Security Agent shall not be responsible to any Lender for the negligence or misconduct of any such agents or attorneys-in-fact so long as Security Agent was not grossly negligent in selecting or directing such agents or attorneys-in-fact. Security Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Operative Documents, or to inspect the properties, books or records of Borrower. Security Agent shall be entitled to rely and shall be fully protected in relying upon any certification, notice or other communication (including any thereof by telephone or telecopier) believed by it to be genuine and correct and to have been signed or given by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Security Agent. Security Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Operative Agreements unless it shall first receive such advice or concurrence of the Majority in Interest of the Lenders (or, if so specified by this Agreement, all Lenders, or as otherwise provided in Section 2.5) as it deems appropriate or it shall first be indemnified to its satisfaction in accordance with Section 10.4 against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Security Agent shall in all cases in respect of the Lenders be fully protected in acting, or in refraining from acting, under this Agreement and the other Operative Agreements in accordance with a request of the Majority in Interest of the Lenders (or, if so specified by this Agreement, all Lenders, or as otherwise provided in Section 2.5), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Equipment Notes. 10.3 Rights as Lender. Each Person acting as Security Agent that is also a Lender shall, in its capacity as a Lender, have the same rights and powers under the Operative Agreements as any other Lender and may exercise the same as though it were not acting as Security Agent, and the term “Lender” or “Lenders” shall include such Person in its individual capacity. Each Person acting as Security   47 -------------------------------------------------------------------------------- Agent (whether or not such Person is a Lender) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with Borrower and its Affiliates as if it were not acting as Security Agent. 10.4 Indemnification. Each Lender agrees, as between itself and Security Agent, to indemnify Security Agent (to the extent not reimbursed by Borrower under the Operative Agreements and without limiting the obligation of Borrower to do so), ratably on the basis of the unpaid Original Amounts of the Equipment Notes held by such Lenders (or, if no Equipment Notes are at the time issued, ratably on the basis of their respective Commitments), for any and all Expenses that may be imposed on, incurred by or asserted against Security Agent (including the costs and expenses that Borrower is obligated to pay under the Operative Agreements) in any way relating to or arising out of the Operative Agreements or any other documents contemplated thereby or referred to therein or the transactions contemplated thereby or the enforcement of any of the terms thereof or of any such other documents, provided that no such Lender shall be liable for any of the foregoing to the extent such Expenses result from Security Agent’s gross negligence, willful misconduct or knowing violations of Law by Security Agent. The agreements in this Section 10.4 shall survive the payment of the Equipment Notes and all other amounts payable under the Operative Agreements. 10.5 Non-reliance on Security Agent and other Lenders. Each Lender agrees that it has made and will continue to make, independently and without reliance on Security Agent or any other Lender, and based on such documents and information as it deems appropriate, its own credit analysis of Borrower, its own evaluation of the Collateral and its own decision to enter into the Operative Agreements and to take or refrain from taking any action in connection therewith. Security Agent shall not be required to keep itself informed as to the performance or observance by Borrower of the Operative Agreements or any other document referred to or provided for therein or to inspect the properties or books of Borrower or the Collateral. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by Security Agent under the Operative Agreements, Security Agent shall have no obligation to provide any Lender with any information concerning the business, status or condition of Borrower or any Affiliate thereof, the Operative Agreements or the Collateral that may come into the possession of Security Agent or any of its Affiliates. 10.6 Successor Security Agent. (a) The institution acting as Security Agent or any successor thereto may resign at any time without cause by giving at least thirty (30) days’ prior written notice to Borrower and each Lender, such resignation to be effective upon the acceptance by a successor institution of its appointment as Security Agent. In addition, a Majority in Interest of the Lenders may at any time (but only with the consent of Borrower (unless an Event of Default shall have occurred and be continuing), which consent shall not be unreasonably withheld, delayed or conditioned) remove the institution acting as Security   48 -------------------------------------------------------------------------------- Agent without cause by an instrument in writing delivered to Borrower and Security Agent, and Security Agent shall promptly notify each Lender thereof in writing, such removal to be effective upon the acceptance by a successor institution of its appointment as Security Agent. In the case of the resignation or removal of the institution acting as Security Agent, a Majority in Interest of the Lenders may appoint a successor agent by an instrument signed by such holders, subject to approval by Borrower (unless an Event of Default shall have occurred and be continuing), which approval shall not be unreasonably withheld or delayed, whereupon such successor agent shall succeed to the rights, powers and duties of Security Agent and the term “Security Agent” shall mean such successor agent effective upon such appointment and approval and the former Security Agent’s rights, powers and duties as Security Agent shall be terminated, without any other or further act or deed on the part of such former Security Agent or any of the parties to this Agreement or any holder of the Equipment Notes. If a successor is not appointed within thirty (30) days after such notice of resignation or removal, Security Agent, Borrower or any Lender may apply to any court of competent jurisdiction to appoint a successor to act until such time as agent by an instrument signed by such holders, as a successor is appointed as provided above. The court-appointed successor shall immediately and without further act be superseded by any successor appointed by the Majority in Interest of the Lenders as provided for above. After any retiring Security Agent’s resignation as Security Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Security Agent under this Agreement and the other Operative Agreements. (b) Any successor institution acting as Security Agent, however appointed, shall execute and deliver to Borrower and the predecessor institution acting as Security Agent an instrument accepting such appointment and assuming the obligations of Security Agent arising from and after the time of such appointment, and thereupon, without further act, such successor shall become vested with all the estates, properties, rights, powers, and duties of the predecessor hereunder and under the other Operative Agreements as if originally named Security Agent herein and therein; but nevertheless upon the written request of such successor Security Agent, such predecessor shall execute and deliver an instrument transferring to such successor, all the estates, properties, rights, and powers of such predecessor, and such predecessor shall duly assign, transfer, deliver, and pay over to such successor all money or other property then held by such predecessor hereunder and thereunder. Any successor Security Agent shall be bound by all actions taken or omitted to be taken under the Operative Agreements by each predecessor Security Agent. (c) Any successor institution acting as Security Agent, however appointed, shall be a bank or trust company or a branch of a foreign commercial bank that is subject to regulatory supervision by the Federal Reserve Board (within the meaning of Treasury Regulation 1.1441-1(b)(2)(iv)(A)) and that, in the case of such bank, trust company or branch, has its principal place of business in the United States of America, and that has (or the bank of which such branch is a branch has) (or whose obligations under the Operative Agreements are guaranteed by an affiliated entity that has) a combined capital and surplus of at least $500,000,000, if such an institution is then willing, able, and legally qualified to perform the duties of Security Agent under the Operative Agreements upon reasonable or customary terms.   49 -------------------------------------------------------------------------------- 10.7 Notice of Default. If Security Agent obtains Actual Knowledge of a Default, Security Agent shall notify each Lender. Subject to Sections 5.6 of the Mortgage and Section 10.8 hereof, Security Agent shall take such action, or refrain from taking such action, with respect to an Event of Default or Default (including with respect to the exercise of any rights or remedies hereunder) as Security Agent shall be instructed in writing by a Majority in Interest of the Lenders. Unless it has Actual Knowledge, Security Agent shall not be deemed to have knowledge or notice of a Default or an Event of Default unless notified in writing by Borrower or one or more Lenders. 10.8 Instructions from a Majority in Interest of Lenders. Except as provided in Sections 2.5, 10.2 and 11.1 hereof or in Section 7.1 of the Mortgage, upon the written instructions at any time and from time to time of a Majority in Interest of the Lenders, Security Agent shall take such of the following actions as shall be specified in such instructions: (a) give such notice or direction or take any discretionary action which it is entitled to take or exercise such right, remedy, or power under any of the Operative Agreements as shall be specified in such instructions, (b) approve as satisfactory to Security Agent all matters required by any of the Operative Agreements to be satisfactory to Security Agent, and (c) enter into any amendment, modification or supplement of any of the Operative Agreements or grant consents, waivers or approvals requested by Borrower under any of the Operative Agreements. Adequate opportunity, in the particular circumstances, shall be afforded the Lenders to give or to withhold the instructions referred to in the preceding sentence. 10.9 Reports, Notices, etc. Security Agent will furnish to each Lender, promptly upon receipt thereof, duplicates or copies of all reports, notices, requests, demands, certificates, and other instruments furnished by Borrower to Security Agent under any of the Operative Agreements. 11. MISCELLANEOUS 11.1 Amendments. No provision of this Agreement may be amended, supplemented, waived, modified, discharged, terminated, or otherwise varied orally, but only by an instrument in writing that specifically identifies the provision of this Agreement that it purports to amend, supplement, waive, modify, discharge, terminate, or otherwise vary and is signed by the party against whom the enforcement of the amendment, supplement, waiver, modification, discharge, termination, or variance is sought. The Majority in Interest of the Lenders and Borrower may, or, with the written consent of the Majority in Interest of the Lenders, parties to the Operative Agreements may, from time to time, and Security Agent shall, at the direction of the Majority in Interest of the Lenders, (unless its respective rights or obligations as Security Agent are adversely affected thereby), (a) enter into written amendments, supplements or modifications hereto and to the other Operative Agreements for the purpose of adding any provisions to this Agreement or the other   50 -------------------------------------------------------------------------------- Operative Agreements or changing in any manner the rights of the Lenders, Security Agent or Borrower hereunder or thereunder, or (b) waive, on such terms and conditions as the Majority in Interest of the Lenders may specify in such instrument, any of the requirements of this Agreement or the other Operative Agreements or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) forgive the principal amount or extend the final scheduled date of maturity of any Equipment Note, extend the scheduled date of any payment of principal of any Equipment Note, reduce the stated rate of any interest payable on any Equipment Note or any interest or fee payable hereunder or extend the scheduled date of any payment thereof or, increase the amount or extend the expiration date of the Commitments, in each case without the written consent of each Lender directly affected thereby; (ii) eliminate or reduce the voting rights of any Lender under this Section 11.1 without the written consent of such Lender; (iii)(w) reduce any percentage specified in the definition of Majority in Interest of the Lenders, (x) consent to the assignment or transfer by Borrower of any of its rights and obligations under this Agreement and the other Operative Agreements or (y) reduce, modify or amend any indemnities in favor of Security Agent or the Lenders, in any such case without the consent of each Person affected thereby; (iv) amend, modify or waive any provision of Section 10 without the written consent of Security Agent; or (v) take any action inconsistent with the provisions of this Section 11.1 without the written consent of each Lender affected thereby. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the applicable Lenders and shall be binding upon Borrower, the applicable Lenders, Security Agent and all future holders of the Equipment Notes. In the case of any waiver, Borrower, the Lenders and Security Agent shall be restored to their former position and rights hereunder and under the other Operative Agreements, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Each such amendment, supplement, waiver, modification, discharge, termination, or variance shall be effective only in the specific instance and for the specific purpose for which it is given. No provision of this Agreement shall be varied or contradicted by oral communication, course of dealing or performance, or other manner not set forth in writing and signed by the party against whom enforcement of the same is sought. 11.2 Severability. If any provision of this Agreement is held invalid, illegal, or unenforceable in any respect in any jurisdiction, then, to the extent permitted by Law, (a) the remainder of any affected provision (to the extent not invalid, illegal or unenforceable) and all other provisions hereof shall remain in full force and effect in such jurisdiction, and (b) such invalidity, illegality, or unenforceability shall not affect the validity, legality, or enforceability of such provision in any other jurisdiction. If, however, any Law pursuant to which any provision is held invalid, illegal, or unenforceable may be waived, the parties hereto hereby waive that Law to the full extent permitted, to the end that this Agreement shall be a valid and binding agreement in all respects, enforceable in accordance with its terms. 11.3 Survival. The indemnities and representations and warranties (as of and when made) made in this Agreement, in the other Operative Agreements and in any document, certificate or statement   51 -------------------------------------------------------------------------------- delivered pursuant hereto or in connection herewith shall survive the delivery of the Aircraft, the Transfer of any interest by any Lender in an Equipment Note it holds, and the expiration or other termination of any Operative Agreement, except to the extent otherwise provided therein. 11.4 Reproduction of Documents. This Agreement (including all schedules and exhibits hereto) and all documents relating hereto (other than Equipment Notes), including (a) future consents, waivers, and modifications, and (b) past and future financial statements, certificates, and other information furnished to any party hereto, may be reproduced by any party by any photographic, photostatic, microfilm, micro-card, miniature photographic, or other similar process, and such party may destroy any original documents so reproduced. Any such reproduction shall be as admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original exists and whether or not such party made the reproduction in the regular course of business), and any enlargement, facsimile, or further reproduction of such reproduction also shall be so admissible in evidence. 11.5 Counterparts. This Agreement may be executed in any number of counterparts (or upon separate signature pages bound together into one or more counterparts), each fully-executed set taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with Borrower and Security Agent. 11.6 No Waiver. No failure on the part of any party hereto to exercise, and no delay by any party hereto in exercising, any of its rights, powers, remedies, or privileges under this Agreement or otherwise available to it shall impair, prejudice, or waive any such right, power, remedy, or privilege or be construed as a waiver of any breach hereof or default hereunder or as an acquiescence therein, nor shall any single or partial exercise of any such right, power, remedy, or privilege preclude any other or further exercise thereof by it or the exercise of any other right, power, remedy, or privilege by it. No notice to or demand on any party hereto in any case shall, unless otherwise required under this Agreement, entitle such party to any other or further notice or demand in similar or other circumstances, or waive the rights of any party hereto to any other or further action in any circumstances without notice or demand. To the extent permitted by applicable Law, the rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by Law. 11.7 Notices. Unless otherwise expressly permitted by the terms hereof, all notices, requests, demands, authorizations, directions, consents, waivers, and other communications required or permitted to be made, given, furnished, or filed hereunder shall be in writing (and the specification of a writing in certain instances and not in others does not imply an intention that a writing is not required as to the latter), shall refer specifically to this Agreement, and shall be personally   52 -------------------------------------------------------------------------------- delivered, sent by fax or telecommunications transmission (which in either case provides written confirmation to the sender of its delivery), sent by registered mail or certified mail, return receipt requested, postage prepaid, or sent by next-business-day courier service, in each case to the address or fax number set forth for such party in Schedule 1, or to such other address or number as such party hereafter specifies by notice to the other parties hereto. Each such notice, request, demand, authorization, direction, consent, waiver, or other communication shall be effective when received or, if made, given, furnished, or filed by fax or telecommunication transmission, when confirmed. 11.8 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 11.9 Submission to Jurisdiction; Waivers. Each of the parties hereto hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Operative Agreements to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party, at its address set forth on Schedule 1 or at such other address of which the Security Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by Law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by Law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 11.10 Third-Party Beneficiary. This Agreement is not intended to, and shall not, provide any Person not a party hereto (except the Persons referred to in Section 9 who are intended third-party beneficiaries of Section   53 -------------------------------------------------------------------------------- 9) with any rights of any nature whatsoever against any of the parties hereto, and no Person not a party hereto shall have any right, power, or privilege in respect of any party hereto, or have any benefit or interest, arising out of this Agreement. 11.11 Entire Agreement. This Agreement, together with the other Operative Agreements, on and as of the date hereof, constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and all prior understandings or agreements, whether written or oral, among any of the parties hereto with respect to such subject matter are hereby superseded in their entireties. 11.12 Acknowledgments. Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the Operative Agreements; (b) neither Security Agent nor any Lender has any fiduciary relationship with or duty to Borrower arising out of or in connection with this Agreement or any of the other Operative Agreements, and the relationship between Security Agent and the Lenders, on one hand, and Borrower, on the other hand, in connection herewith or therewith is solely that of creditor and debtor respectively; and (c) no joint venture is created hereby or by the other Operative Agreements or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among Borrower, Security Agent and the Lenders. 11.13 Further Assurances. Each party hereto shall execute, acknowledge, and deliver (or shall cause to be executed, acknowledged, and delivered) all such further agreements, instruments, certificates, or other documents, and shall do and cause to be done such further things, as any other party hereto reasonably requests in connection with the administration of, or to carry out more effectively the purposes of, or to assure and confirm better to such other party the rights and benefits to be provided under, this Agreement and the other Operative Agreements. 11.14 Section 1110. Borrower and the Lenders intend that Security Agent shall be entitled to the benefits of Section 1110 in the event of a case under Chapter 11 of the Bankruptcy Code in which Borrower is a debtor. 11.15 Adjustments; Set-Off. (a) Except to the extent this Agreement expressly provides for payments to be allocated to a particular Lender, if any Lender (a “Benefitted Lender”) shall, at any time after the Equipment Notes and other amounts payable hereunder shall immediately   54 -------------------------------------------------------------------------------- become due and payable pursuant to Article 5 of the Mortgage, receive any payment of all or part of the obligations owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set off, pursuant to events or proceedings of the nature referred to in Article 5 of the Mortgage or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of the Equipment Notes owing to such other Lender, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of the Equipment Notes owing to each such other Lender, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by Law, each Lender shall have the right, without prior notice to Borrower, any such notice being expressly waived by Borrower to the extent permitted by applicable Law, upon any amount becoming due and payable by Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of Borrower. Each Lender agrees promptly to notify Borrower and the Security Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies that such Lender may have. 11.16 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, except that (i) 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 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 Section 7.1. 11.17 Waivers of Jury Trial. THE BORROWER, THE SECURITY AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.   55 -------------------------------------------------------------------------------- 11.18 Registrations with International Registry. Each of the parties hereto consents to the registrations with the International Registry of the International Interest (or Prospective International Interest) constituted by the Mortgage, and each party hereto covenants and agrees that it will take all such action reasonably requested by Borrower or Security Agent in order to make any registrations with the International Registry, including becoming a registry user entity with the International Registry and providing consents to any registration as may be contemplated by the Operative Agreements. If the financing of the Aircraft shall fail to occur utilizing the Commitments hereunder, Security Agent agrees to discharge from the International Registry any Prospective International Interest which may have been registered with the International Registry. [The rest of this page is intentionally left blank]   56 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, each of the parties has executed this Loan Agreement [N330AT].   AIRTRAN AIRWAYS, INC., Borrower By     Name:   Title:   THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, as Lender By     Name:   Title:   THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, as Security Agent By     Name:   Title:     57 -------------------------------------------------------------------------------- ANNEX A DEFINITIONS GENERAL PROVISIONS (a) In the Loan Agreement, unless otherwise expressly provided, a reference to: (1) each of “Borrower”, “Lender”, “Security Agent” and any other Person includes any successor in interest to it and any permitted transferee, permitted purchaser, or permitted assignee of it; (2) any agreement or other document (including any annex, schedule, or exhibit thereto, or any other part thereof) includes that agreement or other document as amended, supplemented, or otherwise modified from time to time in accordance with its terms and in accordance with the Loan Agreement, and any agreement or other document entered into in substitution or replacement therefor; (3) any provision of any Law includes any such provision as amended, modified, supplemented, substituted, reissued, or reenacted before the date of the Loan Agreement, and thereafter from time to time; (4) “Agreement”, “this Agreement”, “hereby”, “herein”, “hereto”, “hereof”, “hereunder”, and words of similar import, when used in the Loan Agreement, refer to the Loan Agreement as a whole and not to any particular provision of the Loan Agreement; (5) “including”, “include”, and terms or phrases of similar import means “including, without limitation”; (6) a reference to a “Section”, an “Exhibit”, an “Annex”, or a “Schedule” in the Loan Agreement, or in any annex thereto, is a reference to a section of, or an exhibit, an annex, or a schedule to, the Loan Agreement or such annex, respectively; and (7) Each exhibit, annex, and schedule to the Loan Agreement is incorporated in, and is a part of, the Loan Agreement. (b) Unless otherwise defined or specified in the Loan Agreement, all accounting terms therein shall be construed and all accounting determinations thereunder shall be made in accordance with GAAP. (c) Headings used in the Loan Agreement are for convenience only, and shall not in any way affect the construction of, or be taken into consideration in interpreting, the Loan Agreement.   A-1 -------------------------------------------------------------------------------- DEFINED TERMS Acceptable Potential Swap Counterparties: (A) JPMorgan Chase, Deutsche Bank, Lloyds Bank, BNP Paribas, Calyon, Bayern Landesbank, CIBC, Royal Bank of Canada, ING, Hypo-Vereinsbank, Dresdner, Bank of America, N.A., Barclays Bank, Citibank, Wachovia, N.A., Halifax Bank of Scotland or HSH Nordbank; provided, that each such bank agrees to a mutual break clause on the tenth (10th) anniversary of the exercise of the Fixed Rate Option, or (B) such other banks as Security Agent (acting at the instruction of the Majority in Interest of the Lenders) and Borrower may mutually agree. It is understood and agreed that if any Lender does not have either (x) sufficient lines of credit for any bank listed in clause (A) above or (y) an existing ISDA agreement in place with any bank listed in clause (A) above and so informs the Borrower and the Security Agent prior to the opening of business on the third (3rd) Business Day prior to the day on which a swap auction is being conducted pursuant to Section 4.5 of the Loan Agreement, such bank will no longer be an “Acceptable Potential Swap Counterparty” and the Security Agent (acting as aforesaid) and Borrower shall cooperate in good faith to select a replacement bank as Security Agent (acting as aforesaid) and Borrower may mutually agree prior to the date of such swap auction. Account: as defined in Section 2.2(d) of the Loan Agreement. Actual Knowledge: as it applies to any Person, actual knowledge of a vice president or more-senior officer of such Person or any other officer of such Person having responsibility for the transactions contemplated by the Operative Agreements; provided, that each of Borrower and Security Agent shall be deemed to have “Actual Knowledge” of any matter as to which it has received notice pursuant to Section 11.7 of the Loan Agreement. Additional Costs: as defined in Section 4.4(a) of the Loan Agreement. Adjusted Fixed Rate Quote: has the meaning set forth in Section 4.5(a) of the Loan Agreement. Affiliate: of any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person. For purposes of this definition, “control” means the power, directly or indirectly, 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 “controlling”, “controlled by”, and “under common control with” have correlative meanings. After-Tax Basis: a basis such that any payment to be received or receivable by any Person is supplemented by a further payment to that Person so that the sum of the two payments, after deducting all Taxes (taking into account any credits or deductions attributable to the event or circumstance giving rise to the requirement that the original payment be made) payable by such Person or any of its Affiliates under any applicable Law or governmental authority, is equal to the payment due to such Person. AGTA-CQT: the Aircraft General Terms Agreement AGTA-CQT, dated as of July 3, 2003, by and between Airframe Manufacturer and Borrower. Aircraft: defined in the recitals of the Loan Agreement.   A-2 -------------------------------------------------------------------------------- Aircraft Bill of Sale: the full warranty bill of sale covering the Aircraft delivered by Seller to Borrower on the Closing Date or pursuant to Section 4.5(c) of the Mortgage. Airframe Manufacturer: The Boeing Company. Assignment: as defined in the Cape Town Convention. Associated Rights: as defined in the Cape Town Convention. Aviation Authority: the FAA or, if the Aircraft is registered with any other Governmental Entity under and in accordance with Section 4.2(e) of the Mortgage, such other Governmental Entity. Bankruptcy Code: the United States Bankruptcy Code, 11 U.S.C. § 101 et seq. Bills of Sale: the FAA Bill of Sale and the Aircraft Bill of Sale. Borrower Person: Borrower, any lessee, assignee, successor, or other user or Person in possession of the Aircraft, the Airframe, or an Engine with or without color of right, or any Affiliate of any of the foregoing (but excluding, in each case, any Tax Indemnitee or any related Tax Indemnitee with respect thereto, or any Person using or claiming any rights with respect to the Aircraft, the Airframe, or an Engine directly by or through any of the Persons in this parenthetical). Borrower’s Advisor: SkyWorks Capital, LLC. Breakage Amount: the LIBOR Breakage Amount or the Swap Breakage Loss, as applicable. Business Day: any day other than a Saturday, Sunday or a day on which commercial banking institutions in New York City, New York, USA, Orlando, Florida, USA or London, England, are authorized or required by law, regulation or executive order to be closed, and if in respect of any payment or prepayment on the Equipment Notes, the determination of the LIBOR Rate or an Interest Period or any notice in respect thereof, a day that is also a day on which dealings in Dollar deposits are carried out in the London interbank market. Cape Town Convention: the official English language texts of the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment which were signed in Cape Town, South Africa. Citizen of the United States: defined in Section 40102(a)(15) of the Transportation Code and in the FARs. Closing: defined in Section 2.4 of the Loan Agreement. Closing Date: defined in Section 2.1 of the Loan Agreement.   A-3 -------------------------------------------------------------------------------- Code: the Internal Revenue Code of 1986 as amended, or any successor thereto. Collateral: as defined in the Granting Clause of the Mortgage. Commitment: the Dollar amount set forth as the aggregate commitment in Schedule 2 to the Loan Agreement and, in respect of each Lender, the Dollar amount of its commitment as set forth opposite its name in Schedule 2 to the Loan Agreement, subject to adjustment as provided therein and as provided in paragraph 11 of any Transfer Agreement. Commitment Fee: *** per annum of the outstanding Commitment as set forth in Schedule 2 to the Loan Agreement. Commitment Termination Date: the earliest of (a) the date on which Borrower takes delivery of the Aircraft, (b) January 31, 2008 or (c) such later date as agreed in writing by Security Agent. Consent and Agreement: the consent and agreement of Airframe Manufacturer to the collateral assignment contemplated by Granting Clause (2) of the Mortgage, substantially in the form attached to the Loan Agreement as Exhibit D. Cutoff Date: as defined in Section 2.2(e)(4) of the Loan Agreement. Debt Rate: for any Equipment Note, (1) unless the Fixed Rate for such Equipment Note shall be applicable, for each Interest Period, the LIBOR Rate for such Interest Period plus Loan Margin or (2) if the Fixed Rate shall be applicable to such Equipment Note, the Fixed Rate. Default: (1) any event or condition that, with the giving of notice or the lapse of time, would become an Event of Default, or (2) any Event of Default. Delivery Date: the date on which the Aircraft is tendered for delivery by Seller to Borrower which shall be a Business Day. Deposit: as defined in Section 2.2(d) of the Loan Agreement. Dollars, United States Dollars, or $: the lawful currency of the United States. Drawdown Notice: a notice substantially in the form set out in Exhibit B to the Loan Agreement. Eligible Aircraft: any Boeing model 737-7BD aircraft financed pursuant to the Loan Agreement or a Related Loan Agreement. Engine: as defined in Annex A of the Mortgage.   -------------------------------------------------------------------------------- *** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 1 of 8 pages containing information redacted pursuant to a request for confidential treatment.   A-4 -------------------------------------------------------------------------------- Engine Consent and Agreement: the consent and agreement of Engine Manufacturer to the collateral assignment contemplated by Granting Clause (2) of the Mortgage, substantially in the form attached to the Loan Agreement as Exhibit E. Engine Manufacturer: CFM International, Inc. Entry Point Filing Forms: each of the FAA form AC 8050-135 forms to be filed with the FAA as contemplated by Section 5.1(h) of the Loan Agreement. Equipment Note: any equipment note issued under the Mortgage in the form specified in Section 2.1 and Exhibit B thereof (as such form may be varied pursuant to the terms of the Mortgage), or any Equipment Note issued under the Mortgage in exchange for or replacement of any such Equipment Note. ERISA: the Employee Retirement Income Security Act of 1974, as amended. Event of Default: as defined in Section 5.1 of the Mortgage. Event of Loss: as defined in Annex A of the Mortgage. Expenses: any and all liabilities, obligations, losses, damages, settlements, penalties, claims, actions, suits, proceedings of whatsoever kind and nature (whether or not on the basis of negligence, strict or absolute liability or liability in tort) that may be imposed on, incurred by, suffered by or asserted against an Indemnitee, and shall include all out-of-pocket costs, expenses and disbursements (including reasonable fees and disbursements of legal counsel, accountants, appraisers, inspectors, or other professionals, and costs of investigation) of an Indemnitee in connection therewith or related hereto. FAA: the Federal Aviation Administration of the United States or any Governmental Entity succeeding to the functions of such Federal Aviation Administration. FAA Bill of Sale: a bill of sale for the Aircraft on AC Form 8050-2 (or such other form as may be approved by the FAA) delivered to Borrower on the Closing Date by Seller or pursuant to Section 4.5(c)(1)(bb) of the Mortgage. FAA Counsel: Lytle, Soule & Curlee. FAA-Filed Documents: the Mortgage, the Entry Point Filing Forms, FAA Bill of Sale, and an application for registration of the Aircraft with the FAA in Borrower’s name. Fee Letter: the letter agreement, dated as of August 31, 2006, by and between Borrower and Security Agent, in respect of the payment by Borrower to Security Agent of certain fees described therein. Financing Statements: the UCC-1 financing statements covering the Collateral, by Borrower, as debtor, showing Security Agent as secured party, for filing in Delaware and each other jurisdiction where filing is necessary to perfect its Lien on the Collateral.   A-5 -------------------------------------------------------------------------------- Fixed Rate: the fixed rate at which interest will accrue, following Borrower’s exercise of the Fixed Rate Option pursuant to Section 4.5 of the Loan Agreement. Fixed Rate Option: described in Section 4.5 of the Loan Agreement. GAAP: generally accepted accounting principles as set forth in the statements of financial accounting standards issued by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants, as varied by any applicable financial accounting rules or regulations issued by the SEC or the Public Company Accounting Oversight Board, and applied on a basis consistent with prior periods except as may be disclosed in the pertinent Person’s financial statements. GEES Acknowledgment and Agreement: the acknowledgment and agreement of GE Engine Services, Inc. to the collateral assignment contemplated by Granting Clause (2) of the Mortgage and the agreement of Borrower as to certain matters addressed therein, substantially in the form attached to the Loan Agreement as Exhibit F. Governmental Entity: (1) any national government, political subdivision thereof, or local jurisdiction therein; (2) any instrumentality, board, commission, court, or agency of any thereof, however constituted; and (3) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject. GTA: General Terms Agreement No. CFM-03-0017, dated June 30, 2003, by and between Engine Manufacturer and Borrower including all exhibits thereto. Holdings: AirTran Holdings, Inc., a Nevada corporation. Holdings Guarantee: the Guarantee [N330AT], dated as of August 31, 2006, issued by Holdings. Indemnified Withholding Taxes: defined in Section 9.3 of the Loan Agreement. Indemnitee: (1) Security Agent, (2) the Lenders, (3) each Affiliate of the Persons described in clauses (1) and (2) above, (4) the directors, officers, employees, and agents of each of the Persons described in clauses (1) through (3) above and (5) the successors and permitted assigns of the persons described in clauses (1) through (3). Interest Period: (a) initially, the period commencing on the Closing Date and ending on (but excluding) the first Payment Date and (b) thereafter, each successive period commencing on the final day of the preceding Interest Period and ending on (but excluding) the next succeeding Payment Date. International Interest: as defined in the Cape Town Convention. International Registry: as defined in the Cape Town Convention. IRS: the Internal Revenue Service of the United States, or any Governmental Entity succeeding to the functions of such Internal Revenue Service.   A-6 -------------------------------------------------------------------------------- Junior Loan: defined in Section 7.3 of the Loan Agreement. Law: (1) any constitution, treaty, statute, law, decree, regulation, order, rule, or directive of any Governmental Entity, and (2) any judicial or administrative interpretation or application of, or decision under, any of the foregoing. Lender: (1) initially each Person identified in Schedule 2 of the Loan Agreement as a Lender making a secured loan in respect of the Aircraft, and (2) thereafter any Person registered as a holder of one or more Equipment Notes. LIBOR Breakage Amount: as of the date of determination thereof the amount, if any, required to compensate any Lender in respect of the net amount of any actual out-of-pocket loss, cost or expense incurred by such Lender in connection with the unwinding or liquidating of any deposits or funding or financing arrangement with its funding sources as the result of (a) failure by Borrower in making a borrowing of loans after Borrower has given a notice requesting the same in accordance with the provisions of this Agreement other than as a result of a breach by an Lender to make its Commitment available pursuant to Section 2(a) of the Loan Agreement, (b) failure by Borrower in making any prepayment or redemption of Equipment Notes after Borrower has given a notice thereof in accordance with the provisions of the Operative Agreements, or (c) the making of a prepayment or redemption of Equipment Notes on a day that is not the last day of an Interest Period with respect thereto. Such amount includes without limitation, any and all penalties or charges for prepayment or liquidation or other arrangement or redeployment of funds. LIBOR Rate: with respect to any Interest Period, (a) the rate per annum (calculated on the basis of a 360-day year and actual days elapsed) equal to the rate per annum at which Dollar deposits are offered in the London interbank market for a three-month period as such rate (rounded upwards, if necessary, to the nearest 1/10000 of 1%) as displayed on Telerate Page 3750 (or such other page as may replace Telerate Page 3750) at approximately 11:00 a.m., London time, or if such service is not available or no longer displays any such quote, Page LIBO of the Reuters Money Service Monitor System (or such other page as may replace Reuters Page LIBO) at approximately 11:00 a.m., London time on the day that is two Business Days prior to the first day of such Interest Period for a period comparable to such Interest Period, or (b) if no such rate is published on either such service or if neither of such services is then available, the interest rate per annum equal to the average (rounded up, if necessary, to the nearest 1/10000 of 1%) of the rates at which deposits in Dollars are offered by the Reference Banks (or, if fewer than all of the Reference Banks are quoting a rate for deposits in Dollars for the applicable period and amount, such fewer number of Reference Banks) at approximately 11:00 a.m. (London time) on the day that is two Business Days prior to the first day of such Interest Period to prime banks in the London interbank market for a period comparable to such Interest Period and in an amount approximately equal to the aggregate principal amount of the Equipment Notes scheduled to be outstanding during such Interest Period or (c) if none of the Reference Banks is quoting a rate for deposits in Dollars in the London interbank market for such a period and amount, the interest rate per annum equal to the average (rounded up, if necessary, to the nearest 1/10000 of 1%) of the rates at which deposits in Dollars are offered by the principal London offices of the Reference Banks (or, if fewer than all of the Reference Banks are quoting a rate for deposits in Dollars in the London interbank market for the applicable period and amount, such   A-7 -------------------------------------------------------------------------------- fewer number of Reference Banks) at approximately 11:00 a.m. (London time) on the day that is two Business Days prior to the first day of such Interest Period or other period, as applicable, to prime banks in the London interbank market for a period comparable to such Interest Period and in an amount approximately equal to the aggregate principal amount of the Equipment Notes scheduled to be outstanding during such Interest Period. In the event that, prior to the first day of any Interest Period, Security Agent shall have determined, acting reasonably and in good faith, that, by reason of circumstances affecting the market generally, adequate and reasonable means do not exist for ascertaining the LIBOR Rate for such Interest Period, Security Agent shall give telecopy or telephonic notice thereof to Borrower and the Lenders as soon as practicable thereafter. In such case, Borrower and Security Agent, in consultation with the Lenders, shall negotiate a mutually satisfactory interest rate to be substituted for the LIBOR Rate until such time as such adequate and reasonable means for ascertaining the LIBOR Rate shall exist. If a substituted interest rate is agreed upon, it shall be effective from the first day of the applicable Interest Period. If Borrower and Security Agent fail to agree upon a substituted interest rate by the first day of the applicable Interest Period, the applicable interest rate for each Equipment Note shall be equal to the sum of (x) the rate determined reasonably and in good faith by Security Agent, in consultation with the Lenders, to be the Lenders’ cost to maintain the Equipment Notes plus (y) the Loan Margin. Lien: any mortgage, pledge, lien, charge, claim, encumbrance, lease, or security interest affecting the title to or any interest in property, including any interest registered on the International Registry. Loan Agreement: the Loan Agreement [N320AT], dated as of August 31, 2006, among Borrower, the Lenders and Security Agent. Loan Margin: *** per annum. Majority in Interest of the Lenders: the holders of more than 50% of (a) until the Closing Date, the unused Commitment(s) then in effect and (b) thereafter, the aggregate unpaid principal amount of the Equipment Notes then outstanding. Material Adverse Change: with respect to any Person, any event, condition, or circumstance that materially adversely affects such Person’s business or consolidated financial condition, or its ability to observe or perform its obligations, liabilities, and agreements under the Operative Agreements. Maturity Date: the Payment Date falling on the twelfth (12th) annual anniversary of the Scheduled Delivery Date. Mortgage: the Mortgage [N330AT], dated the Closing Date, between Borrower and Security Agent in the form attached to the Loan Agreement as Exhibit A.   -------------------------------------------------------------------------------- *** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 2 of 8 pages containing information redacted pursuant to a request for confidential treatment.   A-8 -------------------------------------------------------------------------------- Non-U.S. Person: any Person, other than a United States person as defined in Code Section 7701(a)(30). No Winglet Notice: as defined in Section 2.6 of the Loan Agreement. Obligations: as defined in the Mortgage. Officer’s Certificate: of any party to the Operative Agreements, a certificate signed by the Chairman, the President, any Vice President (including those with varying ranks such as Executive, Senior, Assistant, or Staff Vice President), the Treasurer, or the Secretary of such party. Operative Agreements: the Loan Agreement, the Mortgage (or any supplement thereto), the Equipment Notes, the Consent and Agreement, the Engine Consent and Agreement, the GEES Acknowledgment and Agreement, the Holdings Guarantee and the Fee Letter. Original Amount: the stated original principal amount of an Equipment Note and, with respect to all Equipment Notes, the aggregate stated original principal amounts of all such Equipment Notes. Parts: as defined in Annex A of the Mortgage. Past-Due Rate: the lesser of the Debt Rate plus *** per annum and the maximum rate permitted under applicable Law. Payment Date: the day of the month in which the Scheduled Delivery Date for the Aircraft occurred and the corresponding calendar day of the month that occurs each three (3) months thereafter, including the Maturity Date, the first of which shall fall in the third month next following the Scheduled Delivery Date for the Aircraft; provided that if there is no day in any month corresponding to the Scheduled Delivery Date, then the Payment Date in such month shall be the last Business Day of such month. PDP Credit Agreements: (A) the Credit Agreement, dated as of August 31, 2005, among Borrower, the lenders identified in Schedule 1 thereto, and RBS, as security agent, and (2) the Credit Agreement, dated as of August 1, 2006, among Borrower, the lenders identified in Schedule 1 thereto, and RBS, as security agent. PDP Note: a note issued in connection with either of the PDP Credit Agreements. PDP Security Agreements: (A) the Security Agreement, dated as of August 31, 2005, by and between Borrower and RBS, as security agent, and (B) the Security Agreement, dated as of August 1, 2006, by and between Borrower and RBS, as security agent. Permitted Country: any country listed on Schedule 3 to the Loan Agreement.   -------------------------------------------------------------------------------- *** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 3 of 8 pages containing information redacted pursuant to a request for confidential treatment.   A-9 -------------------------------------------------------------------------------- Permitted Lease: a lease or sublease permitted under Section 4.2(b) of the Mortgage. Permitted Lessee: the lessee or sublessee (as the case may be) under a Permitted Lease. Permitted Lien: (a) the rights of Security Agent under the Operative Agreements, or of any Permitted Lessee under any Permitted Lease; (b) Liens which the Security Agent or the Lender, as the case may be, is expressly required to remove under the terms of the Operative Agreements; (c) the rights of others under agreements or arrangements to the extent expressly permitted by Section 4.2(b) or Section 4.4 of the Mortgage; (d) Liens of Taxes either not yet due or being contested in good faith by appropriate procedures if such Liens and such procedures (i) do not involve any material risk of the sale, forfeiture, or loss of the Aircraft, the Airframe or any Engine, or the interest of Security Agent or any Lender therein, or (ii) do not involve any risk of criminal liability or material risk of civil liability being imposed on Security Agent or other Indemnitee, or (iii) impair the Lien of the Mortgage and for which adequate reserves have been established under GAAP; (e) materialmen’s, mechanics’, workers’, repairers’, employees’, or other like Liens arising in the ordinary course of business for amounts the payment of which either is not yet delinquent for more than sixty (60) days or is being contested in good faith by appropriate proceedings, if such Liens and such proceedings do not involve any material risk of the sale, forfeiture, or loss of the Aircraft, the Airframe or any Engine or any other Collateral, or the interest of Security Agent or any Lender therein, or impair the first and prior Lien of the Mortgage; (f) Liens arising out of any judgment or award against Borrower (or any Permitted Lessee), if, within sixty (60) days after the entry thereof, that judgment or award is discharged or vacated, or has its execution stayed pending appeal, or is discharged, vacated, or reversed, and if during any such 60-day period there is not, or any such judgment or award does not involve, any material risk of the sale, forfeiture, or loss of the Aircraft, the Airframe or any Engine or any other Collateral, or the interest of Security Agent or any Lender therein, or impair the first and prior Lien of the Mortgage; (g) any other Lien with respect to which Borrower (or any Permitted Lessee) shall have provided a bond, cash collateral, or other security adequate in the reasonable opinion of Security Agent; (h) any Lien arising in respect of a Junior Loan, to the extent permitted by Section 7.3 of the Loan Agreement; or (i) Liens that are ownership interests registered with the International Registry in the Airframe and any Engine constituted by the Bills of Sale (or other evidence of Borrower’s ownership) thereof or ownership interests registered with the International Registry in any airframes on which any Engine may be installed (as permitted by Section 4.2 of the Mortgage) constituted by bills of sale (or other evidence of ownership) thereof. Person or person: an individual, firm, partnership, joint venture, trust, trustee, Governmental Entity, organization, association, corporation, limited liability company, government agency, committee, department, authority, and other body, corporate or not, whether having distinct legal status or not, or any member of any of the same. Plan: any employee benefit plan within the meaning of ERISA § 3(3), which is subject to Title I of ERISA, or any plan subject to Code § 4975(e)(1). Postponement Notice: as defined in Section 2.2(e)(1) of the Loan Agreement.   A-10 -------------------------------------------------------------------------------- Potential Competitor: a U.S. Air Carrier or an Affiliate thereof or a shareholder of a U.S. Air Carrier holding or having the right to acquire (without regard to the happening of a contingency) capital stock in such U.S. Air Carrier in excess of 25%. Prospective Assignment: as defined in the Cape Town Convention. Prospective International Interest: as defined in the Cape Town Convention. Prospective Sale: as defined in the Cape Town Convention. Purchase Agreement: Purchase Agreement No. 2444, dated July 3, 2003, between Airframe Manufacturer and Borrower (which includes by reference AGTA-CQT), including all exhibits thereto, together with all letter agreements related thereto. Reference Banks: means the principal London offices of Security Agent, JPMorgan Chase Bank, Citibank, N.A., and such other or additional banking institutions as may be designated from time to time by mutual agreement of Borrower and Security Agent. Related Aircraft: any Boeing model 737-7BD aircraft that is the subject of any Related Mortgage. Related Loan Agreement: (A) the Loan Agreement, dated as of August 31, 2005, among Borrower, the lenders identified therein in Schedule 1 thereto and RBS, as security agent for the lenders thereto in respect of the acquisition financing of twelve (12) Boeing model 737-7BD aircraft bearing manufacturer’s serial numbers 33924, 33925, 33926, 34861, 33923, 34862, 33929, 35109, 33930, 35110, 33927 and 33928, respectively; (B) the Loan Agreement [N320AT], dated as of August 31, 2006, among Borrower, the lenders identified therein in Schedule 1 thereto and RBS, as security agent for the lenders thereto, in respect of the acquisition financing of one (1) Boeing model 737-7BD aircraft bearing manufacturer’s serial number 33932; (C) the Loan Agreement [N336AT], dated as of August 31, 2006, among Borrower, the lenders identified therein in Schedule 1 thereto and RBS, as security agent for the lenders thereto, in respect of the acquisition financing of one (1) Boeing model 737-7BD aircraft bearing manufacturer’s serial number 33936; (D) the Loan Agreement [N337AT], dated as of August 31, 2006, among Borrower, the lenders identified therein in Schedule 1 thereto and RBS, as security agent for the lenders thereto, in respect of the acquisition financing of one (1) Boeing model 737-7BD aircraft bearing manufacturer’s serial number 33937; and/or (E) the Loan Agreement [N344AT], dated as of August 31, 2006, among Borrower, the lenders identified therein in Schedule 1 thereto and RBS, as security agent for the lenders thereto, in respect of the acquisition financing of one (1) Boeing model 737-7BD aircraft bearing manufacturer’s serial number 33939. Related Mortgage: as defined in Annex A of the Mortgage. Related Notes: as defined in Annex A of the Mortgage. Related Obligation: as defined in the Mortgage. Sale: as defined in the Cape Town Convention.   A-11 -------------------------------------------------------------------------------- Sale-Leaseback Transaction: as defined in Section 7.4 of the Loan Agreement. Scheduled Delivery Date: as defined in Section 2.2(a) of the Loan Agreement. Scheduled Delivery Month: July 2007. SEC: the Securities and Exchange Commission of the United States, or any Governmental Entity succeeding to the functions of such Securities and Exchange Commission. Secured Obligations: as defined in the Mortgage. Section 1110: 11 U.S.C. Section 1110 of the Bankruptcy Code, or any successor or analogous section of the federal bankruptcy law in effect from time to time. Securities Act: the Securities Act of 1933. Security: a “security” as defined in Section 2(l) of the Securities Act. Seller: Airframe Manufacturer. Similar Aircraft: a Boeing model 737-700 aircraft. Standard & Poor’s: means Standard & Poor’s Rating Services or any successor organization thereto. Swap Break Amount: as of any date (the “Swap Termination Date”) and for any Lender: (1) in the case of any amount required to be paid to the Swap Counterparty, the amount the Swap Counterparty will in good faith require in accordance with market practice on the basis of Market Quotation (as defined in the 1992 ISDA Master Agreement referred to in the definition of Swap Transaction) to have paid to it on such date by such Lender (such amount to be expressed as a positive number), or (2) in the case of any amount to be paid by the Swap Counterparty, the amount the Swap Counterparty pays in accordance with market practice on the basis of Market Quotation (as so defined) to such Lender on such date (such amount to be expressed as a negative number), in either case, to terminate the applicable Swap Transaction on such date with respect to, and to the extent of, the then outstanding principal amount of all of the relevant Equipment Notes. Swap Breakage Gain: means, as to any Lender: the absolute value of the Swap Break Amount for such Lender if the Swap Break Amount is a negative number. Swap Breakage Loss: means as to any Lender: the value of the Swap Break Amount for such Lender if the Swap Break Amount is a positive number. Swap Counterparty: means, in the case of any Swap Transaction, the floating rate payor swap counterparty under such Swap Transaction. Swap Transaction: means, for any Lender, the interest rate swap or other interest rate hedging transaction entered into by such Lender on customary terms and governed by a Master   A-12 -------------------------------------------------------------------------------- Agreement (Local Currency Single Jurisdiction or Multi Currency Cross Border) published by the International Swap and Derivatives Association pursuant to which such Lender agrees to pay to the Swap Counterparty on each Payment Date to and including the applicable Maturity Date an amount equal to the amount of accrued interest calculated at the applicable Fixed Rate (on the basis of a 360-day year comprised of twelve 30-day months), on a notional amount equal to the principal amount of such Lender’s Equipment Notes scheduled to be outstanding during the Interest Period ending on such Payment Date and the Swap Counterparty agrees to pay to such Lender an amount equal to the amount of interest calculated at the LIBOR Rate for such Interest Period plus the Loan Margin (on the basis of a year of 360 days and actual number of days elapsed) that will accrue on such notional amount during such Interest Period, as such transaction may be modified, supplemented or replaced (without modification of the economic terms thereof). The Swap Transaction may be effected by any Lender on an internal basis, in which case such Lender shall be deemed to be the Swap Counterparty for its Swap Transaction; in such event, such Lender agrees to quote Swap Break Amount as provided in the definition thereof as Swap Counterparty thereunder in respect of the Swap Transaction relating to its obligations under the Equipment Notes. Tax Benefits: (a) any benefits with respect to Taxes which are actually and currently realized by any Tax Indemnitee, which are attributable solely to the incurrence or payment by such Tax Indemnitee of any indemnified Losses or Taxes or an event giving rise to such Losses or Taxes; provided, that for the purpose of calculating such Tax Benefit, such Tax Indemnitee shall be deemed to utilize all other items of income, gain, loss, deduction or credit, including those that arise outside the scope of this Agreement, before utilizing any item arising from the incurrence or payment of any indemnified Loss or Tax. A Tax Indemnitee shall be deemed to have actually and currently realized and utilized a Tax Benefit to the extent that, and at such time as, the amount of Taxes payable by the Tax Indemnitee is actually reduced below the amount of Taxes such Tax Indemnitee would be required to pay but for the incurrence or payment of such Loss or Taxes, computed in accordance with the ordering rules set forth above. Notwithstanding anything to the contrary in this clause (a), in calculating any Tax Benefit, a Tax Indemnitee, to the extent not prohibited by applicable law or by contract, shall determine when Tax Benefits are utilized in a manner which is non-discriminatory with respect to all other Similar Loans, it being understood that if, after taking into account all tax items of such Tax Indemnitee other than from this Loan and Similar Loans, such Tax Indemnitee has the capacity to use some or all of the Tax Benefits and some or all of the tax benefits generated by Similar Loans, it cannot rely upon a provision in such Similar Loan that requires the tax benefits from such Similar Loans to be applied last to avoid applying the tax benefits under those Similar Loans and, based on this non-discriminatory provision, also the Tax Benefits from this Loan in calculating the indemnities due under the respective loan. For purposes of this provision, “Similar Loans” means loans (i) in which the Tax Indemnitee or any affiliate thereof is a participant and with respect to which such Tax Indemnitee or affiliate is entitled to indemnification with respect to Taxes, and (ii) in which the Borrower is a U.S. Borrower with a similar or lesser credit as the Borrower. (b) The determination of whether the Tax Indemnitee has realized a Tax Benefit and the calculation of the amount of such Tax Benefit shall be made by the Tax Indemnitee in the ordinary course of administering its Tax affairs. Notwithstanding anything to the contrary herein,   A-13 -------------------------------------------------------------------------------- if the Borrower provides a Tax Indemnitee with a written notice setting forth facts and circumstances which create a reasonable possibility that a Tax Benefit has been realized with respect to an Indemnified Tax, such Tax Indemnitee shall agree to make a determination as to whether it has realized such a Tax Benefit. If a Tax Indemnitee determines that it has realized such a Tax Benefit, it shall pay such Tax Benefit to Borrower in accordance with the terms of Section 9.3(d)(5). Tax Documents: any report, returns, certification, statement or other document related to a Tax. Tax Indemnitee: (1) Security Agent, (2) each Lender, and (3) the successors, assigns, officers, directors and agents of the foregoing. Taxes: all taxes, levies, imposts, duties, charges, assessments, or withholdings of any nature whatsoever imposed by any Taxing Authority, and any penalties, additions to tax, fines, or interest thereon or additions thereto. Taxing Authority: any federal, state, or local government or other taxing authority in the United States, any foreign government or any political subdivision or taxing authority thereof, any international taxing authority, or any territory or possession of the United States or any taxing authority thereof. Termination Date: as defined in Section 2.5 of the Loan Agreement. Transaction Expenses: the reasonable out-of-pocket costs and expenses incurred by Security Agent and the Lenders in connection with (1) the preparation, execution, and delivery of the Operative Agreements and the recording or filing of any documents, certificates, or instruments in accordance with any Operative Agreement, including the FAA-Filed Documents and the Financing Statements and (2) the reasonable fees and disbursements of counsel for Security Agent, counsel for the Lenders, and FAA Counsel, in each case, in connection with the Closing. Transactions: the transactions contemplated by the Operative Agreements. Transfer: the transfer, sale, assignment, or other conveyance by a Lender, but not including the granting of participations by a Lender as contemplated by Section 7.1 of the Loan Agreement. Transfer Agreement: an assignment and assumption agreement substantially in the form set out in Exhibit C to the Loan Agreement. Transferee: any commercial bank or financial institution, credit or leasing company, special purpose or other entity to whom any Lender purports or intends to Transfer any or all of its Commitment or right, title, or interest in an Equipment Note it holds, pursuant to Section 7.1 of the Loan Agreement; provided, that in the event a Transferee of the Commitment is not a commercial bank or financial institution, Borrower’s written consent shall be required (which consent shall not be unreasonably withheld or delayed); and provided, further, that in any case no Transferee may be a Potential Competitor.   A-14 -------------------------------------------------------------------------------- Transportation Code: subtitle VII of title 49, United States Code. UCC: the Uniform Commercial Code as in effect in the State of New York from time to time. United States or U.S.: the United States of America; provided, that for geographic purposes, “United States” means the 50 states and the District of Columbia of the United States of America. U.S. Air Carrier: any United States air carrier who is a Citizen of the United States holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to chapter 447 of the Transportation Code for aircraft capable of carrying ten (10) or more individuals or 6000 pounds or more of cargo, and as to whom there is in force an air carrier operating certificate issued pursuant to FAR Part 121, or who may operate as an air carrier by certification or otherwise under any successor or substitute provisions therefor or in the absence thereof. U.S. Government: the federal government of the United States, or any instrumentality or agency thereof the obligations of which are guaranteed by the full faith and credit of the federal government of the United States. U.S. Person: any Person that is a “United States person” as defined in Code Section 7701(a)(30).   A-15 -------------------------------------------------------------------------------- EXHIBIT A FORM OF MORTGAGE [ATTACHED HERETO]   ExhA-1 -------------------------------------------------------------------------------- EXHIBIT B FORM OF: DRAWDOWN NOTICE Drawdown Notice dated                     ,      200     (this “Notice”) by AirTran Airways, Inc. (“Borrower”). Reference is made to the Loan Agreement, dated as of August 31, 2006 (as executed and delivered and as in effect from time to time, the “Loan Agreement”), among Borrower, the Lenders party thereto (collectively, the “Lenders”) and The Royal Bank of Scotland plc New York Branch, as Security Agent for the Lenders (the “Security Agent”). Unless specified herein, capitalized terms used herein have the same meanings attributed thereto in the Loan Agreement (or the Mortgage referred to therein). The undersigned hereby gives notice pursuant to Section 2.2(b) of the Loan Agreement of its request to borrow from each Lender its pro rata share of $             (for each Lender, its “Participation Amount”), such amount being the amount of the aggregate principal amount of the secured loans expected to be made by the Lenders under the Loan Agreement on the Scheduled Delivery Date (as defined below). Borrower hereby notifies Security Agent that (a) the scheduled Delivery Date is                     ,      200     (the “Scheduled Delivery Date”), (b) the Participation Amount for each Lender is as specified above, and (c) the manufacturer’s serial number of the Aircraft is 33935. [Borrower hereby exercises the Fixed Rate Option (as defined in Section 4.5 of the Loan Agreement)]. [Borrower [does/does not] deliver a No-Winglet Notice (as described in Section 2.6 of the Loan Agreement in respect of the subject Aircraft).] IN WITNESS WHEREOF, Borrower has caused this Notice to be duly executed by its officer thereunto duly authorized on the day and year first above written.   AIRTRAN AIRWAYS, INC. By:     Name:   Title:     ExhB-1 -------------------------------------------------------------------------------- EXHIBIT C FORM OF TRANSFER AGREEMENT ASSIGNMENT AND ASSUMPTION Reference is made to the Loan Agreement, dated as of August 31, 2006 (as amended, supplemented or otherwise modified from time to time, the “Loan Agreement”), among AIRTRAN AIRWAYS, INC. (the “Borrower”), the parties identified in Schedule I thereto as the Lenders and THE ROYAL BANK OF SCOTLAND PLC, NEW YORK BRANCH, as security agent for the Lenders (in such capacity, the “Security Agent”). Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the Loan Agreement. The transferring Lender identified on Schedule l hereto (the “Assignor”) and the Transferee identified on Schedule l hereto (the “Assignee”) agree as follows: 1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Time (as defined below), the interest described in Schedule 1 hereto (the “Assigned Interest”) in and to the Assignor’s rights and obligations under the Loan Agreement. 2. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement, any other Operative Agreement or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, any of its Affiliates or the performance or observance by the Borrower of its obligations under the Loan Agreement and the other Operative Agreements or any other instrument or document furnished pursuant hereto or thereto. 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Assumption and that, as of the Effective Time and for the benefit of the Lenders, Security Agent and Borrower, the Loan Agreement constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency and other similar laws affecting creditors rights generally or general principles of equity; (b) confirms that it has received a copy of the Loan Agreement, together with copies of the financial statements delivered pursuant to Sections 3.1(b)(11) and 6.1(e) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption; (c) agrees that it will, independently and without reliance upon the Assignor,   ExhC-1 -------------------------------------------------------------------------------- the Security Agent or any 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 the Loan Agreement, the other Operative Agreements or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Security Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Agreement, the other Operative Agreements or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Security Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees, for the benefit of the Lenders, Security Agent and Borrower, that it will (1) be bound by the provisions of the Loan Agreement applicable to it, (2) perform in accordance with its terms all the obligations which by the terms of the Loan Agreement are required to be performed by it as a Lender with respect to the Assigned Interest and the period from and after the Effective Time [including, without limitation, the obligation to make secured loans to the Borrower under Section 2.1 of the Loan Agreement]1 and (3) be bound by any and all consents, approvals, elections or other actions given, made or taken by Assignor prior to the Effective Time. [Without limiting the foregoing, if the Assignee is a Non-U.S. Person (as defined in the Loan Agreement) it will furnish to the Security Agent the forms and/or documentation required by Section 2.3(c) of the Mortgage.] [4. Assignee hereby represents and warrants to the Assignor that either no portion of the funds used by it to purchase the Equipment Note(s) Nos.              sold and assigned hereunder constitutes “plan assets” (within the meaning of the Department of Labor codified at 29 C.F.R. Section 2510.3-101) of any Plan or its purchase of such Equipment Note does not constitute a non-exempt prohibited transaction under Section 4975(c)(1)(A)-(D) of the Code or Section 406(a) of ERISA. 5. Assignor hereby represents and warrants to Borrower and Assignee that the sale and assignment of the Equipment Note(s) Nos.              by Assignor to Assignee hereunder does not violate the registration requirements of the Securities Act of 1933 or the registration requirements of any applicable state or foreign securities laws;]2 6. The Assignee hereby represents and warrants to Borrower and to Assignor that it is not a U.S. Air Carrier or an Affiliate or a shareholder of a U.S. Air Carrier holding or having the right to acquire (without regard to the happening of a contingency) capital stock in such U.S. Air Carrier in excess of 25%. 7. The effective date and time of this Assignment and Assumption shall be the Effective Date and Time of Assignment described in Schedule 1 hereto (the “Effective Time”). Following the execution of this Assignment and Assumption, it will be delivered to the Security Agent for acceptance by it and recording in the Equipment Note Register (as defined in the applicable Mortgage(s)) by the Security Agent pursuant to the Loan Agreement, effective as of the Effective Time. 8. Upon such acceptance and recording, from and after the Effective Time, the Security Agent shall make all payments in respect of the Assigned Interest (including payments of   -------------------------------------------------------------------------------- 1 To be included if the unsecured Commitment of the transferring Lender is assigned. 2 To be included if Equipment Note(s) are part of the Assigned Interest.   ExhC-2 -------------------------------------------------------------------------------- principal, interest, fees and other amounts) to the Assignor for amounts which have accrued with respect to the period prior to the Effective Time and to the Assignee for amounts which have accrued subsequent thereto. 9. From and after the Effective Time, (a) the Assignee shall be a party to the Loan Agreement and, with respect to the Assigned Interest and period prior to the Effective Time, have the rights and obligations of a Lender thereunder and shall be bound by the applicable provisions thereof, (b) the Assignor shall, with respect to the Assigned Interest and the period prior to the Effective Time, relinquish its rights and be released from its obligations under the Loan Agreement and (c) the Assignor shall release the Lenders, Security Agent and Borrower from their respective duties, liabilities and obligations owing to the Assignor under the Loan Agreement and other Operative Agreements with respect to the Assigned Interest for the period on or after the Effective Time; provided, that such release does not extinguish any such duties, liabilities and obligations with respect to the period prior to the Effective Time, all of which shall survive such release and be performed directly to and for the benefit of Assignor. 10. The Assignor and the Assignee hereby represent and warrant for the benefit of the Lenders, Borrower and Security Agent that the assignment and assumption of the Assigned Interest contemplated by this Agreement complies with all of the requirements of Section 7.1 of the Loan Agreement applicable to it. 11. As between Assignor and Assignee, it is agreed that if RBS is of the opinion that the applicable closing conditions set forth in Section 3.1 of the Loan Agreement have been satisfied on an Closing Date, and if RBS, as Assignor, has transferred its Commitment with respect to the Aircraft in this Assignment and Assumption without the prior written consent of Borrower, and the Assignee is of the opinion, as expressed to RBS, as Assignor, that such applicable closing conditions have not been satisfied, then RBS, as Assignor, shall have the right, but not the obligation, by notice to the Borrower and Assignee, to make an additional secured loan in the amount of the secured loan that such Assignee would be obligated to make on such Closing Date if such conditions precedent were satisfied. In the event the preceding sentence is applicable, the Commitments of RBS shall be increased by an amount of such secured loan and the Commitment of such Assignee shall be reduced by an equivalent amount, effective on the date of such notice from RBS, as Assignor. In the event RBS makes such additional secured loan as aforesaid, the Assignee shall be liable to RBS, as Assignor, but not to the Borrower, for any damages attributable to its failure to make the secured loan in question which was made, instead, by RBS. 12. This Assignment and Assumption shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption to be executed as of the date first above written by their respective duly authorized officers.   ExhC-3 -------------------------------------------------------------------------------- Schedule 1 to Assignment and Assumption with respect to the Loan Agreement, dated as of August 31, 2006, among AirTran Airways, Inc. (the “Borrower”), the parties identified in Schedule I thereto as the Lenders and The Royal Bank of Scotland plc, New York Branch, as Security Agent Name of Assignor Lender:                                               Name of Assignee (Transferee Lender):                                               Effective Date and Time of Assignment:                                               Loan Agreement Interest Assigned:        Principal Amount of Equipment Notes Assigned    Unused Amount of Assignor’s Commitment Assigned   $                        $                       [Equipment Notes Nos.         ]   [Name of Assignee]     [Name of Assignor] By:         By:      Title:       Title:    Accepted for Recordation in the Register:                                                                                          , as Security Agent     AirTran Airways, Inc. By:         By:      Title:       Title:          The Royal Bank of Scotland plc, New York Branch, as Security Agent       By:            Title:      ExhC-4 -------------------------------------------------------------------------------- EXHIBIT D FORM OF: CONSENT AND AGREEMENT N330AT THE BOEING COMPANY, a Delaware corporation (“Boeing”), hereby consents to Borrower’s assignment to Security Agent of a security interest in all of Borrower’s right, title and interest in and to the Purchase Agreement to the extent that it relates to Borrower’s remaining rights to any warranty, indemnity, or other agreement, express or implied, as to materials, workmanship, design, or patent infringement or related matters with respect to the Airframe pursuant to the Mortgage N330AT, dated of even date herewith (the “Mortgage”; the defined terms in the Mortgage having the same meanings in this Consent and Agreement (this “Consent”)), by and between AIRTRAN AIRWAYS, INC. (the “Borrower”) and THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, as Security Agent for the Lenders (“Security Agent”). Boeing hereby confirms to Security Agent that: (1) all remaining warranties, indemnities, and other agreements, express or implied, as to materials, workmanship, design, or patent infringement or related matters under the Purchase Agreement with respect to the Airframe (to the extent assigned to Security Agent pursuant to the Mortgage) shall inure to the benefit of Security Agent to the same extent as if originally named the “Customer” therein except as otherwise provided in the Mortgage; (2) Security Agent shall not be liable for any of the obligations or duties of Borrower under the Purchase Agreement, nor shall the Mortgage give rise to any duties or obligations whatsoever on the part of Security Agent owing to Boeing; provided, that insofar as the provisions of the Purchase Agreement relate to the Airframe, in exercising any rights under the Purchase Agreement with respect to the Airframe, or in making any claim with respect to the Airframe or other things delivered or to be delivered thereunder, the terms and conditions thereof, to the extent disclosed to the Security Agent prior to the date hereof (including, without limitation, warranty disclaimers, liability exclusions, indemnity, and insurance) shall apply to and bind Security Agent to the same extent as Borrower; (3) Boeing agrees that the Mortgage constitutes an agreement by Security Agent as permitted by the Purchase Agreement with respect to the Airframe; (4) if, at such time as Security Agent shall notify Boeing as specified below that Security Agent desires to lease or sell the Airframe, to the extent permitted under the laws of the United States of America, Boeing agrees that it will then offer to such lessee or purchaser, subject to execution of an agreement so to lease or sell the Airframe, a customer service general terms agreement on Boeing’s then standard terms and conditions for a person in the category in which Boeing reasonably determines such lessee or purchaser falls; (5) upon receipt by Boeing of notice from Security Agent that an Event of Default exists and that, if legally permissible, Security Agent is exercising its rights and remedies under the Mortgage, Security Agent shall thereafter have the right (a) to assign its rights in and to the Purchase Agreement to a third party acquiring the Aircraft by lease or purchase and/or (b) to proceed with a sale, foreclosure or other enforcement of secured creditor remedies with respect to an Aircraft which could result in the Purchase Agreement to the extent relating thereto being assigned to a third party; provided, that any such assignment described in sub-clauses (a) or (b) shall require the written consent of Boeing, which will not be unreasonably withheld; (6) if Boeing receives written notice from Security Agent addressed to Boeing’s Vice President – Contracts,   ExhD-1 -------------------------------------------------------------------------------- Boeing Commercial Airplanes at P.O. Box 3707, MC 21-34 Seattle, Washington 98124-2207, if by mail, or to 425-237-1706, if by fax, that an Event of Default has occurred and is continuing and that, if legally permissible, Security Agent is exercising its rights and remedies under the Mortgage (a) Boeing will perform all the duties and obligations that it thereafter is required to perform in respect of the Airframe under the Purchase Agreement (to the extent that the right to accept, demand and retain such duties and obligations has been assigned to Security Agent pursuant to the Mortgage) for the benefit of Security Agent and will make any and all payments that it thereafter is required to make in respect of the Airframe under the Purchase Agreement (to the extent that the right to receive such payments has been assigned to Security Agent pursuant to the Mortgage) directly to Security Agent at an account identified by Security Agent to Boeing by written notice, unless and until Boeing receives from Security Agent written notice, confirming that the Event of Default has been satisfactorily cured or otherwise waived, whereupon Boeing will perform all the duties and obligations, and make all such payments, that it thereafter may be required to perform or make in respect of the Airframe under the Purchase Agreement, to Borrower and (b) Boeing will not recognize Borrower as having any rights under the Purchase Agreement (to the extent those rights have been assigned to Security Agent pursuant to the Mortgage), unless and until Boeing receives from Security Agent written notice, confirming that the Event of Default has been satisfactorily cured or otherwise waived. Boeing hereby represents and warrants that as of the date hereof: (a) Boeing is a corporation duly organized, validly existing and in good standing under the laws of Delaware; (b) the making and performance of this Consent have been duly authorized by all necessary corporate action on the part of Boeing, do not require any stockholder approval and do not contravene Boeing’s restated certificate of incorporation or by-laws or any agreement to which Boeing is a party or by which it is bound, and the making of this Consent does not contravene any law binding on Boeing; and (c) this Consent constitutes legal, valid and binding obligations of Boeing enforceable against Boeing in accordance with its terms, subject to (x) the limitations of applicable bankruptcy, insolvency, and similar laws affecting the rights of creditors generally, and (y) general principles of equity. [This space intentionally left blank.]   ExhD-2 -------------------------------------------------------------------------------- This Consent shall in all respects be governed by the internal laws of the state of Washington, including all matters of construction, validity, and performance, without reference to conflicts of laws principles.   [            ], 200[    ] THE BOEING COMPANY By:     Name:   Title:   Attorney-in-fact MSN:   33935   ExhD-3 -------------------------------------------------------------------------------- EXHIBIT E FORM OF: ENGINE CONSENT AND AGREEMENT N330AT CFM INTERNATIONAL, INC., a Delaware corporation (“CFMI”), hereby consents to Borrower’s assignment to Security Agent of all of Borrower’s right, title and interest in and to the General terms Agreement No.CFM-03-0017, dated June 30, 2003 (the “GTA”), to the extent that it relates to Borrower’s remaining rights to Article 9 and Exhibit A of the GTA with respect to the Engines (the “Warranties”) pursuant to the Mortgage N330AT, dated of even date herewith (the “Mortgage”; the defined terms in the Mortgage having the same meanings in this Engine Consent and Agreement (this “Consent”)), by and between AIRTRAN AIRWAYS, INC. (the “Borrower”) and THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, as Security Agent for the Lenders (“Security Agent”). CFMI hereby confirms to Security Agent that: (1) the Warranties shall inure to the benefit of Security Agent to the same extent as if originally named the “Airline” therein; (2) Security Agent shall not be liable for any of the obligations or duties of Borrower under the GTA, nor shall the Mortgage give rise to any duties or obligations whatsoever on the part of Security Agent owing to CFMI; provided, that insofar as the provisions of the GTA relate to the Engines, in exercising any rights under the GTA with respect to the Engines, or in making any claim with respect to the Engines, the terms and conditions thereof shall apply to and bind Security Agent to the same extent as Borrower; (3) CFMI agrees that the Mortgage constitutes an agreement by Security Agent as permitted by the GTA with respect to the Engines; (4) if, at such time as Security Agent shall notify CFMI that an Event of Default has occurred and is continuing and that, if legally permissible, Security Agent is exercising its rights and remedies under the Mortgage, Security Agent leases or sells the Aircraft and/or any Engine to another party (the “Replacement Party”) and provides written notice of such lease or sale to CFMI at the time of such transfer, CFMI agrees that, subject to obtaining CFMI’s prior written consent, which will not be unreasonably withheld, and unless otherwise prohibited by any applicable governmental law or regulation, all right, title and interest of the Security Agent in and to the Warranties with respect thereto shall be terminated (but in the case of a lease, only temporarily for the term of such lease) and simultaneously therewith there shall be automatically vested in the Replacement Party a package equivalent to such of the Warranties as at such time may remain available to the Security Agent, on terms mutatis mutandis and subject to the same conditions in respect of the granting of the relevant rights to the Security Agent by CFMI; and (5) if CFMI receives written notice from Security Agent addressed to Commercial Contracts Director at One Neumann Way, M.D. J165, Cincinnati, Ohio 45215-1988, if by mail, or to 513-243-1345, if by fax, that an Event of Default has occurred and is continuing and that, if legally permissible, Security Agent is exercising its rights and remedies under the Mortgage (a) CFMI will perform all the duties and obligations that it thereafter is required to perform in respect of the Engines under the GTA (to the extent that the right to accept, demand and retain such duties and obligations has been assigned to Security Agent pursuant to the Mortgage) for the benefit of Security Agent and will make any and all payments that it thereafter is required to make in respect of the Engines under the GTA (to the extent that the right to receive such payments has been assigned to Security   ExhE-1 -------------------------------------------------------------------------------- Agent pursuant to the Mortgage) directly to Security Agent at an account identified by Security Agent to CFMI by written notice, unless and until CFMI receives from Security Agent written notice, confirming that the Event of Default has been satisfactorily cured or otherwise waived, whereupon CFMI will perform all the duties and obligations, and make all such payments, that it thereafter may be required to perform or make in respect of the Engines under the GTA, to Borrower and (b) CFMI will not recognize Borrower as having any rights under the GTA (to the extent those rights have been assigned to Security Agent pursuant to the Mortgage), unless and until CFMI receives from Security Agent written notice, confirming that the Event of Default has been satisfactorily cured or otherwise waived. Nothing contained herein shall subject CFMI to any obligation or liability to which it would not otherwise be subject under the GTA. Nothing contained herein shall modify in any respect the contract rights of CFMI under the GTA or subject CFMI to any multiple or duplicative liability thereunder. No further assignment of any remaining Warranties, including, without limitation, assignments for security purposes, are permitted without the express written consent of CFMI. CFMI hereby represents and warrants that as of the date hereof: (a) CFMI is a corporation duly organized, validly existing and in good standing under the laws of Delaware; (b) the making and performance of this Consent have been duly authorized by all necessary corporate action on the part of CFMI, do not require any stockholder approval and do not contravene CFMI’s certificate of incorporation or by-laws or any agreement to which CFMI is a party or by which it is bound, and the making of this Consent does not contravene any law binding on CFMI; and (c) this Consent constitutes the legal, valid and binding obligations of CFMI enforceable against CFMI in accordance with its terms, subject to (x) the limitations of applicable bankruptcy, insolvency, and similar laws affecting the rights of creditors generally, and (y) general principles of equity. [This space intentionally left blank.]   ExhE-2 -------------------------------------------------------------------------------- This Consent shall in all respects be governed by the internal laws of the state of New York, including all matters of construction, validity, and performance, without reference to conflicts of laws principles.   [            ], 200[    ] CFM INTERNATIONAL, INC. By:     Name:   Title:     ExhE-3 -------------------------------------------------------------------------------- EXHIBIT F FORM OF: GEES ACKNOWLEDGMENT AND AGREEMENT N330AT G.E. ENGINE SERVICES, INC. (“GEES”) hereby acknowledges Borrower’s assignment to Security Agent of all of Borrower’s right, title and interest in and to the GTA to the extent that it relates to Borrower’s remaining rights to the Engine Warranties with respect to the Engines pursuant to the Mortgage N330AT, dated of even date herewith (the “Mortgage”; the defined terms in the Mortgage having the same meanings in this Acknowledgment and Agreement (this “Agreement”)), by and between AIRTRAN AIRWAYS, INC. (the “Borrower”) and THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, as Security Agent for the Lenders (“Security Agent”). For purposes of this Agreement:     (1) Engine Warranties means (a) New Engine Warranty set forth in Section I.A of Exhibit A of the GTA; (b) New Parts Warranty set forth in Section I.B of Exhibit A of the GTA; (c) Ultimate Life Warranty set forth in Section I.C of Exhibit A of the GTA; and (d) Campaign Change Warranty set forth in Section I.D of Exhibit A of the GTA;     (2) Engine Warranties Assignment Letter means that certain letter agreement, dated February 17, 2004, between the Engine Manufacturer and Borrower regarding assignment of the Engine Warranties to GEES; and     (3) MCPH means that certain Maintenance Cost Per Hour Engine Services Agreement, dated August 13, 2003, between Borrower and GEES, as from time to time supplemented and amended. In connection with the MCPH and pursuant to the Engine Warranties Assignment Letter, Borrower assigned all of its right, title and interest in and to the Engine Warranties to GEES. GEES and Borrower hereby confirm that the Engine Warranties Assignment Letter shall terminate and the assignment of the Engine Warranties thereunder and any rights thereunder shall be extinguished and be of no further force or effect (only as and to the extent that the Engine Warranties relate to the Engines) upon GEES’s receipt from Security Agent of written notice that, in connection with Security Agent’s lawful exercise of remedies during the existence of an Event of Default, Borrower is no longer rightfully entitled to own or, as the case may be, possess any or all of the Engines. Any such notice shall be addressed to GE Engine Services, Inc., One Neumann Way, Cincinnati, OH 45125, if by mail, or to 513-243-7867, if by fax. GEES further confirms that, upon receipt of such notice, the Engines subject of such written notice pursuant to Section 1.3.2.1 of Exhibit A of the MCPH (but notwithstanding any conditions to removal stated in such Section 1.3.2.1, and notwithstanding Section 1.3.2.2 of Exhibit A of the MCPH and the first sentence of Section 1.3.2.3 of Exhibit A of the MCPH) shall be deemed to be removed from the MCPH.   ExhF-1 -------------------------------------------------------------------------------- GEES hereby represents and warrants that as of the date hereof: (a) GEES is a corporation duly organized, validly existing and in good standing under the laws of Delaware; (b) the making and performance of this Agreement have been duly authorized by all necessary corporate action on the part of GEES, do not require any stockholder approval and do not contravene GEES’s certificate of incorporation or by-laws or any agreement to which GEES is a party or by which it is bound, and the making of this Agreement does not contravene any law binding on GEES; and (c) this Agreement constitutes the legal, valid and binding obligations of GEES enforceable against GEES in accordance with its terms, subject to (x) the limitations of applicable bankruptcy, insolvency, and similar laws affecting the rights of creditors generally, and (y) general principles of equity. [This space intentionally left blank.]   ExhF-2 -------------------------------------------------------------------------------- This Agreement shall in all respects be governed by the laws of the state of New York, including all matters of construction, validity, and performance.   [                    ], 200[    ] G.E. ENGINE SERVICES, INC. By:     Name:   Title:   AIRTRAN AIRWAYS, INC. By:     Name:   Title:     ExhF-3 -------------------------------------------------------------------------------- SCHEDULE 1 ACCOUNTS; ADDRESSES   BORROWER   Address:   Account: AirTran Airways, Inc.   *** 9955 AirTran Blvd   Orlando, Florida 32827   Att: General Counsel   Tel: ***   Fax: ***   LENDERS   Address:   Account: The Royal Bank of Scotland plc New York Branch Client Processing Services 101 Park Avenue, 12th Floor New York, NY 10178 Attn: Virginia Purchia Fax: *** Tel: ***   With a copy to:   The Royal Bank of Scotland plc c/o RBS Aerospace Limited 1 Georges Quay Plaza, Georges Quay Dublin 2, Ireland Attn: Head of Operations *** ***   *** -------------------------------------------------------------------------------- *** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 5 of 8 pages containing information redacted pursuant to a request for confidential treatment.   SCH1-1 -------------------------------------------------------------------------------- SECURITY AGENT   Address:   Account: The Royal Bank of Scotland plc New York Branch Client Processing Services 101 Park Avenue, 12th Floor New York, NY 10178 Attn: Virginia Purchia Fax: *** Tel: ***   With a copy to:   The Royal Bank of Scotland plc c/o RBS Aerospace Limited 1 Georges Quay Plaza, Georges Quay Dublin 2, Ireland Attn: Head of Operations *** ***   *** -------------------------------------------------------------------------------- *** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 6 of 8 pages containing information redacted pursuant to a request for confidential treatment.   SCH1-2 -------------------------------------------------------------------------------- SCHEDULE 2 COMMITMENTS; TRANSACTION EXPENSES Section 1. The following sets forth the amount of the secured loans to be provided by the Lenders.   Lender    Commitment The Royal Bank of Scotland plc New York Branch    $ *** Aggregate Commitment    $ *** Unless the Fixed Rate Option has been exercised under Section 4.5 of the Loan Agreement, the aggregate Commitment shall be reduced by an amount equal to $*** following Security Agent’s receipt from Borrower of a No Winglet Notice pursuant to Section 2.6 of the Loan Agreement. Each Lender’s Commitment referred to in the prior sentence shall be reduced ratably in proportion to the amount that such Lender’s Commitment bears to the sum of the Commitments of all Lenders (as reduced as aforesaid in this paragraph). Section 2. If the Fixed Rate Option is exercised under Section 4.5 of the Loan Agreement, the aggregate Commitment shall be reduced to (a) $*** or (b) if Borrower shall have delivered a No Winglet Notice pursuant to Section 2.6 of the Loan Agreement, $***. Each Lender’s Commitment referred to in the prior sentence shall be reduced ratably in proportion to the amount that such Lender’s Commitment bears to the sum of the Commitments of all Lenders (as reduced as aforesaid in this paragraph). Section 3. With respect to Borrower’s obligations under Section 4.1 of the Loan Agreement and to the fees and disbursements of outside counsel to the Security Agent and the Lenders, it is agreed that such obligations of the Borrower in connection with the negotiation and preparation of the Loan Agreement and the other documents or forms of documents contemplated thereby are limited to the extent provided in the email of outside counsel to the Lenders, dated July 17, 2006 at 4:51 p.m.   -------------------------------------------------------------------------------- *** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 7 of 8 pages containing information redacted pursuant to a request for confidential treatment.   SCH2-1 -------------------------------------------------------------------------------- With respect to Borrower’s obligations under Section 4.1 of the Loan Agreement, the Lenders and Security Agent shall use their respective reasonable efforts to limit the aggregate amount of legal fees and disbursements for outside counsel incurred by the Lenders and Security Agent in connection with the Closing to a maximum amount of ***, it being understood that the fees and disbursements of FAA counsel are outside the scope of this paragraph.   -------------------------------------------------------------------------------- *** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 8 of 8 pages containing information redacted pursuant to a request for confidential treatment.   SCH2-2 -------------------------------------------------------------------------------- SCHEDULE 3 PERMITTED COUNTRIES   Australia    Japan Austria    Luxembourg Belgium    Malaysia Brazil    Mexico Canada    Netherlands Chile    New Zealand China    Norway Denmark    Portugal Finland    Singapore France    South Korea Germany    Spain Iceland    Sweden Ireland    Switzerland Italy    United Kingdom   SCH3-1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- MORTGAGE [N330AT] dated as of [    ] [    ], 200[    ] between AIRTRAN AIRWAYS, INC., Borrower and THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, Security Agent   -------------------------------------------------------------------------------- One Boeing model 737-7BD aircraft bearing United States registration no. N330AT and manufacturer’s serial no. 33935   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS   1.   DEFINITIONS    4 2.   THE EQUIPMENT NOTES    4   2.1    FORM OF EQUIPMENT NOTES.    4   2.2    ISSUANCE AND TERMS OF EQUIPMENT NOTES.    4   2.3    METHOD OF PAYMENT.    4   2.4    APPLICATION OF PAYMENTS.    7   2.5    TERMINATION OF INTEREST IN COLLATERAL.    7   2.6    REGISTRATION, TRANSFER, AND EXCHANGE OF EQUIPMENT NOTES.    7   2.7    MUTILATED, DESTROYED, LOST, OR STOLEN EQUIPMENT NOTES.    8   2.8    PAYMENT OF EXPENSES ON TRANSFER; CANCELLATION.    9   2.9    MANDATORY REDEMPTIONS OF EQUIPMENT NOTES.    9   2.10    VOLUNTARY REDEMPTIONS OF EQUIPMENT NOTES.    9   2.11    REDEMPTIONS; NOTICE OF REDEMPTION.    10 3.   RECEIPT, DISTRIBUTION, AND APPLICATION OF PAYMENTS    11   3.1    BASIC DISTRIBUTIONS.    11   3.2    EVENT OF LOSS; REPLACEMENT; OPTIONAL REDEMPTION.    11   3.3    PAYMENTS AFTER EVENT OF DEFAULT.    12   3.4    CERTAIN PAYMENTS.    13   3.5    OTHER PAYMENTS.    13 4.   BORROWER’S COVENANTS    13   4.1    LIENS.    13   4.2    POSSESSION; OPERATION AND USE; MAINTENANCE; REGISTRATION; MARKINGS.    13   4.3    INSPECTION.    21   4.4    REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS, AND ADDITIONS; SUBSTITUTION OF ENGINES.    22   4.5    LOSS, DESTRUCTION, OR REQUISITION.    27   4.6    INSURANCE.    33   4.7    PERFORMANCE OF ALL COVENANTS AND AGREEMENTS.    34 5.   EVENTS OF DEFAULT; REMEDIES    34   5.1    EVENT OF DEFAULT.    34   5.2    REMEDIES.    36   5.3    REMEDIES CUMULATIVE.    40   5.4    CONCERNING THE CAPE TOWN CONVENTION.    40   5.5    DISCONTINUANCE OF PROCEEDINGS.    41   5.6    WAIVER OF PAST DEFAULTS.    41   5.7    APPOINTMENT OF RECEIVER.    41   5.8    SECURITY AGENT; APPOINTMENT OF ATTORNEY-IN-FACT.    41   5.9    DUTY OF SECURITY AGENT    43   5.10    EXECUTION OF FINANCING STATEMENTS    43   5.11    RIGHTS OF LENDERS TO RECEIVE PAYMENT    44 6.   INVESTMENT OF AMOUNTS HELD BY SECURITY AGENT    44 7.   SUPPLEMENTS AND AMENDMENTS TO THIS MORTGAGE AND OTHER OPERATIVE AGREEMENTS.    44   7.1    INSTRUCTIONS OF A MAJORITY.    44   i --------------------------------------------------------------------------------   7.2    SECURITY AGENT PROTECTED.    46   7.3    DOCUMENTS MAILED TO LENDERS.    46   7.4    NO REQUEST NECESSARY FOR MORTGAGE SUPPLEMENT.    46 8.   MISCELLANEOUS    46   8.1    TERMINATION OF MORTGAGE.    46   8.2    NO LEGAL TITLE TO COLLATERAL IN LENDERS.    46   8.3    SALE OF AIRCRAFT BY SECURITY AGENT IS BINDING.    47   8.4    MORTGAGE FOR BENEFIT OF BORROWER, SECURITY AGENT AND LENDERS.    47   8.5    NOTICES.    47   8.6    SEVERABILITY.    47   8.7    NO ORAL MODIFICATION OR CONTINUING WAIVER.    47   8.8    SUCCESSORS AND ASSIGNS.    47   8.9    HEADINGS.    48   8.10    NORMAL COMMERCIAL RELATIONS.    48   8.11    GOVERNING LAW.    48   8.12    SUBMISSION TO JURISDICTION; VENUE.    48   8.13    COUNTERPART FORM.    49   8.14    BANKRUPTCY.    49   8.15    CONCERNING PROSPECTIVE INTERNATIONAL INTERESTS    49   ANNEX A   -   DEFINITIONS ANNEX B   -   INSURANCE EXHIBIT A   -   AIRCRAFT DESCRIPTION EXHIBIT B   -   FORM OF EQUIPMENT NOTE   ii -------------------------------------------------------------------------------- MORTGAGE [N330AT] THIS MORTGAGE [N330AT] (this “Mortgage”) is entered into as of [    ] [    ], 200[    ] between AIRTRAN AIRWAYS, INC. (“Borrower”), a Delaware corporation, and THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, as agent for and on behalf of the Lenders (“Security Agent”). Certain terms used in this Mortgage are defined pursuant to Article 1 hereof. RECITALS: A. Borrower and Security Agent intend by this Mortgage to provide, among other things, for (1) Borrower’s issuance of the Equipment Notes, and (2) Borrower’s mortgage, pledge and assignment to Security Agent, for security as part of the Collateral, of all of Borrower’s right, title, and interest in and to the Aircraft and all payments and other amounts received hereunder in accordance with the terms hereof, as security for the Secured Obligations. B. All acts have occurred that are necessary to make the Equipment Notes, when executed and delivered by Borrower hereunder, valid, binding, and enforceable obligations of Borrower, and all acts have occurred that are necessary to make this Mortgage the valid, binding, and legal obligation of Borrower for the uses and purposes herein set forth, in accordance with its terms. GRANTING CLAUSE NOW, THEREFORE, THIS MORTGAGE WITNESSETH, that, to secure the prompt payment of the Original Amount of, interest on, and all other amounts due with respect to all Equipment Notes and, subject to Section 7.5 of the Loan Agreement, all Related Notes, and to secure Borrower’s timely and complete performance and observance of all the agreements, covenants, and provisions herein and, subject to Section 7.5 of the Loan Agreement, in all Related Mortgages, in the Loan Agreement and in the Equipment Notes and, subject to Section 7.5 of the Loan Agreement, all Related Notes, for the benefit of the Lenders and, subject to Section 7.5 of the Loan Agreement, the holders of all Related Notes, and to secure all other Secured Obligations, and in consideration of the premises and of the covenants herein, and of the acceptance of the Equipment Notes by the holders thereof, and for other good and valuable consideration the receipt and adequacy whereof are hereby acknowledged, Borrower hereby grants to Security Agent (and its successors in trust and assigns), for the security and benefit of the Lenders and, subject to Section 7.5 of the Loan Agreement, the holders of all Related Notes, a security interest in and mortgage lien on all Borrower’s right, title and interest in, to, and under the following described property, rights, and privileges, whether now existing or hereafter acquired (which, collectively, together with all property hereafter specifically subject to the Lien of this Mortgage by the terms hereof or any supplement hereto, are included within, and are referred to as, the “Collateral”): (1) the Airframe and Engines described in the Aircraft Description Exhibit, whether or not any such Engine is installed on or attached to the Airframe or any other airframe, including all Parts included within the definitions of “Airframe” or “Engine”, including all   1 -------------------------------------------------------------------------------- substitutions, renewals, and replacements of and additions, improvements, accessions, and accumulations to the Airframe and Engines (other than additions, improvements, accessions, and accumulations excluded from the definition of Parts), and (b) all Aircraft Documents; (2) subject to the terms and conditions of the Consent and Agreement, the Engine Consent and Agreement and the GEES Acknowledgment and Agreement, the Purchase Agreement and the GTA to the extent that they relate to Borrower’s remaining rights to any warranty, indemnity, or other agreement, express or implied, as to title, materials, workmanship, design, or patent infringement or related matters (in so far as such matters are set forth in the Consent and Agreement and the Engine Consent and Agreement) with respect to the Airframe or the Engines, reserving to Borrower, however, all of Borrower’s other rights and interest in and to the Purchase Agreement and the GTA; (3) the Bills of Sale, together with all of Borrower’s rights, powers, privileges and benefits thereunder; (4) all payments or proceeds from any requisition of title to or use of the Aircraft or any Engine or from any sale or other disposition of the Aircraft or other property described in any of these Granting Clauses pursuant to the terms of this Mortgage, and all insurance proceeds (other than public liability insurance proceeds) with respect to the Aircraft, the Airframe, any Engine, or any Part thereof (other than insurance proceeds in excess of the amount of insurance required by the terms of Section 4.6 and Annex B to be carried and maintained by Borrower); (5) any Permitted Lease with a term (including any potential renewal or extension terms) in excess of one (1) year, including without limitation, any rent payments, insurance, requisition, indemnity and other payments of any kind thereunder (other than public liability insurance proceeds), together with all of Borrower’s rights, powers, privileges and benefits thereunder; (6) all tolls, rents, revenues, issues, profits and other proceeds collected by Security Agent pursuant to Section 5.3(b), and all money and securities from time to time deposited or required to be deposited with Security Agent by or for the account of Borrower pursuant to any terms of this Mortgage or any other Mortgagor Agreement or Operative Agreement held or required to be held by Security Agent hereunder; (7) any and all property that may, from time to time, by delivery or by other writing of any kind, for the purposes hereof be in any way subjected to the lien and the security interest hereof or be expressly conveyed, mortgaged, assigned, transferred, deposited, in which a security interest may be granted by Borrower and/or pledged by Borrower, or by any Person authorized to do so on its behalf or with its consent, to and with Security Agent, including (without limitation) under and pursuant to any of the Related Mortgages, who is hereby authorized to receive the same at any and all times as and for additional security hereunder; and (8) all proceeds of the foregoing, provided, that notwithstanding any of the foregoing provisions and the effect of any provision in the Cape Town Convention to the contrary, which by the terms of the Cape Town Convention may be derogated or varied, if no Event of Default exists (a) Security Agent shall not take or   2 -------------------------------------------------------------------------------- cause to be taken any action contrary to Borrower’s rights hereunder, including, without limitation, Borrower’s right to quiet enjoyment of the Airframe and Engines, and to possess, use, retain, and control the Airframe and Engines and all revenues, income, and profits derived therefrom and (b) Borrower shall have the right, to the exclusion of Security Agent, with respect to the Purchase Agreement and the GTA, to exercise in Borrower’s name all rights and powers of the buyer under the Purchase Agreement and the GTA (other than to terminate, amend, modify, or waive Borrower’s remaining rights to any warranty, indemnity or other agreement, express or implied, as to title, materials, workmanship, design or patent infringement or related matters (in so far as such matters are set forth in the Consent and Agreement and the Engine Consent and Agreement) with respect to the Airframe or the Engines. TO HAVE AND TO HOLD all and singular the aforesaid property unto Security Agent, and its successors and assigns, in trust for the benefit and security of the Lenders and, subject to Section 7.5 of the Loan Agreement, the holders of the Related Notes, except as provided in Article 3 hereof, without any preference, distinction, or priority of any one Equipment Note over any other by reason of priority of time of issue, sale, negotiation, or date of maturity thereof, or otherwise for any reason whatsoever, and for the uses and purposes and (in all cases and as to all property specified in clauses (1) through (7)) subject to the terms and provisions in this Mortgage. Anything herein to the contrary notwithstanding, Borrower shall remain liable under the Mortgagor Agreements to perform all of the obligations that it assumes thereunder, except to the extent prohibited or excluded from doing so pursuant to the terms and provisions thereof, and Security Agent and the Lenders shall have no obligation or liability under the Mortgagor Agreements by reason of or arising out of the assignment hereunder, nor shall Security Agent and the Lenders be required or obligated in any manner to perform or fulfill any of Borrower’s obligations under or pursuant to the Mortgagor Agreements, or, except as herein expressly provided, to make any payment, or to make any inquiry as to the nature or sufficiency of any payment received by it, or present or file any claim, or take any action to collect or enforce the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. Any and all property described or referred to in the granting clauses hereof which Borrower acquires in the future and required or deemed to be subjected to the Lien herein pursuant to the provisions hereof shall ipso facto, and without any other conveyance, assignment, or act on the part of Borrower or Security Agent, become and be subject to the Lien herein granted as fully and completely as though specifically described herein, but nothing in this paragraph shall modify or change Borrower’s obligations in the foregoing paragraphs. In order to constitute the Related Notes as Associated Rights, the Borrower agrees that it will timely pay amounts due thereunder and perform all of its Related Obligations.   3 -------------------------------------------------------------------------------- Borrower and Security Agent further agree as follows: 1. DEFINITIONS The terms defined in Annex A, when capitalized as in Annex A, have the same meanings when used in this Mortgage. Annex A also contains rules of usage that control construction in this Mortgage. 2. THE EQUIPMENT NOTES 2.1 Form of Equipment Notes. The Equipment Notes shall be substantially in the form of Exhibit B. 2.2 Issuance and Terms of Equipment Notes. The Equipment Notes shall be dated the date of the Closing Date and shall have the maturity and principal amounts and shall bear interest set forth therein. On the Closing Date, Borrower shall issue the Equipment Note to the Lenders. The Equipment Notes shall be registered in the Equipment Note Register (as defined in Section 2.6) at the time of issuance. The Equipment Notes shall be executed on behalf of Borrower by one of its authorized officers. Equipment Notes bearing the signatures of individuals who were the proper officers of Borrower at the time of such execution shall bind Borrower, notwithstanding that such individuals or any of them have ceased to hold such offices before the authentication and delivery of such Equipment Notes. Borrower may from time to time execute and deliver Equipment Notes with respect to the Aircraft to Security Agent for authentication upon original issue, and Security Agent thereupon shall authenticate and deliver such Equipment Notes upon Borrower’s written request signed by an authorized officer of Borrower. No Equipment Note shall be secured by or entitled to any benefit under this Mortgage, or be valid or obligatory for any purposes, unless there appears on such Equipment Note a certificate of authentication in the form provided for herein, executed by Security Agent by the manual signature of one of its authorized officers, and such certificate upon any Equipment Note shall be conclusive evidence, and the only evidence, that such Equipment Note has been duly authenticated and delivered hereunder. The aggregate Original Amount of the Equipment Notes issued hereunder shall not exceed the amount set forth as the maximum therefor on Schedule 2 of the Loan Agreement. 2.3 Method of Payment. (a) The Original Amount of, interest on, and other amount due under each Equipment Note or hereunder will be payable in Dollars by wire transfer of immediately available funds not later than 12:00 Noon, New York time, on the due date of payment to Security Agent for distribution in the manner provided herein. Notwithstanding the foregoing or any provision in any Equipment Note to the contrary, Security Agent will pay or cause to be paid all amounts to be paid by Borrower hereunder and under any Equipment Note to the holder thereof (including all amounts distributed pursuant to Article 3 of this Mortgage) by transferring, or causing to be transferred, by wire transfer of immediately available funds in Dollars, promptly after receipt, to an account maintained by such holder with a bank located in the continental United States the amount to be distributed to such holder, for credit to the account of such holder   4 -------------------------------------------------------------------------------- maintained at such bank. If Security Agent fails to initiate the transfer by federal wire transfer of any such payment as provided in the foregoing sentence after its receipt of funds by reason of its failure to use ordinary care in the handling of funds, Security Agent shall compensate such holders for loss of use of funds at the Debt Rate until such payment is made, and Security Agent shall be entitled to any interest earned on such funds until such payment is made. Any payment made hereunder shall be made without any presentment or surrender of any Equipment Note, except that, in the case of the final payment in respect of any Equipment Note, such Equipment Note shall be surrendered to Security Agent for cancellation promptly after such payment. Notwithstanding any other provision of this Mortgage to the contrary, Security Agent shall not be required to make, or cause to be made, wire transfers as aforesaid before the first Business Day on which it is practicable for Security Agent to do so in view of the time of day when the funds to be so transferred were received by it if such funds were received after 12:00 Noon, New York time, at the place of payment. Before the due presentment for registration of transfer of any Equipment Note, Borrower and Security Agent shall deem and treat the Person in whose name any Equipment Note is registered on the Equipment Note Register as the absolute owner and holder of such Equipment Note for the purpose of receiving payment of all amounts payable with respect to such Equipment Note and for all other purposes, and neither Borrower nor Security Agent shall be affected by any notice to the contrary. So long as any signatory to the Loan Agreement or nominee thereof shall be a registered Lender, all payments to it shall be made to the account of such Lender specified in Schedule 1 of the Loan Agreement, and otherwise in the manner provided in or pursuant to the Loan Agreement, unless and until it specifies some other account or manner of payment by notice to Security Agent consistent with this Section 2.3. (b) Security Agent (as agent for Borrower) shall exclude and withhold at the appropriate rate from each payment of Original Amount of, interest on, and other amounts due from Borrower to any Lender hereunder or under each Equipment Note any and all withholding taxes applicable thereto as required by Law. Security Agent agrees (1) to act as such withholding agent in accordance with Treasury Regulation 1.1441-1(b)(2)(iv) and, in connection therewith, (2) whenever any present or future taxes or similar charges are required by applicable Law to be withheld with respect to any amounts payable by Borrower hereunder or in respect of the Equipment Notes, to withhold such amounts and timely pay the same to the appropriate authority in the name of and on behalf of the Lenders, (3) to file any necessary withholding tax returns or statements when due, and (4) as promptly as possible after the payment thereof, to deliver to each Lender (with a copy to Borrower) appropriate receipts, if reasonably available, showing the payment thereof, together with such additional documentary evidence as any such Lender reasonably requests from time to time. In accordance with the foregoing, Security Agent further agrees to provide Borrower with a properly completed and executed Form W-8IMY certifying that Security Agent has agreed to be treated as a U.S. Person with respect to payments received from Borrower hereunder. Such Form W-8IMY shall be provided by Security Agent prior to the due date of any amounts payable by Borrower hereunder. For the avoidance of doubt, by failing to comply with this Section 2.3(b), Security Agent shall be in breach of the foregoing covenant and responsible for damages resulting therefrom.   5 -------------------------------------------------------------------------------- (c) In the case of a Lender that is a Non-U.S. Person, such Lender shall furnish such Security Agent with a properly completed and executed withholding certificate on Form W-8BEN, W-8IMY or W-8ECI (or any successor forms) and/or such other applicable documentation as may be necessary or desirable to enable such Lender to claim an exemption from, or reduced rate of, such taxes. Provided that such Lender has furnished Security Agent with the requested forms and other documentation duly executed by such Lender and has not notified Security Agent of the withdrawal or inaccuracy of such form prior to the date of each interest payment, only the reduced amount (if any) required by applicable law or treaty shall be withheld from payments under the Equipment Notes held by such Lender in respect of United States federal income tax. In the case of a Lender that is a U.S. Person and (1) not an Exempt Recipient that has furnished to Security Agent a properly completed and currently effective U.S. Treasury Form W-9 or (2) that is an Exempt Recipient (not required to deliver an IRS Form W-8), no amount shall be withheld from payments under the Equipment Notes held by such Lender in respect of United States federal income tax. If any Lender has notified Security Agent that any of the foregoing forms or certificates is withdrawn or inaccurate, or if the Internal Revenue Code or the regulations thereunder or the administrative interpretation thereof are at any time after the date hereof amended to require such withholding of United States federal income taxes from payments under the Equipment Notes held by such Lender, or if such withholding is otherwise required, Security Agent agrees to withhold from each payment due to the relevant Lender withholding taxes at the appropriate rate under applicable law, and will, as more fully provided above, on a timely basis, deposit such amounts with an authorized depository and make such returns, filings, and other reports in connection therewith, and in the manner required under applicable Law. For purposes of this paragraph, an “Exempt Recipient” is a Person described in Code §6049(b)(4). Notwithstanding any other provision of this paragraph, a Lender that is a Non-U.S. Person shall not be required to deliver any form pursuant to this paragraph that such Lender is not legally able to deliver. (d) If, for any reason, Security Agent (or any successor institution acting as Security Agent) is unable to provide Borrower with a properly completed and executed Form W-8IMY, Borrower shall exclude and withhold at the appropriate rate from each payment of Original Amount of, interest on, and other amounts due from Borrower to any Lender hereunder or under each Equipment Note it holds any and all withholding taxes applicable thereto as required by Law. Borrower agrees (1) whenever any present or future taxes or similar charges are required by applicable Law to be withheld with respect to any amounts payable hereunder or in respect of the Equipment Notes, to withhold such amounts and timely pay the same to the appropriate authority in the name and on behalf of the Lenders, (2) to file any necessary withholding tax returns or statements when due, and (3) as promptly as possible after the payment thereof, to deliver to each Lender appropriate receipts, if reasonably available, showing the payment thereof, together with such additional documentary evidence as any such Lender reasonably requests from time to time. Furthermore, all necessary documentation addressed in Section 2.3(c) hereof shall be furnished to Borrower prior to the due date of any amounts payable by Borrower hereunder to enable such Lender to claim an exemption from, or reduced rate of, such taxes.   6 -------------------------------------------------------------------------------- (e) Borrower shall not have any liability hereunder to Security Agent or any Lender for Security Agent’s failure to withhold taxes in the manner provided for herein or for any false, inaccurate, or untrue evidence provided by any Lender hereunder. 2.4 Application of Payments. Each payment of interest on, principal of, or other amounts under or in respect of each Equipment Note shall be applied: FIRST: to pay any amount due hereunder or under such Equipment Note or the other Operative Agreements other than any amount designated under this Section 2.4 to be paid pursuant to clauses SECOND, THIRD or FOURTH; SECOND: to pay accrued interest on and any Breakage Amount due under such Equipment Note (and any interest on any overdue Original Amount) to the date of such payment; THIRD: to pay the Original Amount of such Equipment Note (or a portion thereof) then due thereunder; and FOURTH: to pay the Original Amount of such Equipment Note remaining unpaid (provided, that such Equipment Note shall not be subject to redemption except as provided in Sections 2.9, 2.10, and 2.11 or pursuant to the exercise by Borrower of the Fixed Rate Option). The amounts paid pursuant to clause “FOURTH” above shall be applied to the installments of Original Amount of such Equipment Note in the inverse order of their normal maturity. 2.5 Termination of Interest in Collateral. No Lender shall have any further interest in, or other right with respect to, the Collateral when and if the Original Amount of, and interest on and other amounts due under all Equipment Notes held by such Lender and all other Secured Obligations have been paid in full and this Mortgage has been terminated as provided in Section 8.1. 2.6 Registration, Transfer, and Exchange of Equipment Notes. Security Agent shall keep a register (the “Equipment Note Register”) in which Security Agent shall provide for the registration of Equipment Notes and the registration of transfers of Equipment Notes. No such transfer shall be given effect unless and until registered hereunder. Security Agent shall keep the Equipment Note Register at its Administrative Office. Security Agent is hereby appointed “Equipment Note Registrar” for the purpose of registering Equipment Notes and transfers of Equipment Notes as herein provided. A holder of any Equipment Note intending to exchange such Equipment Note shall surrender such Equipment Note to Security Agent at its Administrative Office, together with a written request from the registered holder thereof for the issuance of a new Equipment Note, specifying (in the case of a surrender for transfer) the name(s) and address(es) of the new holder(s). Upon surrender for registration of transfer of any Equipment Note, Borrower shall execute, and Security Agent shall authenticate   7 -------------------------------------------------------------------------------- and deliver, in the name(s) of the designated transferee(s), one or more new Equipment Notes of a like aggregate Original Amount. At the Lender’s option, Equipment Notes may be exchanged for other Equipment Notes of any authorized denominations of a like aggregate Original Amount, upon surrender of the Equipment Notes to be exchanged to Security Agent at its Administrative Office. Whenever any Equipment Notes are so surrendered for exchange, Borrower shall execute, and Security Agent shall authenticate and deliver, the Equipment Notes which the Lender making the exchange is entitled to receive. All Equipment Notes issued upon any registration of transfer or exchange of Equipment Notes (whether under this Section 2.6 or under Section 2.7 or otherwise under this Mortgage) shall be the valid obligations of Borrower evidencing the same respective obligations, and entitled to the same security and benefits under this Mortgage, as the Equipment Notes surrendered upon such registration of transfer or exchange. Every Equipment Note presented or surrendered for registration of transfer, shall (if so required by Security Agent) be duly endorsed, or be accompanied by a Transfer Agreement as required under Section 7.1 of the Loan Agreement in form satisfactory to Security Agent duly executed by the Lender or such holder’s attorney duly authorized in writing. Security Agent shall make a notation on each new Equipment Note of the amount of all payments of Original Amount previously made on the old Equipment Note or Equipment Notes with respect to which such new Equipment Note is issued and the date to which interest on such old Equipment Note or Equipment Notes has been paid. Interest shall be deemed to have been paid on such new Equipment Note to the date on which interest shall have been paid on such old Equipment Note, and all payments of the Original Amount marked on such new Equipment Note, as provided above, shall be deemed to have been made thereon. Security Agent shall not be required to exchange any surrendered Equipment Notes as provided above during the 10-day period preceding the due date of any payment on such Equipment Note. Borrower and Security Agent shall in all cases deem the Person in whose name any Equipment Note shall have been issued and registered as the absolute owner and holder of such Equipment Note for the purpose of receiving payment of all amounts payable by Borrower with respect to such Equipment Note, and for all other purposes, until Borrower receives from Security Agent a notice stating otherwise and such change is reflected on the Equipment Note Register. Security Agent will promptly notify Borrower of each registration of a transfer of an Equipment Note. Subject to compliance by the Lender and its transferee (if any) of the requirements in this Section 2.6, Security Agent and Borrower shall use all reasonable efforts to issue new Equipment Notes upon transfer or exchange within ten (10) Business Days of the date an Equipment Note is surrendered for transfer or exchange. 2.7 Mutilated, Destroyed, Lost, or Stolen Equipment Notes. If any Equipment Note shall become mutilated, destroyed, lost, or stolen, upon the written request of the holder of such Equipment Note, Borrower shall execute, and Security Agent shall authenticate and deliver, in replacement thereof, a new Equipment Note, payable in the same Original Amount, dated the same date, and captioned as issued in connection with the Aircraft. If the Equipment Note being replaced has become mutilated, such Equipment Note shall be surrendered to Security Agent and a photocopy thereof shall be furnished to Borrower. If the Equipment Note being replaced has been destroyed, lost, or stolen, the holder of such Equipment Note shall furnish to Borrower and Security Agent (a) such security or indemnity as they require to save Borrower and Security Agent harmless, and (b) evidence satisfactory to Borrower and Security Agent of the destruction, loss, or theft of such Equipment Note and of the   8 -------------------------------------------------------------------------------- ownership thereof. If a “qualified institutional buyer” of the type referred to in paragraph (a)(1)(i)(A), (B), (D), or (E) of Rule 144A under the Securities Act (a “QIB”) is the holder of any such destroyed, lost, or stolen Equipment Note, then the written indemnity of such QIB, signed by an authorized officer thereof, in favor of, delivered to, and in form reasonably satisfactory to Borrower shall be accepted as satisfactory indemnity and security, and no further indemnity or security shall be required as a condition to the execution and delivery of such new Equipment Note. Subject to the Lender’s compliance with the requirements in this Section 2.7, Security Agent and Borrower shall use all reasonable efforts to issue new Equipment Notes within ten (10) Business Days after receiving the Lender’s written request therefor. 2.8 Payment of Expenses on Transfer; Cancellation. (a) No service charge shall be made to a Lender for any registration of transfer or exchange of Equipment Notes, but Security Agent, as Equipment Note Registrar, may require payment from any such Lender of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Equipment Notes and any charges and expenses connected with such tax or other governmental charge paid or payable by Borrower or Security Agent, as the case may be. (b) Security Agent shall cancel all Equipment Notes surrendered for replacement, redemption, transfer, exchange, payment, or cancellation, and shall destroy the cancelled Equipment Notes. 2.9 Mandatory Redemptions of Equipment Notes. On the date on which Borrower is required pursuant to Section 4.5 to prepay the Equipment Notes following an Event of Loss to the Airframe, all Equipment Notes shall be redeemed in whole at a redemption price equal to 100% of the unpaid Original Amount thereof, together with all accrued interest thereon to the date of redemption plus any Breakage Amount and all other Secured Obligations owed or then due and payable to the Lenders in respect thereto. 2.10 Voluntary Redemptions of Equipment Notes. Borrower may redeem all or any part of the unpaid Original Amount of the Equipment Notes upon at least five (5) Business Days’ prior written notice to Security Agent and the Lenders. The Equipment Notes shall be redeemed in whole or in part without penalty or premium except as provided hereafter in this Section 2.10; provided, except in the case of a redemption of Equipment Notes with respect to which (1) Indemnified Withholding Taxes are then payable by Borrower pursuant to Section 9.3 of the Loan Agreement, (2) Increased Costs are then payable by Borrower and Borrower becomes entitled to prepay such Equipment Notes pursuant to Section 4.4 of the Loan Agreement or (3) it becomes unlawful for a Lender to maintain the indebtedness evidenced by such Equipment Note and Borrower becomes entitled to prepay such Equipment Note pursuant to Section 4.7 of the Loan Agreement (each an “Optional Redemption Triggering Event”), in which event the affected Equipment Notes shall be redeemed in whole but not in part, Borrower may not redeem an aggregate unpaid Original Amount of less than One Million Dollars ($1,000,000) or, if less, the then outstanding Original Amount thereof;   9 -------------------------------------------------------------------------------- and provided, further, that notwithstanding anything to the contrary in this Mortgage, the proceeds of any partial redemption shall be distributed by Security Agent to the Lenders ratably, except in the case of a redemption of Equipment Notes with respect to which an Optional Redemption Triggering Event shall occurred, in which case the proceeds of such redemption shall be distributed to the Lender or Lenders of the Equipment Notes to which such Optional Redemption Triggering Event relates. Borrower shall not be entitled to reborrow any amounts redeemed. Notwithstanding the foregoing to the contrary (except in the case of a redemption of Equipment Notes with respect to which an Optional Redemption Triggering Event shall have occurred) Borrower may not redeem all or any part of any Equipment Note prior to the third (3rd) anniversary of the Closing Date. Borrower shall pay, in addition to the redemption price, any Breakage Amount and all other Secured Obligations owing or then due and payable by Borrower to the Lenders in respect thereto. 2.11 Redemptions; Notice of Redemption. (a) No voluntary or mandatory redemption of any unpaid Original Amount of the Equipment Notes may be made except to the extent and in the manner expressly contemplated by this Mortgage. (b) In case of a voluntary or mandatory redemption, notice of such redemption with respect to the Equipment Notes shall be given by Security Agent by commercial courier service for next day delivery (or the nearest thereto as practicable), to each Lender of such Equipment Notes to be redeemed, at such Lender’s address appearing in the Equipment Note Register. Any notice of redemption pursuant to Section 2.10 shall be irrevocable if not revoked by written notice from Borrower to Security Agent given not later than three (3) Business Days before the redemption date. All notices of redemption shall state: (1) the redemption date, (2) the redemption price (including any Breakage Amount), (3) the applicable basis for determining the redemption price, (4) that on the redemption date, the redemption price will become due and payable upon each such Equipment Note, and (5) the place or places where such Equipment Notes are to be surrendered for payment of the redemption price and for exchange or cancellation (as the case may be). (c) On or before the redemption date, Borrower (or any Person on behalf of Borrower) shall, to the extent an amount equal to the redemption price (including any Breakage Amount) for the Equipment Notes to be redeemed on the redemption date shall not then be held by Security Agent, deposit or cause to be deposited with Security Agent by 12:00 Noon New York time on the redemption date in immediately available funds the redemption price of the unpaid Original Amount of the Equipment Notes to be redeemed. (d) If notice of redemption is given as aforesaid (and not revoked as contemplated in the proviso to Section 2.11(b)), then, on the redemption date, the unpaid Original Amount of Equipment Notes to be redeemed shall become due and payable at Security Agent’s Administrative Office or at any office or agency maintained for such purposes pursuant to Section 2.6, and all of the Equipment Notes shall be surrendered to Security Agent for cancellation (in case of a total redemption) or exchange (in case of a partial redemption). Upon surrender of any such Equipment Notes, the redemption price shall be distributed to such holder as provided in this Mortgage.   10 -------------------------------------------------------------------------------- 3. RECEIPT, DISTRIBUTION, AND APPLICATION OF PAYMENTS 3.1 Basic Distributions. Except as otherwise provided in Section 3.2 and Section 3.3, each periodic payment of principal or interest on the Equipment Notes received by Security Agent shall be promptly distributed so that so much of such payment as is required to pay in full the payment(s) of Original Amount and interest (and any interest on any overdue Original Amount) then due under all Equipment Notes shall be distributed to the Lenders ratably, without priority of one over the other, in the proportion that the amount of such payment(s) then due under each Equipment Note bears to the total amount of the payments then due under all Equipment Notes. 3.2 Event of Loss; Replacement; Optional Redemption. Except as otherwise provided in Section 3.3, any payments received by Security Agent (1) with respect to the Airframe or the Airframe and one or more Engines as the result of a mandatory redemption upon an Event of Loss or (2) pursuant to an optional redemption of all of the unpaid Original Amount of the Equipment Notes pursuant to Section 2.10 shall be applied to redeem the Equipment Notes and to all other Secured Obligations by applying such funds in the following order of priority: FIRST, (a) to reimburse Security Agent and the Lenders for any reasonable costs or expenses incurred in connection with such redemption for which they are entitled to reimbursement, or indemnity by Borrower, under the Operative Agreements, and then (b) to pay any other Secured Obligations then due (except as provided in clause “SECOND” below) to Security Agent and the Lenders under this Mortgage, the Loan Agreement, or the Equipment Notes (other than amounts specified in clause SECOND of this Section 3.2); SECOND, to pay the amounts specified in Section 2.10 (if applicable) and clause “SECOND” of Section 3.3, plus any applicable Breakage Amount; and THIRD, as provided in clause “FOURTH” of Section 3.3; provided, that if a Replacement Airframe or Replacement Engine is substituted for the Airframe or Engine subject to such Event of Loss as provided in Section 4.5, any insurance, condemnation or similar proceeds which result from such Event of Loss and are paid over to Security Agent shall be held by Security Agent as part of the Collateral (provided, that such moneys shall be invested as provided in Article 6) as additional security for the obligations of Borrower under the Operative Agreements, and such proceeds (and such investment earnings), to the extent not theretofore applied as provided herein, shall be released to Borrower at Borrower’s written request upon the release of such Airframe or Engine and the replacement thereof as provided herein; provided, if a Default or Event of Default then exists, Security Agent shall continue to hold (and apply) such proceeds as provided herein until such Default or Event of Default no longer exists, in which case Security Agent shall release the remaining portion of such proceeds (and of such investment earnings) over to Borrower.   11 -------------------------------------------------------------------------------- 3.3 Payments after Event of Default. Except as otherwise provided in Section 3.4, all payments received and amounts held or realized by Security Agent (including any amounts realized by Security Agent from the exercise of any remedies pursuant to Article 5) if an Event of Default exists and after the acceleration specified in Section 5.2(b), as well as all payments or amounts then held by Security Agent as part of the Collateral, shall be promptly distributed by Security Agent in the following order of priority: FIRST, so much of such payments or amounts as shall be required to reimburse Security Agent for any tax (except to the extent resulting from a failure of Security Agent to withhold taxes pursuant to Section 2.3(b) unless such failure of Security Agent to withhold is as a result of or caused by any breach by Borrower of its obligations, representations or covenants under any of the Operative Agreements), expense, or other loss (including all amounts to be expended at the expense of, or charged upon the rents, revenues, issues, products, and profits of, the property included in the Collateral (all such property being herein the “Mortgaged Property”) pursuant to Section 5.3(b)) incurred by Security Agent (to the extent not previously reimbursed), the expenses of any sale, or other proceeding, reasonable attorneys’ fees and expenses, court costs, and any other expenditures incurred or expenditures or advances made by Security Agent or the Lenders in the protection, exercise, or enforcement of any right, power, or remedy or any damages sustained by Security Agent or any Lender, liquidated or otherwise, upon such Event of Default shall be applied by Security Agent as between itself and the Lenders to reimburse (x) such expenses and (y) any other expenses for which Security Agent or the Lenders are entitled to reimbursement under any Operative Agreement; and if the aggregate amount to be so distributed is insufficient to pay all amounts described above, then ratably, without priority of one over the other, in proportion to the amounts owed each hereunder; SECOND, so much of such payments or amounts remaining as shall be required to pay in full the unpaid Original Amount of the Equipment Notes, and the accrued but unpaid interest, any Breakage Amount and other amounts due thereon and on all other Secured Obligations in respect of the Equipment Notes to the date of distribution, shall be distributed to the Lenders, and if the amount so to be distributed is insufficient to pay in full, then ratably, without priority of one over the other, in the proportion that (x) the unpaid Original Amount of the Equipment Notes held by each holder plus the accrued but unpaid interest and other amounts due hereunder or thereunder to the distribution date, bears to (y) the aggregate unpaid Original Amount of the Equipment Notes held by all such holders plus the accrued but unpaid interest and other amounts due thereon to the distribution date; THIRD, subject to Section 7.5 of the Loan Agreement, so much of such payments or amounts remaining as is required to pay in full all other Secured Obligations, whether or not then due (by reason of acceleration or otherwise), in the following order: (1) unpaid principal amount of, and all accrued and unpaid interest on, all Related Notes issued under the Related Loan Agreements and all other Related Obligations thereto, pro rata as to amounts outstanding; (2) unpaid principal amount of, and all accrued and unpaid interest on, all PDP Notes and all other Related Obligations thereto, pro rata as to amounts outstanding; and (3) any other Secured Obligations on a pro rata basis; and   12 -------------------------------------------------------------------------------- FOURTH, the balance, if any, of such payments or amounts remaining thereafter shall be distributed as required by any provision of Law, and the balance, if any, to or as directed by Borrower. 3.4 Certain Payments. (a) Any payments that Security Agent receives, and that this Mortgage (other than this Section 3.4) does not provide how to apply but any other Operative Agreement does provide how to apply or for whose benefit such payment was received, shall be applied forthwith to the purpose for which such payment was made in accordance with such other Operative Agreement. (b) Notwithstanding anything to the contrary in this Article 3, Security Agent will distribute promptly upon receipt any indemnity payment that it receives from Borrower in respect of any Lender or any other Indemnitee or Tax Indemnitee, in each case whether or not pursuant to Section 9 of the Loan Agreement, directly to the Person entitled thereto. (c) Payments that Security Agent receives under the Holdings Guarantee shall be distributed in the same manner as the payments to which such payments relate would be distributed had such payments been received by Security Agent. 3.5 Other Payments. Security Agent shall distribute any payments that it receives, and that the Operative Agreements (other than this Section 3.5) do not provide how to apply, as specified in Section 3.1; and after payment in full of all amounts then due in accordance with Section 3.1, then in the manner provided in clause “FOURTH” of Section 3.3. 4. BORROWER’S COVENANTS 4.1 Liens. Borrower will not directly or indirectly create, incur, assume, or suffer to exist any Lien on or with respect to the Airframe or any Engine or any other Collateral, title to any of the foregoing, or any interest of Borrower therein, except Permitted Liens. Borrower shall promptly, at its own expense, take such action as may be necessary duly to discharge (by bonding or otherwise) any such Lien other than a Permitted Lien arising at any time. 4.2 Possession; Operation and Use; Maintenance; Registration; Markings. (a) General. Except as otherwise expressly provided herein, Borrower shall be entitled to operate, use, locate, employ, or otherwise utilize or not utilize the Airframe, any Engine or any Parts in any lawful manner or place in accordance with Borrower’s business judgment. (b) Possession. Borrower shall not, without Security Agent’s prior written consent, lease or otherwise in any manner deliver, transfer, or relinquish possession of the   13 -------------------------------------------------------------------------------- Aircraft, the Airframe, or any Engine, or install any Engine, or permit any Engine to be installed, on any airframe other than the Airframe; except that Borrower may, without such prior written consent: (1) subject or permit any Permitted Lessee to subject (aa) the Airframe to normal interchange agreements or (bb) any Engine to normal interchange agreements or pooling agreements or arrangements, in each case customary in the commercial airline industry and entered into by Borrower or such Permitted Lessee in the ordinary course of business; provided, that (i) no such agreement or arrangement contemplates (other than as contemplated with respect to an Event of Loss) or requires the transfer of title to the Airframe or any Engine and (ii) if Borrower’s title to any such Airframe or Engine is divested under any such agreement or arrangement, then such Airframe or Engine shall be deemed to have suffered an Event of Loss as of the date of such divestiture, and Borrower shall comply with Sections 4.4(e) or 4.5 (as the case may be) in respect thereof; (2) deliver or permit any Permitted Lessee to deliver possession of the Aircraft, the Airframe, any Engine, or any Part (aa) to the manufacturer thereof or to any third-party maintenance provider (approved by the Aviation Authority for that Aircraft, Airframe, Engine or Part) for testing, service, repair, maintenance, or overhaul work on the Aircraft, the Airframe, any Engine, or any Part, or, to the extent required or permitted by the terms of this Agreement, for alterations or modifications in or additions to the Aircraft, the Airframe, or any Engine, or (bb) to any Person for the purpose of transport to a Person referred to in the preceding clause (aa); (3) install or permit any Permitted Lessee to install an Engine on an airframe owned by Borrower or such Permitted Lessee free and clear of all Liens, except (aa) Permitted Liens and those that do not apply to the Engines, and (bb) the rights of third parties under normal interchange or pooling agreements and arrangements of the type permitted under Section 4.2(b)(1); (4) install or permit any Permitted Lessee to install an Engine on an airframe leased to Borrower or such Permitted Lessee, or purchased or owned by Borrower or such Permitted Lessee subject to a security agreement, conditional sale, or other secured financing arrangement, but only if (aa) such airframe is free and clear of all Liens, except (i) the rights of the parties to such lease, or any such secured financing arrangement, covering such airframe, and (ii) Liens of the type permitted by clause (3) of this Section 4.2(b), and (bb) Borrower or Permitted Lessee has received from the lessor, secured party, or conditional seller in respect of such airframe, a written agreement (which may be a copy of the lease, security agreement, conditional sale agreement, or other agreement covering such airframe), whereby such Person agrees that it will not acquire or claim any right, title, or interest in, or Lien on, such Engine by reason of the installation of such Engine on such airframe at any time while such Engine is subject to the Lien of this Mortgage;   14 -------------------------------------------------------------------------------- (5) install or permit any Permitted Lessee to install an Engine on an airframe owned by or leased to Borrower or such Permitted Lessee subject to a conditional sale or other security agreement under circumstances where neither clause (3) nor clause (4) of this Section 4.2(b) applies; provided, that any such installation shall be deemed an Event of Loss with respect to such Engine, and Borrower shall comply with Section 4.4(e) in respect thereof; (6) transfer or permit any Permitted Lessee to transfer possession of the Aircraft, the Airframe, or any Engine to (aa) a U.S. Governmental Entity pursuant to CRAF or (bb) to a U.S. Governmental Entity when required by applicable Law, as the case may be. Neither such event shall, for the avoidance of doubt, be deemed to be an Event of Loss. Borrower shall promptly notify (to the extent Borrower is permitted to do so by applicable U.S. Law) Security Agent in writing of any such transfer and such notification shall identify the name, address and telephone number of the Contracting Office Representative or Representatives for Military Airlift Command of the United States Air Force to whom notices must be given and to whom requests or claims must be made to the extent applicable under CRAF; (7) enter into a Wet Lease with respect to the Aircraft or any other aircraft on which any Engine may be installed (which shall not be considered a transfer of possession hereunder); provided, that Borrower’s obligations hereunder shall continue in full force and effect notwithstanding any Wet Lease and provided, further that Borrower shall promptly notify Security Agent in writing if any Wet Lease in respect of the Aircraft is more than six (6) months in duration (and the Aircraft is the only aircraft that is subject to such Wet Lease); (8) if no Event of Default exists, and subject to the following paragraphs, enter into a lease (a “Permitted Lease”) with respect to the Aircraft, the Airframe, or any Engine with any Permitted Air Carrier or Permitted Manufacturer who is not then subject to any bankruptcy, insolvency, liquidation, reorganization, dissolution, or similar proceeding or with a U.S. Governmental Entity (other than with any branch of the military of the U.S. Government), subject to compliance with the following conditions: (i) Borrower shall give at least thirty (30) days’ prior written notice to Security Agent of any Permitted Lease under specifying (a) the Permitted Lessee, (b) the term of the Permitted Lease, (c) the domicile of the Permitted Lessee, and (d) the country in which the Aircraft is to be ordinarily stored overnight by such Permitted Lessee (as contemplated by the Permitted Lease). Such notice shall be accompanied by the proposed lease agreement. (ii) Any Permitted Lease shall include appropriate provisions:     (A) requiring the maintenance, inspection, insurance, operation and inspection of the Aircraft, Airframe or Engine(s) leased thereby to be in accordance with the relevant provisions of this Mortgage,   15 --------------------------------------------------------------------------------   (B) requiring the Permitted Lessee to keep the Aircraft, Airframe or Engine(s) leased thereby free and clear of Liens other than Permitted Liens,     (C) prohibiting further sublease (except as provided below) of the Aircraft, Airframe or Engine(s),     (D) containing in the case of a proposed lease to a Permitted Foreign Air Carrier, an express waiver by such lessee of the defense of sovereign immunity (1) in any suit, action or proceeding arising out of or relating to such Permitted Lease and (2) with respect to the defense of such lessee’s property from execution or attachment,     (E) providing that the Aircraft shall not be operated or used, and shall be grounded if the insurance coverages required by the terms of Section 4.6 of this Mortgage are not in effect, and     (F) requiring Permitted Lessee to ensure that registration of the Aircraft in the name of Borrower under the Transportation Code except as permitted in Section 4.2(c), and     (G) such other terms and conditions as may be reasonably requested by the Security Agent in connection with a Permitted Lease to a U.S. Governmental Entity. (iii) in the case of a lease to a Permitted Foreign Air Carrier, Security Agent shall receive evidence reasonably satisfactory to it that: (1) all necessary approvals from any Governmental Entity required for the leased Airframe or any leased Engine or engine, as the case may be, to be imported and, to the extent reasonably obtainable and reasonably requested, exported from the applicable country of domicile upon repossession of such equipment by Security Agent shall have been obtained prior to the importation of the imported Airframe and/or Engine under any such lease; and (2) the insurance requirements of Section 4.6 and Annex B are satisfied; and (iv) in connection with any Permitted Lease to a Permitted Foreign Air Carrier, Borrower shall obtain at its own cost, as a condition to the delivery to the proposed Permitted Lessee of the Aircraft, Airframe or any Engine, an opinion from reputable counsel selected by Borrower and reasonably acceptable to Security Agent located in the country of such Permitted Lessee’s domicile (or, if Borrower determines during the term of the Permitted Lease that the Aircraft or Airframe or any Engine will be based or primarily used in a country other than the   16 -------------------------------------------------------------------------------- country of such Permitted Lessee’s domicile, an additional opinion or opinions of reputable counsel selected by Borrower and reasonably acceptable to Security Agent located in such other country) in form and substance reasonably satisfactory to Security Agent; provided, that (1) the rights of any transferee who receives possession by reason of a transfer permitted by this Section 4.2(b) (other than by a transfer of an Engine which is deemed an Event of Loss) shall be subject and subordinate to this Mortgage and to Security Agent’s rights, powers and remedies hereunder, (2) Borrower shall remain primarily liable for the performance of this Mortgage and all the terms and conditions of this Mortgage and the other Operative Agreements shall remain in effect to the same extent as if such transfer had not occurred, and no transfer of possession of the Aircraft, Airframe or any Engine or any failure of performance under or with respect to such transfers shall in any way discharge (except to the extent performed by such transferee) or diminish any of Borrower’s obligations to Security Agent hereunder or under any Operative Agreement, and (3) no lease or transfer of possession otherwise in compliance with this Section 4.2(b) shall (aa) result in any registration or re-registration of the Aircraft (except to the extent permitted by Section 4.2(e)) or the maintenance, operation, or use thereof except in compliance with Sections 4.2(c) and 4.2(d), or (bb) permit any action not permitted to Borrower hereunder. In the case of any Permitted Lease, Borrower will include in such lease appropriate provisions which (x) make such lease expressly subject and subordinate to this Mortgage and (y) require that the Airframe or any Engine subject thereto be used in accordance with the limitations applicable to Borrower’s possession and use provided in this Mortgage and provide for the maintenance and inspection of the Aircraft in the same manner in all material respects as the applicable provisions of this Mortgage. No Permitted Lessee may sublease the Airframe or any Engine, except that a Permitted Manufacturer or Affiliate of Borrower that is a Permitted Lessee may sublease to any Permitted Lessee to whom a lease would be permitted under this Section 4.2; provided that (A) such sublease shall not permit any sub-subleasing of the Aircraft, the Airframe, or any Engine (and Borrower shall ensure that the same does not occur), (B) such sublease shall be assigned to Borrower to secure such Permitted Manufacturer’s obligations under its lease pursuant to a sublease assignment and sublessee consent each in form and substance reasonably satisfactory to Security Agent, and (C) Borrower shall comply, and shall cause such sublease to comply, with all requirements and conditions of this Section 4.2 as if such sublease were a direct lease from Borrower to the sublessee. Borrower shall reimburse Security Agent for all of its reasonable out-of-pocket fees and expenses (including reasonable fees and disbursements of counsel) incurred in connection with any such lease or sublease. Except as otherwise provided herein and without in any way relieving Borrower from its primary obligation for the performance of its obligations under this Mortgage, Borrower may in its sole discretion permit a lessee to exercise any or all rights which Borrower would be entitled to exercise under Section 4.2 and Section 4.4, and may cause a lessee to perform any or all of Borrower’s obligations under Article 4, and Security Agent agrees to accept actual and full performance thereof by a lessee in lieu of performance by Borrower.   17 -------------------------------------------------------------------------------- Security Agent hereby agrees, and each Lender by acceptance of an Equipment Note agrees, for the benefit of each lessor, conditional seller, or secured party of any engine leased, purchased, or owned by Borrower or any Permitted Lessee subject to a lease, conditional sale, or other security agreement that Security Agent, each Lender, and their respective successors and assigns will not acquire or claim, as against such lessor, conditional seller, or secured party, any right, title, or interest in any engine as the result of the installation of such engine on the Airframe at any time while such engine is subject to such lease, conditional sale, or other security agreement and owned by such lessor or conditional seller or subject to a security interest in favor of such secured party; provided, Borrower or any Permitted Lessee has received from any such lessor, secured party, or conditional seller in respect of any airframe leased, purchased or owned by Borrower or any Permitted Lessee, a written agreement (which may be a copy of the lease, security agreement, conditional sale agreement, or other agreement covering such airframe), whereby such Person agrees that neither it nor its successors will acquire or claim any right, title, or interest in an Engine by reason of the installation of such Engine on any such airframe at any time while such Engine is subject to the Lien of this Mortgage. As security for Borrower’s due and punctual payment and performance of all of its covenants and obligations in the Operative Agreements, Borrower hereby grants to Security Agent a security interest in all of Borrower’s right, title, and interest in and to each Permitted Lease having a term in excess of one year of any Aircraft, Airframe, or Engine, including with respect to all payments, including payments of rent, insurance proceeds (other than public liability insurance proceeds), and other amounts due or to become due thereunder. Borrower shall enter into a “Lease Assignment” and a “Lessee Consent” each in form and substance reasonably satisfactory to Security Agent with respect to each Permitted Lease of the Airframe having a term of one or more years. In connection therewith Borrower shall cause (subject to the consent of the Security Agent) an assignment of associated rights with respect to such Permitted Lease to be registered with the International Registry, and in addition shall take such additional actions as are required under Section 6.1 of the Loan Agreement. (c) Operation and Use. Borrower shall not operate, use, or locate the Aircraft, the Airframe, or any Engine, or allow the Aircraft, the Airframe, or any Engine to be operated, used, or located, (1) in any area excluded from coverage by any insurance required by Section 4.6, except in the case of a requisition by the U.S. Government where Borrower obtains (and provides evidence of) an indemnity in lieu of such insurance from the U.S. Government, or insurance from the U.S. Government, against substantially the same risks and for at least the amounts of the insurance required by Section 4.6 covering such area, or (2) in any recognized area of hostilities unless covered in accordance with Section 4.6 by war risk insurance, or in either case unless the Aircraft, the Airframe, or any Engine is only temporarily operated, used, or located in such area as a result of an emergency, equipment malfunction, navigational error, hijacking, weather condition, or other similar unforeseen circumstance, so long as Borrower diligently and in good faith proceeds to remove the Aircraft from such area. Borrower shall not permit the Aircraft, the Airframe, or any Engine to be used, operated, maintained, serviced, repaired or overhauled (x) in violation of any Law binding on or applicable to such Aircraft, Airframe, or Engine or (y) in violation of any airworthiness certificate, license or registration of any Governmental Entity relating to the Aircraft, the Airframe, or any Engine, except (i) immaterial or non-recurring violations with respect to which corrective   18 -------------------------------------------------------------------------------- measures are taken promptly by Borrower or Permitted Lessee upon discovery thereof, or (ii) to the extent the validity or application of any such Law or requirement relating to any such certificate, license, or registration is being contested in good faith by Borrower or Permitted Lessee in any reasonable manner which does not involve any material risk of the sale, forfeiture, or loss of the Aircraft, the Airframe, or any Engine, any material risk of criminal liability or material civil penalty against Security Agent or any Lender or impair in any material respect Security Agent’s or any Lender’s interest in the Aircraft, the Airframe, or any Engine. The Aircraft shall not be operated or used (except in the course of customary maintenance so long as ground insurance is in effect), and shall be grounded, if the insurance coverage required by the terms of Section 4.6 are not in effect. (d) Maintenance and Repair. At its own cost and expense, Borrower shall cause the Aircraft, the Airframe, and each Engine (and any engine that is not an Engine but installed on the Aircraft) to be maintained, serviced, repaired, and overhauled in accordance with (1) while operated by Borrower, Borrower’s FAA-approved maintenance program and, while operated by a Permitted Lessee, Permitted Lessee’s Approved Maintenance Program, (in either case, the “Maintenance Program”) so as (aa) to keep the Aircraft, the Airframe, and each Engine in as good operating condition as on the Closing Date, ordinary wear and tear excepted, and (bb) to keep the Aircraft in such operating condition as may be necessary to enable the applicable airworthiness certification of the Aircraft to be maintained under the regulations of the FAA or other Aviation Authority then having jurisdiction over the operation of the Aircraft (but in any event in accordance with the Maintenance Program), except during (x) temporary periods of storage during which time appropriate storage maintenance will be performed in accordance with applicable regulations, (y) maintenance and modification permitted hereunder, or (z) periods when the FAA or such other Aviation Authority has revoked or suspended the airworthiness certificates for Similar Aircraft; and (2) except during periods when a Permitted Lease is in effect, the same standards as Borrower uses with respect to Similar Aircraft in its fleet operated by Borrower in similar circumstances and, during any period in which a Permitted Lease is in effect, in accordance with the Maintenance Program of the Permitted Lessee. Borrower further agrees that the Aircraft, the Airframe, and Engines will be maintained, used, serviced, repaired, overhauled, or inspected in compliance with applicable Laws with respect to the maintenance of the Aircraft and in compliance with each applicable airworthiness certificate, license, and registration relating to the Aircraft, the Airframe, or any Engine issued by the Aviation Authority, other than minor or nonrecurring violations with respect to which corrective measures are taken upon discovery thereof and except to the extent Borrower or Permitted Lessee is contesting in good faith the validity or application of any such Law or requirement relating to any such certificate, license, or registration in any reasonable manner which does not create any material risk of sale, loss, or forfeiture of the Aircraft, the Airframe, or any Engine or the interest of Security Agent or any Lender therein, or any material risk of criminal liability or material civil penalty against Security Agent or any Lender. Borrower shall maintain or cause to be maintained the Aircraft Documents in English (except that, during the term of any Permitted Lease to a Permitted Lessee who is a Permitted Foreign Air Carrier, such Permitted Lessee may maintain Aircraft Records in the primary language of the country in which such Permitted Lessee is located; provided, certified translations shall be made into English of all such Aircraft Records by   19 -------------------------------------------------------------------------------- appropriate translators qualified to an internationally recognizable standard on an ongoing basis and no less frequently than once each year and provided that each such translated document shall be further endorsed by the official stamp, or certified signature of the accountable manager with responsibility for quality control of the Permitted Foreign Air Carrier). (e) Registration. On or as promptly as practicable after the Closing Date, Borrower shall cause the Aircraft to be duly registered in its name under the Transportation Code, or as otherwise permitted by this Section 4.2(e), and cause (subject to the consent of the Airframe Manufacturer) the sale of the Airframe and each Engine effected by the Bills of Sale to be duly registered with the International Registry and at all times thereafter shall cause the Aircraft to remain so registered. Borrower shall be entitled to register the Aircraft or cause the Aircraft to be registered in a Permitted Country or another country with the prior written approval of Security Agent if: (1) such proposed change of registration is made in connection with a Permitted Lease; (2) no Event of Default is in existence, (3) Borrower and Permitted Lessee shall duly register with the appropriate Governmental Entity of such country Borrower’s interest as the owner and Security Agent’s Lien in and to the Aircraft and shall, at all times thereafter, cause the same to remain so duly registered unless and until such time as the registration of the Aircraft is changed as provided herein, and shall cause to be done, at all times all other acts including the filing, recording and delivery of any document or instrument or, by reference to prudent industry practice in such country, that Security Agent deems reasonably necessary or advisable in order to create, preserve and protect such interest in the Aircraft as against Borrower and any third parties, (4) all insurance provided for in the Operative Agreements shall be in full force and effect before, at the time of, and after such change in registration, and Security Agent and each Lender shall receive a certificate of Borrower’s or Permitted Lessee’s insurance broker to such effect; (5) none of Security Agent or the Lenders shall be subjected to any adverse tax consequence for which Borrower is not required to indemnify such person as a result of such re-registration, unless Borrower agrees to indemnify such Person therefor in a manner reasonably acceptable to such Person; and (6) Security Agent receives an opinion of reputable counsel selected by Borrower and reasonably acceptable to Security Agent in form and substance reasonably satisfactory to Security Agent. Borrower shall provide not less than thirty (30) days’ prior written notice of a proposed change in registration (specifying the jurisdiction involved) accompanied by a draft of all required documents. Borrower shall reimburse Security Agent and the Lenders for all of their reasonable out-of-pocket fees and expenses (including reasonable fees and disbursements of counsel) incurred in connection with any such change in registration meeting the requirements of this paragraph (e). Security Agent and each Lender agrees to cooperate with Borrower to the extent reasonably necessary to enable it to effectuate such change in registration. Borrower shall also cause (A) this Mortgage to be duly recorded and at all times maintained of record as a first-priority perfected mortgage (subject to Permitted Liens) on the Aircraft, the Airframe, and each of the Engines and (B) the International Interest in the Airframe and each Engine constituted by this Mortgage to be duly registered on the International Registry as a first priority International Interest.   20 -------------------------------------------------------------------------------- (f) Markings. On or reasonably promptly after the Closing Date, Borrower will cause to be affixed to, and maintained in, the cockpit of the Airframe and on each Engine, in each case, in a clearly visible location, a placard of a reasonable size and shape bearing the legend: “Subject to a security interest in favor of The Royal Bank of Scotland, as Security Agent.” Such placards may be removed temporarily, if necessary, in the course of maintenance of the Airframe or Engines and promptly replaced thereafter. If any such placard is damaged or becomes illegible, Borrower shall promptly replace it with a placard complying with the requirements of this Section 4.2(f). (g) Information for Filings. Borrower shall promptly furnish to Security Agent such information within Borrower’s possession or reasonably available or obtainable by Borrower (without out-of-pocket cost or expense to Borrower unless Security Agent reimburses Borrower for such out-of-pocket cost or expense) as may be required to enable Security Agent timely to file any reports required to be filed by it as Security Agent under this Mortgage with any Governmental Entity because of, or in connection with, the interest of Security Agent in the Aircraft, the Airframe or the Engines, or any other part of the Collateral; provided, however, that with respect to any such information which Borrower reasonably deems commercially sensitive or confidential, Security Agent, so long as delay in providing such information will not expose Security Agent to any risk of criminal liability or any material risk of material civil liability, shall afford Borrower a reasonable opportunity to seek from any such Governmental Entity a waiver of the obligation to provide any such information, or a consent to the filing of such information directly by Borrower in lieu of filing by Security Agent, and if any such waiver or consent is evidenced to the reasonable satisfaction of Security Agent then Borrower shall not be required to furnish such information to Security Agent 4.3 Inspection. (a) At all reasonable times, Security Agent or its authorized representatives (the “Inspecting Parties”) may (not more than once every twelve (12) months, unless an Event of Default exists, then such inspection right shall not be so limited) inspect the Aircraft and the Aircraft Documents. (b) Any inspection of the Aircraft hereunder shall be limited to a visual, internal and external walk-around inspection, and shall not include the opening of any panels, bays, or other components of the Aircraft (other than inspection panels which may be opened and closed by hand and without the use of tools in the course of normal line maintenance access), and no such inspection shall interfere with Borrower’s or any Permitted Lessee’s maintenance or operation of the Aircraft, the Airframe, or any Engine. (c) With respect to such rights of inspection, Security Agent shall not have any duty or liability to make, or any duty or liability by reason of not making, any such visit, inspection or survey. (d) Each Inspecting Party shall bear its own expenses in connection with any such inspection, unless an Event of Default exists, then Borrower shall reimburse each Inspecting Party for its reasonable out-of-pocket costs and expenses incurred in connection with any such inspection.   21 -------------------------------------------------------------------------------- 4.4 Replacement and Pooling of Parts; Alterations, Modifications, and Additions; Substitution of Engines. (a) Replacement of Parts. Except as otherwise provided herein, Borrower, at its own cost and expense, will promptly replace (or cause to be replaced) all Parts that are from time to time incorporated or installed in or attached to the Aircraft, and that become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair, or permanently rendered unfit for use for any reason whatsoever. In addition, Borrower, at its own cost and expense, may remove (or cause to be removed) in the ordinary course of business, fleet management, maintenance, service, repair, overhaul, or testing any Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair, or permanently rendered unfit for use; provided, that, except as otherwise provided herein, Borrower will replace or cause the replacement of such Parts as promptly as practicable but in no case later than 90 days. All replacement parts (other than replacement parts installed in or attached to the Airframe or any Engine on a temporary basis) shall be owned by Borrower or, as the case may be, the Permitted Lessee and shall be free and clear of all Liens, except for Permitted Liens and pooling arrangements to the extent permitted by Section 4.4(c), and shall be in good operating condition and (except in the case of replacement parts installed in or attached to the Airframe on a temporary basis) have a value, remaining useful life and utility not less than the value, remaining useful life and utility of the Parts replaced (assuming such replaced Parts were in the condition required hereunder) and such replacement shall have documentation meeting the applicable requirements of the FAA or other Aviation Authority then having jurisdiction over the Aircraft. (b) Removal of Parts. Except as otherwise provided herein, any Part at any time removed from the Airframe or any Engine shall remain subject to the Lien of this Mortgage, no matter where located, until it is replaced by a part that has been incorporated or installed in or attached to such Airframe or any Engine and that meets the requirements for replacement parts specified above. Except with respect to replacement parts installed in or attached to the Airframe or any Engine on a temporary basis, as soon as a replacement part is incorporated or installed in or attached to the Airframe or any Engine as provided in Section 4.4(a), without further act, (1) the replaced part shall thereupon be free and clear of all rights of Security Agent and shall no longer be a Part hereunder, and (2) such replacement part shall become a Part hereunder and subject to this Mortgage and be part of such Airframe or Engine for all purposes hereof to the same extent as the Parts originally incorporated or installed in or attached to such Airframe or Engine. (c) Pooling of Parts. Any Part removed from the Aircraft may be subjected by Borrower or a Permitted Lessee to a normal pooling arrangement customary in the airline industry and entered into in the ordinary course of business of Borrower or Permitted Lessee, provided, that the part replacing such removed Part shall be incorporated or installed in or attached to such Airframe or any Engine in accordance with Section 4.4(a)   22 -------------------------------------------------------------------------------- and Section 4.4(b) as promptly as practicable after the removal of such removed Part and the Person using the removed part in the course of its participation in such pooling arrangement complies with the documentation and maintenance requirements of the FAA or the Aviation Authority then having jurisdiction over the Aircraft. In addition, any replacement part when incorporated or installed in or attached to the Airframe or any Engine may be owned by any third party, subject to a normal pooling arrangement, so long as Borrower or a Permitted Lessee, as promptly thereafter as practicable, either (1) causes such replacement part to become subject to the Lien of this Mortgage, free and clear of all Liens except Permitted Liens, at which time such replacement part shall become a Part, or (2) replaces (or causes to be replaced) such replacement part by incorporating or installing in or attaching to the Aircraft a further replacement part owned by Borrower or, as the case may be, a Permitted Lessee free and clear of all Liens except Permitted Liens and which shall become subject to the Lien of this Mortgage in accordance with Section 4.4(b). (d) Alterations, Modifications, and Additions. Borrower shall make (or cause to be made) alterations and modifications in and additions to the Aircraft as may be required to be made from time to time to meet the applicable standards of the FAA or other Aviation Authority having jurisdiction over the operation of the Aircraft, to the extent made mandatory in respect of the Aircraft (a “Mandatory Modification”); provided, that Borrower or a Permitted Lessee may, in good faith and by appropriate procedure, contest the validity or application of any law, rule, regulation, or order in any reasonable manner which does not adversely affect in any material respect Security Agent’s interest in the Aircraft and does not involve any material risk of sale, forfeiture, or loss of the Aircraft or the interest of Security Agent or any Lender therein, or any material risk of criminal liability or material civil penalty being imposed on Security Agent or any Lender. In addition, Borrower at its own cost and expense may make or permit to be made such alterations and modifications in and additions to the Airframe or any Engine (each an “Optional Modification”) as Borrower or a Permitted Lessee deems desirable in the proper conduct of its business, including removal of Parts which Borrower deems are obsolete or no longer suitable or appropriate for use in the Aircraft; provided, that no such Optional Modification shall (1) diminish the fair market value, utility, or useful life of the Aircraft or any Engine below its fair market value, utility, or useful life immediately before such Optional Modification (assuming the Aircraft or such Engine was in the condition required by this Mortgage immediately before such Optional Modification), (2) impair the airworthiness of the Airframe or the Engine, (3) involve structural modification to the Airframe that would be inconsistent with the use of the Aircraft as an aircraft in passenger configuration or (4) cause the Aircraft to cease to have the applicable standard certificate of airworthiness. Borrower or a Permitted Lessee shall obtain all supplemental type certificates for any modification that is a major modification in accordance with the applicable regulations of the FAA. Except as otherwise provided herein, all Parts (other than Removable Parts) incorporated or installed in or attached to the Aircraft as a result of such Optional Modification shall, without further act, become subject to this Mortgage. Borrower or any Permitted Lessee may, at any time so long as the Airframe or any Engine is subject to the Lien of this Mortgage, remove any such Part (such Part being referred to herein as a “Removable Part”) from such Airframe or an Engine if (i) such Part is in addition to, and not in replacement of or in substitution for,   23 -------------------------------------------------------------------------------- any Part originally incorporated or installed in or attached to such Airframe or any Engine at the time of delivery thereof hereunder or any Part in replacement of, or in substitution for, any such original Part, (ii) such Part is not required to be incorporated or installed in or attached or added to such Airframe or any Engine pursuant to Section 4.2(d) or the first sentence of this Section 4.4(d), and (iii) such Part can be removed from such Airframe or any Engine without diminishing the fair market value, utility, or remaining useful life which such Airframe or any Engine would have had at the time of removal had such removal not been effected, assuming the Aircraft was otherwise maintained in the condition required by this Mortgage and such Removable Part had not been incorporated or installed in or attached to the Aircraft. No Removable Part shall be subject to the Lien of this Mortgage. Removable Parts may be leased from or financed by third parties other than Security Agent; provided, the Lien related to any such lease or financing shall not extend beyond the Removable Parts subject to such lease or financing. For the avoidance of any doubt, Security Agent and Borrower acknowledge and agree that any and all in-flight entertainment equipment (“IFE”) installed in the Aircraft (whether before or after delivery thereof) shall be deemed to be a Removable Part for all purposes of this Mortgage, but only to the extent and for so long as such IFE is not owned by Borrower or is subject to lease or a secured financing arrangement by third parties other than Security Agent; provided, that: (1) the owner or financier of the IFE will have no lien on or against the Aircraft and no rights with respect to the Aircraft except the right to remove the IFE from such Aircraft if such owner, financier or Borrower repairs and restores the Aircraft as provided below; (2) prior to the installation of any IFE, Borrower shall provide Security Agent with the identity of the owner or financier of such IFE. Security Agent acknowledges that (i) the IFE will not constitute a Part or a part of the Aircraft, and (ii) the IFE will not become subject to the Lien of this Mortgage; and (3) such right of installation and removal is subject to and conditional upon any such owner or financier repairing or causing to be repaired any damage to the Aircraft in connection therewith and restoring both cosmetically and functionally those systems and fittings affected by the removal of such IFE and paying (and holding Security Agent and the Lenders harmless with respect to) all costs, expenses and liabilities in connection therewith. Security Agent further agrees that parts installed on the Engine (whether before or after delivery thereof) to increase the thrust setting of any such Engine to a thrust setting greater than a B20 rating shall each be deemed to be a Removable Part for all purposes of this Mortgage; provided, however, that upon removal of any such parts to reduce the thrust setting back to the B20 rating, the appropriate parts are installed to restore the affected Engine to the B20 rating; provided, further, that if it is necessary for operational reasons to reduce the thrust setting of any such Engine to a thrust setting below a B20 rating, then Parts removed for that purpose shall not be deemed to be Removable Parts and shall continue to be subject to the Lien of this Mortgage until such time as they have been reinstalled or replaced by Parts which increase the thrust setting to B20 or higher.   24 -------------------------------------------------------------------------------- (e) Substitution of Engines. Subject to the terms and conditions of this Section 4.4(e), (A) Borrower shall have the right at its option at any time, on at least ten (10) days’ prior written notice to Security Agent, to substitute for any Engine, and (B) if an Event of Loss to an Engine occurs under circumstances in which an Event of Loss to the Airframe has not occurred, Borrower shall within 90 days of the occurrence of such Event of Loss substitute for any Engine, a Replacement Engine, free and clear of Liens (other than Permitted Liens not of record). In such event, immediately upon the effectiveness of such substitution in accordance with this Section 4.4(e) and without further act, (1) the replaced Engine shall thereupon be free and clear of all rights of Security Agent and the Lien of this Mortgage and shall no longer be deemed an Engine hereunder, (2) such Replacement Engine shall become subject to this Mortgage and be deemed part of the Aircraft for all purposes hereof to the same extent as was the replaced Engine. Such Replacement Engine shall be an engine manufactured by Engine Manufacturer that is the same model as the Engine being replaced thereby, or an improved model (but in any event the same model as the other Engine then subject to this Mortgage), and that is suitable for installation and use on the Airframe with the other Engine, and that has a value, utility, and remaining useful life (without regard to hours and/or cycles since last overhaul) at least equal to the Engine being replaced thereby (assuming that such Engine had been maintained in accordance with this Mortgage and was in the condition required hereunder) and that such Replacement Engine shall not have more hours or cycles since new (whichever is applicable) than the Airframe and the Life Limited Parts installed thereon do not have on average a higher collective number of cycles since new than the Life Limited Parts of the Engine being replaced and (3) has all necessary Aircraft Documents required by and maintained in conformity with the applicable regulations of the FAA or other Aviation Authority then having jurisdiction over the Aircraft. In connection with any such substitution, Borrower shall be required to fulfill the following conditions at Borrower’s sole cost and expense, and Security Agent shall cooperate reasonably with Borrower to enable Borrower timely to satisfy such conditions: (1) an executed counterpart of each of the following documents shall be delivered to Security Agent: (aa) a supplement to this Mortgage, covering the Replacement Engine and incorporating this Mortgage, which shall be duly filed for recordation pursuant to the Transportation Code or such other applicable law of the jurisdiction other than the United States in which the aircraft of which such Engine is a part is registered in accordance with Section 4.2(e) and the International Interest created by such supplement shall (subject to the consent of Security Agent) be duly registered with the International Registry as an International Interest with respect to the Replacement Engine;   25 -------------------------------------------------------------------------------- (bb) a full warranty (as to title) bill of sale, covering the Replacement Engine, executed by the former owner thereof in favor of Borrower (or, at Borrower’s option, other evidence of Borrower’s ownership of such Replacement Engine, reasonably satisfactory to Security Agent), and Borrower shall cause (subject, if necessary, to the consent of the prior owner of the Replacement Engine) the sale of the Replacement Engine effected by such bill of sale (or other evidence) to be registered with the International Registry as a contract of sale; (cc) Financing Statements covering the security interests created by this Mortgage (or any similar statements or other documents required to be filed or delivered pursuant to the laws of the jurisdiction in which the Aircraft may be registered) as are necessary to protect the security interests of Security Agent in the Replacement Engine; (dd) an opinion of Borrower’s counsel addressed to Security Agent and each Lender (which may be from in-house counsel) and in form and substance reasonably satisfactory to Security Agent to the effect that the supplement to this Mortgage referred to in clause (1)(aa) has been duly authorized, executed, and delivered by Borrower; (ee) furnish an opinion of aviation law counsel addressed to Security Agent and each Lender and in form and substance reasonably acceptable to Security Agent to the effect that (1) upon such replacement, Borrower’s title to such Replacement Engine(s) will be free and clear of all Liens of record (other than Permitted Liens) and that such Replacement Engine(s) will be subject to the Lien of this Mortgage to the same extent as the Engine(s) replaced thereby, (2) the supplement subjecting any such Replacement Engine(s) to this Mortgage has been duly filed for recordation pursuant to the Transportation Code or such other applicable Law of the jurisdiction other than the United States in which the aircraft of which such Engine is a part is registered in accordance with Section 4.2(e), (3) this Mortgage, as supplemented by such Mortgage supplement, creates a duly perfected first priority security interest and International Interest in any such Replacement Engines, (4) the sale of the ownership interest of any such Replacement Engine(s) effected by the bills of sale (or other evidence of ownership) thereof has been duly registered with the International Registry, and (5) the International Interest created by such Mortgage supplement in and to any such Replacement Engine(s) has been duly registered with the International Registry; (ff) furnish a certificate of a qualified aircraft appraiser (which may not be an employee of Borrower), certifying that such Replacement Engine complies with the utility and remaining useful life requirements set forth above in this Section 4.4(e);   26 -------------------------------------------------------------------------------- (gg) assign as security to Security Agent the benefit of all assignable and remaining manufacturers’ and vendors’ warranties with respect to such Replacement Engine(s); (hh) furnish Security Agent with an Officer’s Certificate of Borrower certifying that all applicable conditions to the replacement pursuant to this Section 4.4(e) have been satisfied and to the effect that upon consummation of such replacement no Event of Default shall be continuing; and (ii) take such other action as Security Agent reasonably requests in order that any such Replacement Engine(s) be properly titled in Borrower free and clear of all Liens (except Permitted Liens) and subjected to the Lien of this Mortgage to the same extent as any Engine(s) replaced thereby. (2) Borrower shall cause to be delivered to Security Agent such evidence of compliance with the insurance provisions of Section 4.6 with respect to such Replacement Engine as Security Agent may reasonably request. Upon satisfaction of the conditions to such substitution, (x) Security Agent shall execute and deliver to Borrower such documents and instruments as Borrower has prepared and reasonably requests to evidence the release of such replaced Engine from the Lien of this Mortgage and discharge from the International Registry the registration of the International Interest created by this Mortgage (and any other registered interests in favor of Security Agent) as it relates to the replaced Engine, (y) if no Event of Default has occurred and is continuing, Security Agent shall assign to Borrower all claims that Security Agent may have against any other Person relating to any Event of Loss giving rise to such substitution, and (z) Borrower shall receive all insurance proceeds (other than those reserved to itself or to Security Agent under Section 4.6(b)) and proceeds in respect of any Event of Loss giving rise to such replacement to the extent not previously applied as provided or permitted hereunder; provided, that if an Event of Default has occurred and is continuing, such proceeds shall not be distributed by the Security Agent to Borrower unless and until such Event of Default is no longer continuing, in which case, subject to the provisions of Section 3.3, such proceeds and any gain realized as a result of investments required to be made pursuant to Article 6 of this Mortgage shall be paid to Borrower (except to the extent applied by Security Agent as provided in this Mortgage). Borrower shall reimburse Security Agent and each other Lender for all reasonable out-of-pocket costs and expenses (including reasonable attorney fees and expenses) incurred in connection with any Replacement Engine becoming an Engine hereunder. 4.5 Loss, Destruction, or Requisition. (a) Event of Loss to the Aircraft. If an Event of Loss to the Airframe (and any Engine(s) installed thereon) occurs, Borrower shall promptly (and in any event within fifteen (15) days after such occurrence, or, if later, within fifteen (15) days after the determination that an Event of Loss has occurred,   27 -------------------------------------------------------------------------------- provided that such determination is promptly made) notify Security Agent of such Event of Loss. Within sixty (60) days after such occurrence, Borrower shall notify Security Agent of Borrower’s election either to replace the Airframe and any such Engine(s) as provided under Section 4.5(a)(1) or to make payment in respect of such Event of Loss as provided under Section 4.5(a)(2) (and if Borrower does not notify Security Agent of such election within the 60-day time period, Borrower shall be deemed to have elected to make payment in respect of such Event of Loss as provided under Section 4.5(a)(2)): (1) If Borrower elects to replace the Airframe and any such Engine(s), Borrower shall, subject to the satisfaction of the conditions in Section 4.5(c), as promptly as possible and in any event within 120 days after the occurrence of such Event of Loss, cause to be subjected to the Lien of this Mortgage, in replacement of the Airframe with respect to which the Event of Loss occurred, a Replacement Airframe and, if any Engine was installed on the Airframe when it suffered the Event of Loss, a Replacement Engine therefor; provided, that if Borrower does not perform its obligation to effect such replacement under this clause (1) during the 120-day period provided herein, it shall pay the amounts required to be paid pursuant to and within the time frame specified in clause (2) below. (2) If Borrower elects to make a payment for such Event of Loss to the Airframe, Borrower shall make a payment to Security Agent for purposes of redeeming Equipment Notes in accordance with Section 2.9 on a date on or before the Business Day following the earlier of (aa) the 120th day after the occurrence of such Event of Loss, and (bb) the third (3rd) day after the receipt of insurance proceeds with respect to such Event of Loss (but in any event not earlier than the date of Borrower’s election under Section 4.5(a) to make payment under this Section 4.5(a)(2)); and upon such payment and payment of all other Secured Obligations then due and payable, Security Agent shall, at Borrower’s cost and expense, release from the Lien of this Mortgage, and discharge from the International Registry the registration of the International Interest created by this Mortgage (and any other registered interests in favor of Security Agent) as it relates to, the Airframe and the Engines, by executing and delivering to Borrower all documents that Borrower reasonably requests to evidence such release or discharge. Borrower may extend the period set forth in clause (1) above for an additional thirty (30) days or the period set forth in clause (2) above for an additional sixty (60) days if (aa) Borrower provides Security Agent with a cash payment equal to the then unpaid Original Amount of the Equipment Notes, such payment to be held by Security Agent as security for Borrower’s obligations under this Section 4.5, (bb) Security Agent shall have received the insurance proceeds with respect to such loss and such proceeds are at least equal to the then unpaid Original Amount of the Equipment Notes or (cc) any combination of (aa) and (bb) shall result in Security Agent holding funds as security for Borrower’s obligations under this Section 4.5 equal to the then unpaid Original Amount of the Equipment Notes.   28 -------------------------------------------------------------------------------- (b) Effect of Replacement. If Borrower provides a Replacement Airframe and any Replacement Engine(s) as provided for in Section 4.5(a)(1), then (1) the Lien of this Mortgage shall continue with respect to such Replacement Airframe and Replacement Engine(s) (if any) as though no Event of Loss had occurred; (2) Security Agent shall release from the Lien of this Mortgage, and discharge from the International Registry the registration of the International Interest created by this Mortgage (and any other registered interests in favor of Security Agent) as it relates to, the replaced Airframe and Engines (if any) by executing and delivering to Borrower such documents and instruments as Borrower reasonably requests to evidence such release or discharge; and (3) in the case of a replacement upon an Event of Loss, Security Agent shall assign to Borrower all claims Security Agent may have against any other Person arising from the Event of Loss, and Borrower shall receive all insurance proceeds (other than those reserved to itself or Security Agent under Section 4.6(b)) and proceeds from any award in respect of condemnation, confiscation, seizure, or requisition, including any investment interest thereon, to the extent not previously applied or permitted hereunder; provided, that if an Event of Default has occurred and is continuing, such proceeds shall not be distributed by Security Agent to Borrower unless and until such Event of Default is no longer continuing, in which case, subject to the provisions of Section 3.3, such proceeds and any gain realized as a result of investments required to be made pursuant to Article 6 of this Mortgage shall be paid to Borrower (except to the extent applied by Security Agent as provided in this Mortgage). (c) Conditions to Airframe and Engine Replacement upon an Event of Loss. Borrower’s right to substitute a Replacement Airframe and any Replacement Engine(s) as provided in Section 4.5(a)(1) is subject to the fulfillment, at Borrower’s sole cost and expense, in addition to the conditions in Section 4.5(a)(1), of the following conditions precedent (and Security Agent shall cooperate reasonably with Borrower to enable Borrower timely to satisfy such conditions): (1) on the date when the Replacement Airframe and any Replacement Engine(s) are subjected to the Lien of this Mortgage (the “Replacement Closing Date”), Security Agent receives an executed counterpart of each of the following documents (or, in the case of the FAA Bill of Sale and full warranty bill of sale referred to below, a photocopy thereof): (aa) a supplement to this Mortgage covering the Replacement Airframe and any Replacement Engine(s), which shall be duly filed for recordation pursuant to the Transportation Code or such other applicable law of such jurisdiction other than the United States in which the Replacement Airframe and any Replacement Engine(s) are to be registered in accordance with Section 4.2(e); (bb) an FAA Bill of Sale (or a comparable document, if any, of another Aviation Authority, if applicable) covering the Replacement Airframe, executed by the former owner thereof in favor of Borrower;   29 -------------------------------------------------------------------------------- (cc) a full warranty (as to title) bill of sale, covering the Replacement Airframe and any Replacement Engine(s), executed by the former owner thereof in favor of Borrower (or, at Borrower’s option, other evidence of Borrower’s ownership of such Replacement Airframe and any Replacement Engine(s), reasonably satisfactory to Security Agent); and (dd) Financing Statements (or any similar statements or other documents required to be filed or delivered pursuant to the laws of the jurisdiction in which the Replacement Airframe and any Replacement Engine(s) may be registered in accordance with Section 4.2(e)) as counsel for Security Agent deems reasonably necessary or desirable to protect the security interests of Security Agent in the Replacement Airframe and any Replacement Engine(s); (2) the Replacement Airframe and any Replacement Engine(s) are of the same model as the Airframe or Engines, or an improved model of such aircraft or engines of the manufacturer thereof (and, in the case of a Replacement Engine, the same model as the other Engine then subject to this Mortgage), shall have a value, utility and remaining useful life (without regard to hours and/or cycles since the last heavy maintenance or overhaul (as applicable)) at least equal to, and year of manufacture no earlier than the year of manufacture of, the Airframe and any Engine(s) being replaced (assuming such Airframe and Engine(s) had been maintained in accordance with this Mortgage), and that such Replacement Engine shall not have more hours or cycles since new (whichever is applicable) than the Airframe and the Life Limited Parts installed thereon do not have on average a higher collective number of cycles since new than the Life Limited Parts of the Engine being replaced; (3) on the Replacement Closing Date, (aa) Borrower causes the Replacement Airframe and any Replacement Engine(s) to be subjected to the Lien of this Mortgage free and clear of Liens (other than Permitted Liens), (bb) Borrower causes (subject to the consent of Security Agent) the International Interest created by the supplement to this Mortgage to be registered with the International Registry as an International Interest with respect to the Replacement Airframe and any Replacement Engine(s), (cc) the Replacement Airframe has been duly certified by the FAA as to type and (upon registration) is eligible to receive a standard certificate of airworthiness, (dd) application for registration of the Replacement Airframe in accordance with Section 4.2(e) is duly made with the FAA or other applicable Aviation Authority and Borrower has authority to operate the Replacement Airframe, and (ee) Borrower causes (subject, if required, to the consent of the prior owner(s) of the Replacement Airframe and any Replacement Engine(s)) the sale of the ownership interest of the Replacement Airframe and any Replacement Engine(s) effected by the appropriate bills of sale (or other evidence of ownership) to be registered with the International Registry; (4) Security Agent receives (aa) an opinion of Borrower’s counsel, in form and substance reasonably satisfactory to and addressed to Security Agent to   30 -------------------------------------------------------------------------------- the effect that Security Agent will be entitled to the benefits of Section 1110 with respect to the Replacement Airframe, provided, that such opinion with respect to Section 1110 need not be delivered to the extent that, immediately before such replacement, solely by reason of a change in law or court interpretation thereof, the benefits of Section 1110 are not available to Security Agent, and (bb) an opinion of Borrower’s aviation law counsel in form and substance reasonably satisfactory to and addressed to Security Agent, if the Replacement Airframe is registered with the FAA, as to: the due registration of any such Replacement Airframe with the FAA, the absence of Liens of record at the FAA as to any such Replacement Airframe and Replacement Engine(s), and the due filing for recordation of each supplement to this Mortgage with respect to such Replacement Airframe and any Replacement Engine(s) under the Transportation Code, the due registration with the International Registry of the International Interest created by such supplement in and to the Replacement Airframe and any Replacement Engine(s), the due registration with the International Registry of the sale of the ownership interest with respect to the Replacement Airframe and any Replacement Engine(s) effected by the appropriate bills of sale (or other evidence of ownership), and the due filing of any Financing Statement or other filings reasonably requested by Security Agent with respect to such Replacement Airframe or Replacement Engine(s) under applicable Law; and if the Replacement Airframe is registered with an Aviation Authority outside the United States, as to such matters as the Security Agent shall reasonably request; (5) Borrower shall cause to be delivered to Security Agent such evidence of compliance with the insurance provisions of Section 4.6 with respect to such Replacement Aircraft and Replacement Engine(s) as Security Agent may reasonably request; (6) Borrower shall furnish a certificate of a qualified aircraft appraiser (which may not be an employee of Borrower) certifying that such Replacement Airframe complies with the value, utility and remaining useful life requirements set forth in clause (2) above; (7) Borrower shall furnish Security Agent with an Officer’s Certificate of Borrower to the effect that that all applicable conditions of the replacement pursuant to this Section 4.5(c) have been satisfied and to the effect that upon consummation of such replacement no Event of Default shall have occurred and be continuing; (8) Borrower shall have collaterally assigned to Security Agent the benefit of all assignable and remaining manufacturers’ and vendors’ warranties with respect to such Replacement Airframe and such Replacement Engine(s); and (9) Holdings shall have affirmed in writing the Holdings Guarantee after giving effect to the supplement to this Mortgage referred to in subsection (1)(aa) above, in form and substance reasonably satisfactory to Security Agent.   31 -------------------------------------------------------------------------------- Borrower shall reimburse Security Agent for its reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees and expenses) incurred in connection with any replacement under this Section 4.5(c). (d) Non-Insurance Payments Received on Account of an Event of Loss. Any amounts, other than insurance proceeds in respect of damage or loss not constituting an Event of Loss (the application of which is provided for in Annex B), received at any time by Security Agent or Borrower from any Governmental Entity or any other Person in respect of any Event of Loss will be held by Security Agent and applied as follows: (1) If such amounts are received with respect to the Airframe, and any Engine installed thereon at the time of such Event of Loss, upon Borrower’s compliance with the applicable terms of Section 4.5(a)(1) and Section 4.5(c) with respect to the Event of Loss for which such amounts are received, such amounts shall be paid over to, or (if received after such compliance) retained by, Borrower; (2) If such amounts are received with respect to an Engine (other than an Engine installed on the Airframe at the time such Airframe suffers an Event of Loss), upon Borrower’s compliance with the applicable terms of Section 4.4(e) with respect to the Event of Loss for which such amounts are received, such amounts shall be paid over to, or (if received after such compliance) retained by, Borrower; (3) If such amounts are received, in whole or in part, with respect to the Airframe, and Borrower makes, has made or is deemed to have made the election in Section 4.5(a)(2), such amounts shall be applied as follows: FIRST, if the sum described in Section 4.5(a)(2) has not then been paid in full by Borrower, such amounts shall be paid to Security Agent to the extent necessary to pay in full such sum; and SECOND, the remainder, if any, shall be paid to Borrower. (e) Requisition for Use. If any Governmental Entity requisitions the use of the Airframe and any Engine(s) or Engine(s) installed on such Airframe while such Airframe is subject to the Lien of this Mortgage and such requisition does not constitute an Event of Loss, Borrower shall promptly notify Security Agent of such requisition, and all of Borrower’s obligations under this Mortgage shall continue to the same extent as if such requisition had not occurred. Any payments received by Security Agent or Borrower or a Permitted Lessee from such Governmental Entity with respect to such requisition of use shall be paid over to, or retained by, Borrower. If an Event of Loss to an Engine results from the requisition for use by a Governmental Entity of such Engine (but not the Airframe), Borrower will replace such Engine hereunder by complying with Section 4.4(e), and any payments received by Security Agent or Borrower from such Governmental Entity with respect to such requisition following such compliance shall be paid over to, or retained by, Borrower.   32 -------------------------------------------------------------------------------- (f) Certain Payments to be held as Security. Except with respect to insurance proceeds in excess of that require to be maintained by Borrower hereunder, any amount referred to in Section 4.4, Section 4.5 or Section 4.6 which is payable or creditable to, or retainable by, Borrower shall not be paid or credited to or retained by Borrower if at the time of such payment, credit, or retention a Default or Event of Default exists, but shall be paid to and held by Security Agent as security for Borrower’s obligations under this Mortgage and the other Operative Agreements, and at such time as no Default or Event of Default exists, such amount and any gain realized as a result of investments required to be made pursuant to Article 6 shall (to the extent not theretofore applied as provided herein) be paid over to Borrower. 4.6 Insurance. (a) Borrower’s Obligation to Insure. Borrower shall comply with, or cause to be complied with, each of the provisions of Annex B, which provisions are hereby incorporated by this reference as if set forth in full herein. (b) Insurance for Own Account. Nothing in Section 4.6 shall limit or prohibit (a) Borrower from maintaining the policies of insurance required under Annex B with higher limits than those specified in Annex B; provided that such policies of insurance would not materially adversely effect the insured interests of the Additional Insureds in and to the Aircraft, or (b) Security Agent from obtaining insurance for its own account (and any proceeds payable under such separate insurance shall be payable as provided in the policy relating thereto); provided, that no insurance may be obtained or maintained by Security Agent that would limit or otherwise adversely affect the coverage of or increase the cost of any insurance required to be obtained or maintained by Borrower pursuant to this Section 4.6 and Annex B. (c) Compliance. Borrower shall comply with the terms and conditions of each policy of insurance maintained hereunder and shall not consent or agree to any act or omission which: (1) invalidates or may invalidate the policies of insurance required under this Mortgage; (2) renders or may render void or voidable the whole or any part of any of the policies of insurance required to be maintained under this Section 4.6; or (3) brings any insured liability within the scope of an exclusion or exception to the policies of insurance required to be maintained hereunder. (d) Indemnification by Government in Lieu of Insurance. During any period of requisition or transfer of the Aircraft or any part thereof by or to the U.S. Government or any other U.S. Governmental Entity, Security Agent shall accept, in lieu of insurance against any risk with respect to the Aircraft described in Annex B, indemnification from, or insurance provided by, the U.S. Government or other U.S. Governmental Entity, against such risk in an amount that, when added to the amount of insurance (including   33 -------------------------------------------------------------------------------- permitted self-insurance), if any, against such risk that Borrower (or any Permitted Lessee) may continue to maintain, in accordance with this Section 4.6, during the period of such requisition or transfer, shall be at least equal to the amount of insurance against such risk otherwise required by this Section 4.6. If Borrower shall obtain an indemnity or insurance under this Section 4.6(c), Borrower shall promptly furnish Security Agent with evidence reasonably satisfactory to Security Agent of such indemnity or insurance. (e) Government Insurance. Security Agent shall accept, in lieu of insurance when required against war risk and allied perils with respect to the Aircraft described in Annex B, indemnification or insurance from the United States Government against war risks and allied perils in such amounts and on such terms that when added to the insurance maintained by Borrower, Borrower is in full compliance with the requirements of this Section 4.6. (f) Application of Insurance Proceeds. As between Borrower and Security Agent, all insurance proceeds received as a result of the occurrence of an Event of Loss to the Aircraft or any Engine under policies required to be maintained by Borrower pursuant to this Section 4.6 will be applied in accordance with Sections 3, 4.5(d) and 4.5(f), as applicable. All proceeds of insurance required to be maintained by Borrower, in accordance with Section 4.6 and Section B of Annex B, in respect of any property damage or loss not constituting an Event of Loss with respect to the Aircraft, the Airframe, or any Engine will be held by Security Agent and applied to pay (or to reimburse Borrower) for repairs or for replacement property upon delivery of evidence reasonably satisfactory to Security Agent that the repairs or replacement have been effected in accordance with this Mortgage, and any balance remaining after such repairs or replacement with respect to such damage or loss shall be paid over to, or retained by, Borrower, subject to the provisions of Section 3.3 (and any other applicable provisions) hereof. 4.7 Performance of all Covenants and Agreements. Borrower agrees to timely pay and perform each of its covenants and agreements contained in the other Operative Agreements. 5. EVENTS OF DEFAULT; REMEDIES 5.1 Event of Default. For purposes of the Operative Agreements, an “Event of Default” means any of the following events, and for purposes of the Cape Town Convention, a “default” means any of the following events: (a) Borrower fails to pay (1) principal of and, interest on, any Equipment Note when due, and such failure shall continue unremedied for a period of three (3) Business Days, or (2) any other amount payable by it to Security Agent or the Lenders under this Mortgage, the Loan Agreement or the other Operative Agreements when due, and such failure continues for a period in excess of ten (10) Business Days after Borrower has received written notice from Security Agent of the failure to make such payment when due;   34 -------------------------------------------------------------------------------- (b) Borrower fails to carry and maintain, or cause to be carried and maintained, insurance on and in respect of the Aircraft, the Airframe, and the Engines in accordance with the provisions of Section 4.6; provided, that there shall be no Event of Default as a result of such failure so long as the interests of the Lenders and Security Agent continue to be insured in accordance with the provisions of Section 4.6 following such failure; (c) Borrower or Holdings fails to observe or perform (or caused to be observed and performed) in any material respect any other covenant, agreement, or obligation of Borrower or Holdings in any Operative Agreement, and such failure continues unremedied for a period of thirty (30) days from and after the date Borrower or Holdings receives written notice thereof from Security Agent, unless such failure is capable of being corrected and Borrower or Holdings is diligently proceeding to correct such failure, in which case there shall be no Event of Default unless and until such failure continues unremedied for a period of 120 days after receipt of such notice; (d) any representation or warranty made by Borrower or Holdings in any Operative Agreement proves to have been untrue or inaccurate in any material respect as of the date made, is material at the time in question, and remains uncured for a period in excess of thirty (30) days from and after the date of written notice thereof from Security Agent to Borrower or Holdings unless such failure is capable of being corrected and Borrower or Holdings is diligently proceeding to correct such failure, in which case there shall be no Event of Default unless and until such failure continues unremedied for a period of 120 days after receipt of such notice; (e) Borrower or Holdings consents to the appointment of or taking possession by a receiver, trustee, or liquidator of itself or of a substantial part of its property, or Borrower or Holdings admits in writing its inability to pay its debts generally as they come due or makes a general assignment for the benefit of its creditors, or Borrower or Holdings files a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization, liquidation, or other relief as debtor under any bankruptcy Laws or insolvency Laws (as in effect at such time), or an answer admitting the material allegations of a petition filed against it in any such case, or Borrower or Holdings seeks relief as debtor by voluntary petition, answer, or consent under the provisions of any other bankruptcy or similar Law providing for the reorganization or winding-up of corporations (as in effect at such time), or Borrower or Holdings seeks an agreement, composition, extension, or adjustment with its creditors under such laws; (f) an order, judgment, or decree is entered by any court of competent jurisdiction appointing, without Borrower’s or Holdings’ consent, a receiver, trustee, or liquidator of Borrower or Holdings or of all or substantially all of its property, or all or substantially all of the property of Borrower or Holdings is sequestered, or any other relief in respect of Borrower or Holdings as a debtor is granted under any bankruptcy Laws or other insolvency Laws (as in effect at such time), and any such order, judgment, decree, or decree of appointment or sequestration remains in force undismissed, unstayed, and unvacated for a period of ninety (90) days after the date of entry thereof;   35 -------------------------------------------------------------------------------- (g) a petition against Borrower or Holdings in a proceeding under any bankruptcy laws or other insolvency laws (as in effect at such time) is filed and not withdrawn or dismissed within ninety (90) days thereafter, or if, under the provisions of any Law providing for reorganization or winding-up of corporations that applies to Borrower or Holdings, any court of competent jurisdiction assumes jurisdiction, custody, or control of Borrower or Holdings or of substantially all of the property of Borrower or Holdings, and such jurisdiction, custody, or control remains in force unrelinquished, unstayed, and unterminated for a period of ninety (90) days; (h) subject to Section 7.5 of the Loan Agreement, an “Event of Default” (as defined in any Related Mortgage) exists; or (i) the Holdings Guarantee (as and to the extent relating to the Aircraft) shall cease, for any reason, to be in full force and effect, or Holdings shall terminate, renounce or repudiate the validity or enforceability of its obligations under the Holdings Guarantee as and to the extent relating to the Aircraft. 5.2 Remedies. (a) Remedies Available. Upon the occurrence of any Event of Default and at any time thereafter so long as the same shall be continuing, this Mortgage shall be in default, and Security Agent shall, upon the direction of a Majority in Interest of the Lenders do one or more of the following: (1) cause Borrower, upon the written demand of Security Agent, at Borrower’s expense, to deliver promptly, and Borrower shall deliver promptly, all or such part of the Airframe or any Engine (together with all Aircraft Documents and other documents at any time required to be maintained with respect to the Airframe or Engine (or part thereof), in accordance with the rules and regulations of the FAA or other Aviation Authority if the Aircraft to which the Airframe or Engine relates is registered under the laws of a country other than the United States) as Security Agent may so demand to Security Agent or its order, or Security Agent, at its option, may enter upon the premises where all or any part of the Airframe or any Engine or the related Aircraft Documents are located and take immediate possession of and remove the same together with any engine which is not an Engine but which is installed on the Airframe, subject to all of the rights of the owner, lessor, lienor or secured party of such engine; provided that the Airframe with an engine (which is not an Engine) installed thereon may be flown or returned only to a location within the continental United States, and such engine shall be held for the account of any such owner, lessor, lienor or secured party or, if such engine is owned by Borrower, may at the option of Security Agent and if agreed by Borrower be exchanged with Borrower for an Engine in accordance with the provisions of Section 4.4;   36 -------------------------------------------------------------------------------- (2) sell all or any part of the Airframe and any Engine at public or private sale, whether or not Security Agent shall at the time have possession thereof, as Security Agent may determine, or otherwise dispose of, hold, use, operate, lease to others or keep idle all or any part of the Airframe or such Engine as Security Agent, in its sole discretion, but in accordance with applicable Law, may determine, all free and clear of any rights or claims of Borrower, and the proceeds of such sale or disposition shall be applied in the order of priorities set forth in Section 3; and/or (3) exercise any other remedy of a secured party under the Uniform Commercial Code of the State of New York (whether or not in effect in the jurisdiction in which enforcement is sought) and other applicable Laws applicable to this Mortgage or to any Permitted Lease pursuant to Section 4.2 hereof. Without limiting the generality of the foregoing, Security Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by Law referred to below) to or upon Borrower or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of Security Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Security Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by Law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in Borrower, which right or equity of redemption is hereby waived and released. At any public or private sale the Lenders shall be entitled to credit against the purchase price bid at such sale all or any part of the unpaid amounts of Equipment Notes or other Secured Obligations. Borrower further agrees, at Security Agent’s request, to make the Collateral available to Security Agent at places which Security Agent shall reasonably select, whether at Borrower’s premises or elsewhere. Security Agent shall apply the net proceeds of any action taken by it pursuant to this Section 4.1, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of Security Agent and the Lenders hereunder, including, without limitation, reasonable attorneys’ fees and disbursements, to the payment in whole or in part of the Secured Obligations, in such order as Security Agent may elect consistent with the provisions of Section 3.3, and only after such application and after the payment by Security Agent of any other amount required by any provision of Law, need Security Agent account for the surplus, if any to Borrower. To the extent permitted by applicable Law, Borrower waives all claims, damages and demands it may acquire against Security Agent or any Lender arising out of the exercise by them of any rights hereunder. Borrower shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay all Obligations.   37 -------------------------------------------------------------------------------- Upon every taking of possession of Collateral under this Section 5.2, Security Agent shall, acting at the written direction of a Majority in Interest of Lenders, from time to time, at the expense of the Collateral (and such expense shall be due and payable by Borrower), make all such expenditures for maintenance, repairs, replacements, and modifications to and of the Collateral, and such improvements to and insurance of the Collateral, as it may reasonably deem proper. In each such case, Security Agent shall have the right to maintain, use, operate, store, lease, control or manage the Collateral and to exercise all rights and powers of Borrower relating to the Collateral in connection therewith, as Security Agent shall deem best, acting at the written direction of the Majority in Interest of Lenders, including the right to enter into any and all such agreements with respect to the maintenance, insurance, use, operation, storage, leasing, control, management or disposition of the Collateral or any part thereof as Security Agent may, acting at the written direction of the Majority in Interest of Lenders, reasonably determine; and Security Agent shall be entitled to collect and receive directly all tolls, rents, revenues, issues, income, products and profits of the Collateral and every part thereof. Such tolls, rents, revenues, issues, income, products and profits shall be applied by Security Agent, acting at the written direction of the Majority in Interest of Lenders, to pay any of the expenses of use, operation, storage, leasing, control, management or disposition of the Collateral, and of any or all maintenance, repairs, replacements, alterations, additions and improvements, and to make all payments which Security Agent may be required or may elect, acting at the written direction of the Majority in Interest of Lenders, to make, if any, for Taxes, insurance or other proper charges assessed against or otherwise imposed upon the Collateral or any part thereof, and all other payments which Security Agent may be required or expressly authorized to make under any provision of this Mortgage, as well as just and reasonable compensation for the services of Security Agent and all other amounts owing to Security Agent under Section 7, and shall otherwise be applied in accordance with the provisions of Section 3. In addition, Borrower shall be liable, without duplication of any amounts payable hereunder or under any other Operative Agreement, for all reasonable legal fees and other reasonable costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of Security Agent’s remedies with respect thereto, including all costs and expenses specified in the preceding paragraph incurred in connection with the retaking, return or sale of the Airframe and any Engine in accordance with the terms hereof or under the Uniform Commercial Code of the State of New York, which amounts shall, until paid, be secured by the Lien of this Mortgage. If an Event of Default shall have occurred and be continuing and the Equipment Notes shall have been accelerated pursuant to Section 5.2(c), at the request of Security Agent, acting at the written direction of the Majority in Interest of Lenders, Borrower shall promptly execute and deliver to Security Agent such instruments of title and other documents as Security Agent may deem necessary or advisable to enable Security Agent or an agent or representative designated by Security Agent, at such time or times and place or places as Security Agent may specify, to obtain possession of all or any part of the Collateral to which Security Agent shall at the time be entitled hereunder. If Borrower shall for any reason fail to execute and deliver such instruments and documents after such request by Security Agent, Security Agent, acting at the written direction of the Majority   38 -------------------------------------------------------------------------------- in Interest of Lenders, may obtain a judgment conferring on Security Agent the right to immediate possession and requiring Borrower to execute and deliver such instruments and documents to Security Agent, to the entry of which judgment Borrower hereby specifically consents to the fullest extent it may lawfully do so. Nothing in the foregoing shall affect the right of any Lender to receive all amounts owing to such Lender as and when the same may be due. (b) Notice of Sale. Security Agent shall, if permitted by applicable Law, give Borrower at least ten (10) days’ prior notice of any public sale or of the date on or after which any private sale will be held, which notice Borrower hereby agrees to the extent permitted by applicable Law is reasonable notice. The Lenders shall be entitled to bid for and become the purchaser of any Collateral offered for sale pursuant to this Section 5.2 and to credit against the purchase price bid at such sale all or any part of the due and unpaid amounts of the Equipment Notes or other Secured Obligations secured by the Lien of this Mortgage. (c) If an Event of Default exists, then and in every such case Security Agent may (and shall, upon receipt of a written demand therefor from a Majority in Interest of Lenders), at any time, by delivery of written notice or notices to Borrower, declare all the Equipment Notes to be due and payable, whereupon the unpaid Original Amount of all Equipment Notes then outstanding, together with accrued but unpaid interest thereon and other amounts due thereunder or otherwise payable hereunder, shall immediately become due and payable, without presentment, demand, protest, or notice, all of which are hereby waived; provided, that if an Event of Default referred to in clause (e), (f), or (g) of Section 5.1 exists, then and in every such case the unpaid Original Amount then outstanding, together with accrued but unpaid interest, and all other amounts due hereunder and under the Equipment Notes, shall immediately and without further act become due and payable without presentment, demand, protest, or notice, all of which are hereby waived. If at any time after the Original Amount of the Equipment Notes becomes so due and payable, and before any judgment or decree for the payment of the money so due, or any thereof, is entered, all overdue payments of interest upon the Equipment Notes and all other amounts payable hereunder or under the Equipment Notes (except the Original Amount of the Equipment Notes which by such declaration shall have become payable) has been duly paid, and every other Event of Default with respect to any covenant or provision of this Mortgage has been cured, then and in every such case a Majority in Interest of Lenders may (but shall not be obligated to), by written instrument filed with Security Agent, rescind and annul Security Agent’s declaration (or such automatic acceleration) and its consequences; but no such rescission or annulment shall extend to or affect any subsequent Event of Default or impair any right consequent thereon. (d) If the Collateral (or any part thereof) is sold pursuant to any judgment or decree of any court or otherwise in connection with the enforcement of this Mortgage, the unpaid Original Amount of all Equipment Notes then outstanding, together with accrued but unpaid interest thereon, and other amounts due thereunder shall immediately become due and payable without presentment, demand, protest, or notice, all of which are hereby waived.   39 -------------------------------------------------------------------------------- 5.3 Remedies Cumulative. To the extent permitted by applicable Law but without duplication of recovery, and subject to the provisions of Section 5.4 below, each and every right, power and remedy herein specifically given to Security Agent or otherwise in this Mortgage shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at Law, in equity, by statute or by the Operative Agreements, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by Security Agent, acting at the written direction of the Majority in Interest of Lenders, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by Security Agent in the exercise of any right, remedy or power or in the pursuit of any remedy shall, to the extent permitted by applicable Law, impair any such right, power or remedy or be construed to be a waiver of any default on the part of Borrower or to be an acquiescence therein. 5.4 Concerning the Cape Town Convention. Without limiting the foregoing, the parties agree that (x) in addition to the remedies set forth in this Section 5 or otherwise available to Security Agent under this Agreement and the other Operative Agreements, at law or in equity, upon the occurrence and during the continuation of an Event of Default, the Security Agent may, but shall not be obligated to, exercise any remedy available to it under the Cape Town Convention (subject, in each case to the requirements and limitations of the Cape Town Convention), including the remedies set forth in Articles 8, 9 and 34 of the Cape Town Convention, but excluding the (a) procurement of the de-registration of the Aircraft (if the Aircraft is registered with the FAA or any successor agency thereto) and the export and physical transfer of the Aircraft or any Engine from the territory (if from a territory within the territorial limits of the United States) in which it is situated pursuant to Article IX of the Protocol, (b) relief pending final determination under Article 13 of the Cape Town Convention and Article X of the Protocol and (c) solely to the extent permitted by Article 15 of the Cape Town Convention, the provisions of Chapter III of the Cape Town Convention with regard to default remedies, provided that such exclusion in clause (c) shall not be applicable (to the extent permitted by Article 15 of the Cape Town Convention) to the extent such default remedies are exercised outside the territorial limits of the United States and in a manner not involving the courts of the United States or of its territorial units; and (y) where a remedy is available to it under the Cape Town Convention and also under this Agreement and the other Operative Agreements or other applicable Law, to the extent permitted by the Cape Town Convention and other applicable Law, and subject to the provisions of the previous clause (x), the Security Agent may elect under which of the foregoing it shall exercise such remedy.   40 -------------------------------------------------------------------------------- 5.5 Discontinuance of Proceedings. In case Security Agent shall have instituted any proceeding to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to Security Agent, then and in every such case Borrower and Security Agent shall, subject to any determination in such proceedings, be restored to their former positions and rights hereunder with respect to the Collateral, and all rights, remedies and powers of Borrower or Security Agent shall continue, as if no such proceedings had been undertaken (but otherwise without prejudice). 5.6 Waiver of Past Defaults. Upon written instruction from a Majority in Interest of the Lenders, Security Agent shall waive any past Default hereunder and its consequences, and upon any such waiver such Default shall cease to exist and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Mortgage, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon; provided, that in the absence of written instructions from all relevant Lenders, Security Agent shall not waive any Default (a) in the payment of the Original Amount, and interest and other amounts due under any Equipment Note then outstanding, or (b) in respect of a covenant or provision hereof which, under Article 7, cannot be modified or amended without the consent of all Lenders. 5.7 Appointment of Receiver. If an Event of Default exists and the Equipment Notes have been accelerated, Security Agent shall, as a matter of right, be entitled to the appointment of a receiver (who may be Security Agent or any successor or nominee thereof) for all or any part of the Collateral, whether such receivership be incidental to a proposed sale of the Collateral or the taking of possession thereof or otherwise, and Borrower hereby consents to the appointment of such a receiver and will not oppose any such appointment. Any receiver appointed for all or any part of the Collateral shall be entitled to exercise all the rights and powers of Security Agent with respect to the Collateral. 5.8 Security Agent; Appointment of Attorney-in-Fact. (a) Borrower hereby irrevocably constitutes and appoints Security Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Borrower and in the name of Borrower or in its own name, for the purpose of carrying out the terms of this Mortgage, to take any and all appropriate action and to execute any and all documents and instruments which may be reasonably necessary to accomplish the purposes of this Mortgage, and, without limiting the generality of the foregoing, Borrower hereby gives Security Agent the power and right, on behalf of Borrower, without notice to or assent by Borrower, to do any or all of the following: (1) in the name of Borrower or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due with respect to any Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Security Agent for the purpose of   41 -------------------------------------------------------------------------------- collecting any and all such moneys due with respect to any Collateral whenever payable, in Borrower’s name and stead and on its behalf, for the purpose of effectuating any sale, assignment, transfer, or delivery for the enforcement of the Lien of this Mortgage, whether pursuant to foreclosure or power of sale, assignments, and other instruments as may be necessary or appropriate, with full power of substitution, Borrower hereby ratifying and confirming all that such attorney or any substitute shall do pursuant to and in accordance with the terms of this Mortgage; (Borrower agreeing that if so requested by Security Agent or any purchaser, Borrower shall ratify and confirm any such sale, assignment, transfer, or delivery, by executing and delivering to Security Agent or such purchaser all bills of sale, assignments, releases, and other proper instruments to effect such ratification and confirmation as designated in any such request). (2) pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Mortgage and pay all or any part of the premiums therefor and the costs thereof; (3) execute, in connection with any sale provided for herein, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and (4) (i) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to Security Agent or as Security Agent shall direct; (ii) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (iii) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (iv) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (v) defend any suit, action or proceeding brought against Borrower with respect to any Collateral; (vi) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as Security Agent may deem appropriate; (vii) take any action, give any notice, or exercise any right, power or privilege under or in respect of the Purchase Agreement or the GTA, to the extent permitted in the Consent and Agreement and the Engine Consent and Agreement and (viii) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Security Agent were the absolute owner thereof for all purposes, and do, at Security Agent’s option and Borrower’s expense, at any time, or from time to time, all acts and things which Security Agent deems reasonably necessary to protect, preserve or realize upon the Collateral and Security Agent’s and the Lenders’ security interests therein and to effect the intent of this Mortgage, all as fully and effectively as Borrower might do.   42 -------------------------------------------------------------------------------- Anything in this Section 5.7 to the contrary notwithstanding, Security Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 5.7(a) unless an Event of Default shall have occurred and be continuing. (b) If Borrower fails to perform or comply with any of its agreements contained in this Mortgage, Security Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. (c) The expenses of Security Agent reasonably incurred in connection with actions undertaken as provided in this Section 5.7, together with interest thereon at the Past Due Rate, from the date of payment by Security Agent to the date reimbursed by Borrower, shall be payable by Borrower to Security Agent within ten (10) days following demand. (d) Borrower hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Mortgage are coupled with an interest and are irrevocable until this Mortgage is terminated and the security interests created hereby are released. 5.9 Duty of Security Agent. Security Agent’s sole duty with respect to the custody, safe keeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Security Agent deals with similar property for its own account. Subject to mandatory provisions of applicable Law, neither Security Agent, any Lender nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of Borrower or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on Security Agent and the Lenders hereunder are solely to protect Security Agent’s and the Lenders’ interests in the Collateral and, subject to mandatory provisions of applicable Law, (i) such powers shall not impose any duty upon Security Agent or any Lender to exercise any such powers and (ii) Security Agent and the Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers and neither they nor any of their officers, directors, employees or agents shall be responsible to Borrower for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 5.10 Execution of Financing Statements. Pursuant to any applicable Law, Borrower authorizes Security Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of Borrower in such form and in such offices as are necessary or appropriate to perfect the security interests of Security Agent under this Mortgage.   43 -------------------------------------------------------------------------------- 5.11 Rights of Lenders to Receive Payment Notwithstanding any other provision of this Mortgage, the right of any Lender to receive payment of principal of and interest on an Equipment Note on or after the due dates expressed in such Equipment Note, or to bring suit for the enforcement of any such payment on or after such respective dates in accordance with the terms hereof, shall not be impaired or affected without such Lender’s consent. 6. INVESTMENT OF AMOUNTS HELD BY SECURITY AGENT Any amounts held by Security Agent pursuant to Section 3.2, or pursuant to any provision of any other Operative Agreement providing for amounts to be held by Security Agent which are not distributed pursuant to the other provisions of Article 3 shall be invested by Security Agent from time to time in Cash Equivalents as directed by Borrower so long as Security Agent may acquire them using its reasonable efforts. All Cash Equivalents held by Security Agent pursuant to this Article 6 shall either be (a) registered in the name of, payable to the order of, or specially endorsed to, Security Agent, or (b) held in an Eligible Account. Unless otherwise expressly provided in this Mortgage, any income realized as a result of any such investment, net of Security Agent’s reasonable fees and expenses in making such investment, shall be held and applied by Security Agent in the same manner as the principal amount of such investment is to be applied, and any losses, net of earnings and such reasonable fees and expenses, shall be charged against the principal amount invested. Security Agent shall not be liable for any loss resulting from any investment required to be made by it under this Mortgage other than by reason of its willful misconduct or gross negligence, and any such investment may be sold (without regard to its maturity) by Security Agent without instructions whenever such sale is necessary to make a distribution required by this Mortgage. 7. SUPPLEMENTS AND AMENDMENTS TO THIS MORTGAGE AND OTHER OPERATIVE AGREEMENTS. 7.1 Instructions of a Majority. (a) No provision of this Mortgage may be amended, supplemented, waived, modified, discharged, terminated, or otherwise varied orally, but only by an instrument in writing that specifically identifies the provision of this Mortgage that it purports to amend, supplement, waive, modify, discharge, terminate, or otherwise vary and is signed by the party against whom the enforcement of the amendment, supplement, waiver, modification, discharge, termination, or variance is sought. The Majority in Interest of the Lenders and Borrower may, or, with the written consent of the Majority in Interest of the Lenders, parties to the Operative Agreements may, from time to time, and Security Agent shall, at the direction of the Majority in Interest of the Lenders, (unless its respective rights or obligations as Security Agent are adversely affected thereby), (i) enter into written amendments, supplements or modifications hereto and to the other Operative Agreements for the purpose of adding any provisions to this Mortgage or the other Operative Agreements or changing in any manner the rights of the Lenders, Security Agent or Borrower hereunder or thereunder or (ii) waive, on such terms and conditions as the Majority in Interest of the Lenders may specify in such instrument, any of the requirements of this Mortgage or the other Operating Agreements or any Default or Event of Default and its consequences; provided, however, that no such waiver and no   44 -------------------------------------------------------------------------------- such amendment, supplement or modification shall (A) modify this Section 7.1, or Article 2 or Article 3 or Sections 5.1, 5.2(b) or 5.2(c), the definition of “Event of Default”, “Default”, (B) forgive the principal amount or extend the final scheduled date of maturity of any Equipment Note, extend the scheduled date of any payment of principal of any Equipment Note, reduce the stated rate of any interest payable on any Equipment Note or any interest or fee payable hereunder or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of the Commitments, in each case without the written consent of each Lender directly affected thereby; (C) eliminate or reduce the voting rights of any Lender under this Section 7 without the written consent of such Lender; (D)(w) reduce any percentage specified in the definition of Majority in Interest of the Lenders, (x) consent to the assignment or transfer by Borrower of any of its rights and obligations under this Mortgage and the other Operative Agreements or (y) reduce, modify or amend any indemnities in favor of Security Agent or the Lenders without the consent of each person effected thereby; (E) amend, modify or waive any provision of Sections 5.7, 5.8, 5.9, 5.10, 7.1, 7.2 or 7.3 without the written consent of Security Agent; or (F) take any action inconsistent with the provisions of Sections 10.8 or 11.1 of the Loan Agreement. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon Borrower, the Lenders, Security Agent and all future holders of the Equipment Notes. In the case of any waiver, Borrower, the Lenders and Security Agent shall be restored to their former position and rights hereunder and under the other Operative Agreements, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Each such amendment, supplement, waiver, modification, discharge, termination, or variance shall be effective only in the specific instance and for the specific purpose for which it is given. No provision of this Mortgage shall be varied or contradicted by oral communication, course of dealing or performance, or other manner not set forth in writing and signed by the party against whom enforcement of the same is sought. (b) Borrower and Security Agent may enter into one or more agreements supplemental hereto without the consent of a Majority in Interest of the Lenders for any of the following purposes: (1) (aa) to cure any defect or inconsistency herein or in the Equipment Notes, or to make any change not inconsistent with the provisions hereof (provided that such change does not adversely affect the interests of any Lender in its capacity solely as Lender), or (bb) to cure any ambiguity or correct any mistake; (2) to evidence the succession of another party as Borrower in accordance with the terms hereof, or to evidence the succession of another party as a Security Agent in accordance with the terms of the Loan Agreement; (3) to convey, transfer, assign, mortgage, or pledge any property to or with Security Agent; (4) to correct or amplify the description of any property at any time subject to the Lien of this Mortgage or better to assure, convey, and confirm to Security Agent any property subject or required to be subject to the Lien of this Mortgage, including the Airframe or Engines or any Replacement Airframe or Replacement Engine; (5) to add to the covenants of Borrower for the benefit of the Lenders, or to surrender any rights or power herein conferred upon Borrower; (6) to add to the rights of the Lenders; and (7) to include on the Equipment Notes any legend as may be required by Law.   45 -------------------------------------------------------------------------------- 7.2 Security Agent Protected. If, in the opinion of the institution acting as Security Agent hereunder, any document required to be executed by it pursuant to Section 7.1 affects any right, duty, immunity, or indemnity with respect to such institution under this Mortgage, such institution may in its discretion decline to execute such document. 7.3 Documents Mailed to Lenders. Promptly after Security Agent executes any document entered into pursuant to Section 7.1, Security Agent shall mail, by first class mail (air mail in the case of international), postage prepaid, a copy thereof to Borrower (if not a party thereto) and to each Lender at its address last set forth in the Equipment Note Register, but Security Agent’s failure to mail such copies shall not impair or affect the validity of such document. 7.4 No Request Necessary for Mortgage Supplement. No written request or consent of the Lenders pursuant to Section 7.1 shall be required to enable Security Agent to execute and deliver a supplement to this Mortgage specifically required by the terms hereof. 8. MISCELLANEOUS 8.1 Termination of Mortgage. Upon (or at any time after) payment in full of the Original Amount of, interest on, any Breakage Amount and all other amounts due under all Equipment Notes, and provided that no other Secured Obligations are then due and payable, upon the written request of Borrower, Security Agent shall execute and deliver to or as directed in writing by Borrower an appropriate instrument(s) releasing the Aircraft and the Engines and all other Collateral from the Lien of the Mortgage and discharging from the International Registry the registration of the International Interest created by this Mortgage (and any other registered interests in favor of Security Agent), and Security Agent shall execute and deliver such instrument(s); provided, that this Mortgage shall earlier terminate, and this Mortgage shall be of no further force or effect, upon any sale or other final disposition by Security Agent of all property constituting part of the Collateral, and Security Agent’s final distribution of all money or other property or proceeds constituting part of the Collateral in accordance with the terms hereof. Except as otherwise provided in this Section 8.1, this Mortgage shall continue in full force and effect in accordance with the terms hereof. 8.2 No Legal Title to Collateral in Lenders. No holder of an Equipment Note shall have legal title to any part of the Collateral. No transfer, by operation of law or otherwise, of any Equipment Note or other right, title, and interest of any Lender in and to the Collateral or hereunder shall terminate this Mortgage or entitle such holder or any successor or transferee of such holder to an accounting or to the transfer to it of any legal title to any part of the Collateral.   46 -------------------------------------------------------------------------------- 8.3 Sale of Aircraft by Security Agent is Binding. Any sale or other conveyance of the Collateral, or any part thereof (including any part thereof or interest therein), by Security Agent made pursuant to this Mortgage shall bind the Lenders and shall be effective to transfer or convey all right, title, and interest of Security Agent, Borrower, and such holders in and to such Collateral or part thereof. No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency, or regularity of such sale or conveyance or as to the application of any sale or other proceeds with respect thereto by Security Agent. 8.4 Mortgage for Benefit of Borrower, Security Agent and Lenders. Nothing in this Mortgage, whether express or implied, shall give any Person other than Borrower, Security Agent and the Lenders any legal or equitable right, remedy, or claim under or in respect of this Mortgage, except that the Persons referred to in the second from last paragraph of Section 4.2(b) shall be third-party beneficiaries of such paragraph. 8.5 Notices. Unless otherwise expressly specified or permitted by the terms hereof, all notices, requests, demands, authorizations, directions, consents, waivers, or other communications provided or permitted by this Mortgage to be made, given, furnished, or filed shall be made, given, furnished, or filed, and shall become effective, in the manner prescribed in the Loan Agreement. 8.6 Severability. Any provision of this Mortgage which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.7 No Oral Modification or Continuing Waiver. No term or provision of this Mortgage or the Equipment Notes may be changed, waived, discharged, or terminated orally, but only by an instrument in writing signed by Borrower and Security Agent, in compliance with Section 7.1. Any waiver of the terms hereof or of any Equipment Note shall be effective only in the specific instance and for the specific purpose given. 8.8 Successors and Assigns. All covenants and agreements herein shall bind and benefit each of the parties hereto and the permitted successors and assigns of each, all as herein provided. The provisions of this Mortgage shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted under the Operative Agreements, except that (i) 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 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 Section 7.1 of the Loan Agreement.   47 -------------------------------------------------------------------------------- 8.9 Headings. The headings of the Articles and sections herein and in the table of contents hereto are for convenience of reference only, and shall not define or limit any of the terms or provisions hereof. 8.10 Normal Commercial Relations. Anything in this Mortgage to the contrary notwithstanding, Security Agent may conduct any banking or other financial transactions, and have banking or other commercial relationships, with Borrower or any Affiliate of Borrower, fully to the same extent as if this Mortgage were not in effect, including the making of loans or other extensions of credit to Borrower for any purpose whatsoever, whether related to any of the transactions contemplated hereby or otherwise. 8.11 Governing Law. THIS MORTGAGE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS MORTGAGE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK 8.12 Submission to Jurisdiction; Venue. Each of the parties irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Mortgage or for recognition and enforcement of any judgment in respect thereof, to the non exclusive general jurisdiction of the courts of the State of New York located in the Borough of Manhattan, City of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it at its address for notices determined pursuant to Section 8.5; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by Law or shall limit the right to sue in any other jurisdiction;   48 -------------------------------------------------------------------------------- (e) waives, to the maximum extent not prohibited by Law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damage; and (f) irrevocably and unconditionally waives trial by jury in any legal action or proceeding relating to this agreement or any other operative agreement and for any counterclaim therein. 8.13 Counterpart Form. This Mortgage may be executed in any number of counterparts (or upon separate signature pages bound together into one or more counterparts), each fully-executed set taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Mortgage by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. 8.14 Bankruptcy. Borrower and Security Agent intend that Security Agent shall be entitled to the benefits of Section 1110 with respect to the right to take possession of the Aircraft, Airframe, Engines, and Parts as provided herein in the event of a case under Chapter 11 of the Bankruptcy Code in which Borrower is a debtor. In any instance where more than one construction is possible of the terms and conditions hereof or any other pertinent Operative Agreement, a construction which would preserve such benefits shall control over any construction which would not preserve such benefits. 8.15 Concerning Prospective International Interests The parties hereto agree that prospective international interests (as defined in Cape Town Convention) with respect to the Airframe and each Engine will become International Interests therein upon the filing for recordation with the FAA of the FAA-Filed Documents. [Remainder of Page Intentionally Blank.]   49 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Borrower and Security Agent have executed this Mortgage [N330AT].   AIRTRAN AIRWAYS, INC., Borrower By:     Name:   Title:   THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, Security Agent By:     Name:   Title:   -------------------------------------------------------------------------------- ANNEX A DEFINITIONS GENERAL PROVISIONS (a) In the Mortgage, unless otherwise expressly provided, a reference to: (1) each of “Borrower”, “Security Agent”, “Lender”, and any other Person includes any successor in interest to it and any permitted transferee, permitted purchaser, or permitted assignee of it; (2) any agreement or other document (including any annex, schedule, or exhibit thereto, or any other part thereof) includes that agreement or other document as amended, supplemented, or otherwise modified from time to time in accordance with its terms and in accordance with the Mortgage, and any agreement or other document entered into in substitution or replacement therefor; (3) any provision of any Law includes any such provision as amended, modified, supplemented, substituted, reissued, or reenacted before the Closing Date, and thereafter from time to time; (4) “Agreement”, “this Mortgage”, “hereby”, “herein”, “hereto”, “hereof”, “hereunder”, and words of similar import, when used in the Mortgage, refer to the Mortgage as a whole and not to any particular provision of the Mortgage; (5) “including”, “include”, and terms or phrases of similar import means “including, without limitation” “or” is conjunctive and not disjunctive; and; (6) a reference to a “Section”, an “Exhibit”, an “Annex”, or a “Schedule” in the Mortgage, or in any annex thereto, is a reference to a section of, or an exhibit, an annex, or a schedule to, the Mortgage or such annex, respectively. (b) Each exhibit, annex, and schedule to the Mortgage is incorporated in, and is a part of, the Mortgage. (c) Unless otherwise defined or specified in the Mortgage, all accounting terms therein shall be construed and all accounting determinations thereunder shall be made in accordance with GAAP. (d) Headings used in the Mortgage are for convenience only, and shall not in any way affect the construction of, or be taken into consideration in interpreting, such Operative Agreement.   A-1 -------------------------------------------------------------------------------- DEFINED TERMS Actual Knowledge: as it applies to any Person, actual knowledge of a Vice President or more-senior officer of such Person or any other officer of such Person having responsibility for the transactions contemplated by the Operative Agreements; provided, that each of Borrower and Security Agent shall be deemed to have “Actual Knowledge” of any matter as to which it has received notice pursuant to Section 11.7 of the Loan Agreement. Administrative Office: Security Agent’s principal office, located at Security Agent’s address for notices under the Loan Agreement, or such other office at which Security Agent’s which Security Agent specifies by notice in writing to Borrower. Affiliate: of any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person. For purposes of this definition, “control” means the power, directly or indirectly, 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 “controlling”, “controlled by”, and “under common control with” have correlative meanings. After-Tax Basis: a basis such that any payment to be received or receivable by any Person is supplemented by a further payment to that Person so that the sum of the two payments, after deducting all Taxes (taking into account any credits or deductions attributable to the event or circumstance giving rise to the requirement that the original payment be made) payable by such Person or any of its Affiliates under any applicable Law or governmental authority, is equal to the payment due to such Person. AGTA-CQT: the Aircraft General Terms Agreement AGTA-CQT, dated as of July 3, 2003, by and between Airframe Manufacturer and Borrower. Aircraft: the Airframe and the two Engines. Aircraft Bill of Sale: the full warranty bill of sale covering the Aircraft delivered by Seller to Borrower on the Closing Date. Aircraft Description Exhibit: Exhibit A to the Mortgage. Aircraft Documents: all flight records, technical data, manuals, and log books, and all inspection, modification, and overhaul records and other service, repair, maintenance, and technical records that the relevant Aviation Authority requires to be maintained with respect to the Aircraft, the Airframe, Engines or Parts, and including all required additions, renewals, revisions, and replacements of any such materials, from time to time made, or required to be made, by the applicable regulations of the relevant Aviation Authority in each case in whatever form and by whatever means or medium (including, without limitation, microfiche, microfilm, paper, or computer disk) such materials may be maintained or retained by or on behalf of Borrower; provided, that except as otherwise provided in the Mortgage, all such materials shall be maintained in the English language. Airframe: (1) the aircraft (excluding Engines or engines from time to time installed thereon) manufactured by Airframe Manufacturer and identified by Airframe Manufacturer’s   A-2 -------------------------------------------------------------------------------- model number, United States registration number, and Airframe Manufacturer’s serial number in the Aircraft Description Exhibit, or (2) any Replacement Airframe, and in either case including any and all Parts incorporated or installed in or attached or appurtenant to such airframe, and any and all Parts removed from such airframe, unless the Lien of the Mortgage does not apply to such Parts in accordance with Section 4.4 of the Mortgage. Upon substitution of a Replacement Airframe under and in accordance with the Mortgage, such Replacement Airframe shall become subject to the Mortgage and shall be the “Airframe” for all purposes of the Operative Agreements, and the replaced Airframe shall cease to be subject to the Mortgage and shall cease to be the “Airframe”. Airframe Manufacturer: The Boeing Company. Approved Maintenance Program: a maintenance program for the Aircraft recommended by Airframe Manufacturer and based on the Airframe Manufacturer’s Maintenance Planning Document (as amended by Permitted Lessee or based on Permitted Lessee’s operating experience) and as approved by the Aviation Authority encompassing scheduled maintenance (including block maintenance), condition monitored maintenance, and/or on condition maintenance of Airframe, Engines and Parts, including (but not limited to) servicing, testing, preventive maintenance, repairs, structural inspections, system checks, overhauls, approved modifications, service bulletins, engineering orders, airworthiness directives, corrosion control, inspections and treatments. Assignment: as defined in the Cape Town Convention. Associated Rights: as defined in the Cape Town Convention. Aviation Authority: the FAA or, if the Aircraft is registered with any other Governmental Entity under and in accordance with Section 4.2(e) of the Mortgage, such other Governmental Entity. Bankruptcy Code: the United States Bankruptcy Code, 11 U.S.C. § 101 et seq. Bills of Sale: the FAA Bill of Sale and the Aircraft Bill of Sale. Breakage Amount: the LIBOR Breakage Amount or Swap Breakage Loss, as applicable. Business Day: any day other than a Saturday, Sunday or a day on which commercial banking institutions in New York City, New York, USA, Orlando, Florida, USA or London, England, are authorized or required by law, regulation or executive order to be closed, and if in respect of any payment or prepayment on the Equipment Notes, the determination of the LIBOR Rate or an Interest Period or any notice in respect thereof, a day that is also a day on which dealings in Dollar deposits are carried out in the London interbank market. Cape Town Convention: the official English language texts of the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment which were signed in Cape Town, South Africa.   A-3 -------------------------------------------------------------------------------- Cash Equivalents: the following securities (which shall mature within ninety (90) days of the date of purchase thereof): (1) direct obligations of the U.S. Government; (2) obligations fully guaranteed by the U.S. Government; (3) certificates of deposit issued by, or bankers’ acceptances of, or time deposits or a deposit account with, Security Agent or any bank, trust company, or national banking association incorporated or doing business under the laws of the United States or any state thereof having a combined capital and surplus and retained earnings of at least $1 billion and having a rate of “A” or better from Standard & Poor’s; or (4) commercial paper of any issuer doing business under the laws of the United States or one of the states thereof and in each case having a rating assigned to such commercial paper by Standard & Poor’s or Moody’s equal to or higher than A1 or P1, respectively. Citizen of the United States: defined in Section 40102(a)(15) of the Transportation Code and in the FARs. Closing: defined in Section 2.4 of the Loan Agreement. Closing Date: defined in Section 2.1 of the Loan Agreement, which date shall be the date on which the Mortgage is dated and the Equipment Notes are issued. Code: the Internal Revenue Code of 1986, as amended, or any successor thereto. Collateral: defined in the Granting Clause of the Mortgage. Consent and Agreement: the consent and agreement of Airframe Manufacturer to the assignment contemplated by Granting Clause (2) of the Mortgage, substantially in the form attached to the Loan Agreement as Exhibit D. CRAF: the Civil Reserve Air Fleet Program established pursuant to 10 U.S.C. § 9511—13, or any similar substitute program backed by the full faith and credit of the U.S. Government. Debt Rate: as defined in Annex A of the Loan Agreement. Default: (1) any event or condition that, with the giving of notice or the lapse of time, would become an Event of Default, or (2) any Event of Default. Dollars, United States Dollars, or $: the lawful currency of the United States. DOT: the Department of Transportation of the United States, or any Governmental Entity succeeding to the functions of such Department of Transportation. EASA: the European Aviation Safety Agency and any successor thereof. Eligible Account: an account established by and with an Eligible Institution at Security Agent’s request, which institution agrees, for all purposes of the UCC (including UCC Article 8), that (1) such account shall be a “securities account” (as defined in UCC § 8-501), (2) all property (other than cash) credited to such account shall be treated as a “financial asset” (as defined in UCC § 8-102(9)), (3) Security Agent shall be the “entitlement holder” (as defined in UCC § 8-102(7)) of such account, (4) it will comply with all entitlement orders issued by Security Agent to the exclusion of Borrower, and (5) the “securities intermediary jurisdiction” (under UCC § 8-110(e)) shall be the State of New York.   A-4 -------------------------------------------------------------------------------- Eligible Institution: (1) The Royal Bank of Scotland plc New York Branch, acting solely in its capacity as a “securities intermediary” (as defined in UCC § 8-102(14)), or (2) a depository institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any U.S. branch of a foreign bank), which has a long-term unsecured debt rating from Moody’s and Standard & Poor’s of at least A-3 or its equivalent. Engine: (1) each of the engines manufactured by Engine Manufacturer and identified by Engine Manufacturer’s model number and Engine Manufacturer’s serial number in the Aircraft Description Exhibit and originally installed on the Airframe on the Closing Date, or (2) any Replacement Engine, in any case whether or not from time to time installed on such Airframe or installed on any other airframe or aircraft, including (for both clauses (1) and (2)) any and all Parts incorporated or installed in or attached or appurtenant to such engine, and any and all Parts removed from such engine, unless the Lien of the Mortgage does not apply to such Parts in accordance with Section 4.4 of the Mortgage. Upon substitution of a Replacement Engine under and in accordance with the Mortgage, such Replacement Engine shall become subject to the Mortgage and shall be an “Engine” for all purposes of the Operative Agreements, and the replaced Engine shall cease to be subject to the Mortgage and shall cease to be an “Engine”. Engine Consent and Agreement: the consent and agreement of Engine Manufacturer to the assignment contemplated by Granting Clause (2) of the Mortgage, substantially in the form attached to the Loan Agreement as Exhibit E. Engine Manufacturer: CFM International, Inc. Entry Point Filing Forms: each of the FAA form AC 8050-135 forms to be filed with the FAA as contemplated by Section 5.1(h) of the Loan Agreement. Equipment Note Register: defined in Section 2.6 of the Mortgage. Equipment Note: any equipment note issued under the Mortgage in the form specified in Section 2.1 and Exhibit B thereof (as such form may be varied pursuant to the terms of the Mortgage), or any Equipment Note issued under the Mortgage in exchange for or replacement of any Equipment Note. ERISA: the Employee Retirement Income Security Act of 1974, as amended. Event of Default: defined in Section 5.1 of the Mortgage. Event of Loss: with respect to the Aircraft, the Airframe, or any Engine: any of the following circumstances, conditions, or events with respect to such property, for any reason whatsoever: (1) the destruction of such property, damage to such property beyond economic repair, or rendition of such property permanently unfit for normal use by Borrower;   A-5 -------------------------------------------------------------------------------- (2) the actual or constructive total loss of such property, or any damage to such property, or requisition of title or use of such property, which results in an insurance settlement with respect to such property on the basis of a total loss or constructive or compromised total loss; (3) any theft, hijacking, or disappearance of such property for a period in excess of ninety (90) consecutive days; (4) any seizure, condemnation, confiscation, or requisition of title to or of use of such property by any Governmental Entity or purported Governmental Entity (other than a requisition of use by the U.S. Government) (aa) for a period exceeding in the case of any requisition of use, 180 consecutive days if the requisition is by a Governmental Entity of any Permitted Country or thirty (30) consecutive days if the requisition is by any other Governmental Entity or (bb) in the case of any condemnation, confiscation or seizure of, or requisition of title, on the date such event occurs; (5) the use of the Aircraft in the normal course of Borrower’s business of passenger air transportation is prohibited for a period of 180 consecutive days, as a result of any law, rule, regulation, order, or other action by the Aviation Authority or by any Governmental Entity of the government of registry of the Aircraft or by any Governmental Entity otherwise having jurisdiction over the operation or use of the Aircraft which action is applicable to Similar Aircraft, unless, before the expiration of such 180-day period, Borrower undertakes and is diligently carrying forward such steps as are necessary or desirable to permit the normal use of such property by Borrower and shall within such 180-day period have conformed to at least one Similar Aircraft in its fleet to the requirements of any law, rule, regulation, order or other action, but in any event if such use is prohibited for a continuous period of eighteen (18) months. (6) with respect to any Engine, the requisition for use by any Governmental Entity (other than by the U.S. Government). An Event of Loss to the Aircraft shall be deemed to occur upon an Event of Loss to the Airframe. Expenses: any and all liabilities, obligations, losses, damages, settlements, penalties, claims, actions, suits, costs, expenses, and disbursements (including reasonable fees and disbursements of legal counsel, accountants, appraisers, inspectors, or other professionals, and costs of investigation). FAA: the Federal Aviation Administration of the United States or any Governmental Entity succeeding to the functions of such Federal Aviation Administration. FAA Bill of Sale: a bill of sale for the Aircraft on AC Form 8050-2 (or such other form as may be approved by the FAA) delivered to Borrower on the Closing Date by Seller or pursuant to Section 4.5(c)(1)(bb) of the Mortgage. FAA Counsel: Lytle, Soule & Curlee.   A-6 -------------------------------------------------------------------------------- FAA-Filed Documents: the Mortgage, the Entry Point Filing Forms, the FAA Bill of Sale, and an application for registration of the Aircraft with the FAA in Borrower’s name. FARS: the Federal Aviation Regulations issued or promulgated pursuant to the Transportation Code from time to time. Financing Statements: UCC-1 financing statements covering the Collateral, by Borrower, as debtor, showing Security Agent as secured party, for filing in Delaware and each other jurisdiction where filing is necessary to perfect its Lien on the Collateral. Fixed Rate Option: defined in Section 4.5 of the Loan Agreement. French DGAC: la Direction Générale de l’Aviation Civile and any successor thereof. GAAP: generally accepted accounting principles as set forth in the statements of financial accounting standards issued by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants, as varied by any applicable financial accounting rules or regulations issued by the SEC or the Public Company Accounting Oversight Board, and applied on a basis consistent with prior periods except as may be disclosed in the pertinent Person’s financial statements. GEES Acknowledgment and Agreement: the acknowledgment and agreement of GE Engine Services, Inc. to the assignment contemplated by Granting Clause (2) of the Mortgage and the agreement by Borrower of certain matters addressed therein, substantially in the form attached to the Loan Agreement as Exhibit F. Governmental Entity: (1) any national government, political subdivision thereof, or local jurisdiction therein; (2) any instrumentality, board, commission, court, or agency of any thereof, however constituted; and (3) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject. GTA: General Terms Agreement No. CFM-03-0017, dated June 30, 2003, by and between Engine Manufacturer and Borrower including all exhibits thereto. Holdings: AirTran Holdings, Inc., a Nevada corporation. Holdings Guarantee: the Guarantee [N330AT], dated as of August 31, 2006, issued by Holdings. Indemnified Withholding Taxes: defined in Section 9.3 of the Loan Agreement. Indemnitee: (1) Security Agent, (2) the Lenders, (3) each Affiliate of the Persons described in clauses (1) and (2) above, (4) the directors, officers, employees, and agents of each of the Persons described in clauses (1) through (3) above and (5) the successors and permitted assigns of the persons described in clauses (1) through (3). IRS: the Internal Revenue Service of the United States, or any Governmental Entity succeeding to the functions of such Internal Revenue Service.   A-7 -------------------------------------------------------------------------------- Inspecting Parties: as defined in Section 4.3(a) of the Mortgage. Insured Value: defined in Annex B to the Mortgage. Interest Period: defined in Annex A to the Loan Agreement. International Interest: as defined in the Cape Town Convention. International Registry: as defined in the Cape Town Convention. JAA: the European Joint Aviation Authorities and any successor thereof. Junior Loan: defined in Section 7.4 of the Loan Agreement. Law: (1) any constitution, treaty, statute, law, decree, regulation, order, rule, or directive of any Governmental Entity, and (2) any judicial or official administrative interpretation or application of, or decision under, any of the foregoing having the force of law. Lease Assignment: as defined in Section 4.2(b) of the Mortgage. Lender: (1) initially each Person identified in Schedule 2 of the Loan Agreement as a Lender making a secured loan in respect of the Aircraft, and (2) thereafter any Person registered as a holder of one or more Equipment Notes related to the Aircraft. LIBOR Breakage Amount: as of the date of determination thereof the amount, if any, required to compensate any Lender in respect of the net amount of any actual out-of-pocket loss, cost or expense incurred by such Lender in connection with the unwinding or liquidating of any deposits or funding or financing arrangement with its funding sources as the result of (a) failure by Borrower in making a borrowing of loans after Borrower has given a notice requesting the same in accordance with the provisions of the Loan Agreement other than as a result of a breach by an Lender to make its Commitment available pursuant to Section 2(a) of the Loan Agreement, (b) failure by Borrower in making any prepayment or redemption of Equipment Notes after Borrower has given a notice thereof in accordance with the provisions of the Operative Agreements, or (c) the making of a prepayment or redemption of Equipment Notes on a day that is not the last day of an Interest Period with respect thereto. Such amount includes without limitation, any and all penalties or charges for prepayment or liquidation or other arrangement or redeployment of funds. LIBOR Rate: as defined in the Loan Agreement. Lien: any mortgage, pledge, lien, charge, claim, encumbrance, lease, or security interest affecting the title to or any interest in property, including any interest registered with the International Registry. Life Limited Part: any Part that has a pre-determined ultimate life limit as mandated by the Airframe Manufacturer, the Aviation Authority, the French DGAC, the FAA, the JAA/EASA or any other Governmental Entity, which requires any such Part to be discarded upon reaching such life limit.   A-8 -------------------------------------------------------------------------------- Loan Agreement: Loan Agreement [N330AT], dated as of August 31, 2006, among Borrower, the Lenders and Security Agent. Maintenance Program: as defined in Section 4.2(d) of the Mortgage. Maintenance Planning Document: the planning document relating to recommended maintenance of the Aircraft issued by Airframe Manufacturer, as the same may from time to time be amended, modified or supplemented. Majority in Interest of the Lenders: as of a particular date of determination, the Lenders holding Equipment Notes constituting a majority of the aggregate unpaid Original Amount of all Equipment Notes outstanding as of such date. Mandatory Modification: as defined in Section 4.4(d) of the Mortgage. Material Adverse Change: with respect to any Person, any event, condition, or circumstance that materially adversely affects such Person’s business or consolidated financial condition, or its ability to observe or perform its obligations, liabilities, and agreements under the Operative Agreements. Maturity Date: as defined in the Loan Agreement. Moody’s: Moody’s Investors Service, Inc. Mortgage: Mortgage [N330AT], dated the Closing Date, between Borrower and Security Agent. Mortgaged Property: defined in Section 3.3 of the Mortgage. Mortgagor Agreements: the Purchase Agreement, GTA and the Bills of Sale (in each case, to the extent included in Granting Clause (2) of the Mortgage), any assigned Permitted Lease contemplated by the Mortgage, and any other contract, agreement, or instrument from time to time assigned or pledged under the Mortgage. Obligations: means the unpaid principal of and interest on the Equipment Notes, the performance and observance by Borrower of all the agreements and covenants to be performed or observed by it for the benefit of Security Agent and the Lenders contained in the Operative Agreements and all other obligations and liabilities of Borrower (including, without limitation, interest accruing at the then applicable rate provided in the Equipment Notes and the Loan Agreement after maturity of the Equipment Notes and interest accruing at the then applicable rate provided therein after filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with the Loan Agreement and the Equipment Notes or any other document made, delivered or given in connection with any of the foregoing, in each case whether on the account of principal, interest, fees, indemnities, costs, expenses or otherwise (including, without limitation, all reasonable fees, charges, and disbursements of counsel to Security Agent or the Lenders that Borrower is required to pay pursuant to the terms of any Operative Agreement).   A-9 -------------------------------------------------------------------------------- Officer’s Certificate: of any party to the Operative Agreements, a certificate signed by the Chairman, the President, any Vice President (including those with varying ranks such as Executive, Senior, Assistant, or Staff Vice President), the Treasurer, or the Secretary of such party. Operative Agreements: the Loan Agreement, the Mortgage, the Equipment Notes, the Consent and Agreement, the Engine Consent and Agreement, the GEES Acknowledgment and Agreement and the Holdings Guarantee as and to the extent related to the Aircraft. Optional Modification: as defined in Section 4.4(d) of the Mortgage. Optional Redemption Triggering Event: as defined in Section 2.10 of the Mortgage Original Amount: the stated original principal amount of such Equipment Note and, with respect to all Equipment Notes, the aggregate stated original principal amounts of all Equipment Notes. Parts: all appliances, parts, components, instruments, appurtenances, accessories, furnishings, seats, and other equipment (including buyer-furnished equipment) of whatever nature (other than (1) Engines or engines, (2) any Removable Part and (3) cargo containers) from time to time installed or incorporated in or attached or appurtenant to the Airframe or any Engine or removed therefrom, unless the Lien of the Mortgage does not apply thereto in accordance with Section 4.4 of the Mortgage after removal from the Airframe or Engine. Past-Due Rate: defined in Annex A to the Loan Agreement. Payment Date: for any Equipment Note, the day of the month in which the Scheduled Delivery Date and the corresponding calendar day of the month that occurs every three months thereafter, including the Maturity Date, the first of which shall fall in the third month next following the Scheduled Delivery Date; provided that, if there is no day in any month corresponding to the Scheduled Delivery Date, then the Payment Date in such month shall be the last Business Day of such month. PDP Credit Agreements: defined in Annex A to the Loan Agreement. PDP Notes: defined in Annex A to the Loan Agreement. PDP Security Agreements: defined in Annex A to the Loan Agreement. Permitted Air Carrier: any Permitted Foreign Air Carrier or U.S. Air Carrier. Permitted Country: any country listed on Schedule 3 to the Loan Agreement. Permitted Foreign Air Carrier: any air carrier that (1) has its principal executive offices in any Permitted Country or other country approved by Security Agent (which approval   A-10 -------------------------------------------------------------------------------- shall not be unreasonably withheld), and (2) is authorized to conduct commercial airline operations and to operate jet aircraft similar to the Aircraft under the applicable Laws of such Permitted Country. Permitted Lease: a lease or sublease permitted under Section 4.2(b) of the Mortgage. Permitted Lessee: the lessee under a Permitted Lease. Permitted Lien: in respect of all or any part of the Collateral (a) the rights of Security Agent under the Operative Agreements, or of any Permitted Lessee under any Permitted Lease; (b) Liens which Security Agent or such Lender, as the case may be, is expressly required to remove under the terms of the Operative Agreements; (c) the rights of others under agreements or arrangements to the extent expressly permitted by Section 4.2(b) or Section 4.4 of the Mortgage; (d) Liens of Taxes either not yet due or being contested in good faith by appropriate procedures if such Liens and such procedures (i) do not involve any material risk of the sale, forfeiture, or loss of the Aircraft, the Airframe, any Engine, or the interest of Security Agent or any Lender therein, or (ii) do not involve any risk of criminal liability or material risk of civil liability being imposed on Security Agent or other Indemnitee, or (iii) impair the first and prior Lien of the Mortgage and for which adequate reserves have been established under GAAP; (e) materialmen’s, mechanics’, workers’, repairers’, employees’, or other like Liens arising in the ordinary course of business for amounts the payment of which either is not yet delinquent for more than sixty (60) days or is being contested in good faith by appropriate proceedings, if such Liens and such proceedings do not involve any material risk of the sale, forfeiture, or loss of the Aircraft, the Airframe, any Engine or any other Collateral, or the interest of Security Agent or any Lender therein, or impair the first and prior Lien of the Mortgage; (f) Liens arising out of any judgment or award against Borrower (or any Permitted Lessee), if, within sixty (60) days after the entry thereof, that judgment or award is discharged or vacated, or has its execution stayed pending appeal, or is discharged, vacated, or reversed, and if during any such 60-day period there is not, or any such judgment or award does not involve, any material risk of the sale, forfeiture, or loss of the Aircraft, the Airframe, any Engine or any other Collateral, or the interest of Security Agent or any Lender therein, or impair the first and prior Lien of the Mortgage; (g) any other Lien with respect to which Borrower (or any Permitted Lessee) shall have provided a bond, cash collateral, or other security adequate in the reasonable opinion of Security Agent; (h) the Lien of any Junior Loan, to the extent permitted by the Section 7.3 of the Loan Agreement; and (i) Liens that are ownership interests registered with the International Registry in the Airframe and any Engine constituted by the Bills of Sale (or other evidence of Borrower’s ownership) thereof or ownership interests registered with the International Registry in any airframes on which any Engine may be installed (as permitted by Section 4.2 of the Mortgage) constituted by bills of sale (or other evidence of ownership) thereof. Permitted Manufacturer: any manufacturer of commercial jet airframes or commercial jet aircraft engines, or Affiliate of any such manufacturer. Person or person: an individual, firm, partnership, joint venture, trust, trustee, Governmental Entity, organization, association, corporation, limited liability company, government agency, committee, department, authority, and other body, corporate or not, whether having distinct legal status or not, or any member of any of the same.   A-11 -------------------------------------------------------------------------------- Plan: any employee benefit plan within the meaning of ERISA § 3(3), which is subject to Title I of ERISA, or any plan subject to Code § 4975(e)(1). Potential Competitor: a U.S. Air Carrier or an Affiliate thereof or a shareholder of a U.S. Air Carrier holding or having the right to acquire (without regard to the happening of a contingency) capital stock in such U.S. Air Carrier in excess of 25%. Prospective Assignment: as defined in the Cape Town Convention. Prospective International Interest: as defined in the Cape Town Convention. Prospective Sale: as defined in the Cape Town Convention. Protocol: means the Protocol referred to in the defined term “Cape Town Convention”. Purchase Agreement: Purchase Agreement No. 2444, dated July 3, 2003, between Airframe Manufacturer and Borrower (which includes by reference AGTA-CQT), including all exhibits thereto, together with all letter agreements related thereto. QIB: defined in Section 2.7 of the Mortgage. RBS: The Royal Bank of Scotland plc New York Branch. Related Loan Agreement: as defined in Annex A of the Loan Agreement. Related Mortgage: (1) a mortgage (other than the Mortgage) that (y) covers a Boeing model 737-7BD aircraft to be delivered pursuant to the Purchase Agreement and (z) is entered into in connection with any Related Loan Agreement or (2) either of the PDP Security Agreements. Related Note: (1) an equipment note issued pursuant to a Related Mortgage or (2) a PDP Note. Related Note Agreement: means the Related Mortgage, each Related Note and any agreements or instruments entered into in connection therewith. Related Obligations: means the unpaid principal of and interest accrued and payable at any relevant time on any loans made and/or Related Notes issued, under any Related Note Agreement, the performance and observance by Borrower of all the agreements and covenants to be performed or observed by it for the benefit of any financing party contained in any Related Note Agreement and all other obligations and liabilities of Borrower (including, without limitation, interest accruing at the then applicable rate provided in the relevant Related Note Agreements after maturity of the relevant loans, notes or other obligations and interest accruing at the then applicable rate provided therein after filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with such Related Note   A-12 -------------------------------------------------------------------------------- Agreements or any other document made, delivered or given in connection with any of the foregoing, in each case whether on the account of principal, interest, rent, termination amounts, fees, indemnities, costs, expenses or otherwise (including, without limitation, all reasonable fees, charges, and disbursements of counsel to any such financing party that Borrower is required to pay pursuant to the terms of any Related Note Agreement). Removable Part: as defined in Section 4.4(d) of the Mortgage. Replacement Airframe: an airframe substituted for the Airframe pursuant to Section 4.5 of the Mortgage. Replacement Closing Date: as defined in Section 4.5(c)(1) of the Mortgage. Replacement Engine: an engine substituted for an Engine pursuant to Sections 4.4(e) or 4.5 of the Mortgage. Sale: as defined in the Cape Town Convention. Scheduled Delivery Date: as defined in Section 2.2(a) of the Loan Agreement. SEC: the Securities and Exchange Commission of the United States, or any Governmental Entity succeeding to the functions of such Securities and Exchange Commission. Section 1110: 11 U.S.C. Section 1110 of the Bankruptcy Code, or any successor or analogous section of the federal bankruptcy law in effect from time to time. Secured Obligations: collectively, the Obligations and the Related Obligations. Securities Act: the Securities Act of 1933. Security: a “security” as defined in Section 2(l) of the Securities Act. Seller: Airframe Manufacturer. Similar Aircraft: a Boeing model 737-700 aircraft. Standard & Poor’s: Standard & Poor’s Ratings Services or any successor or organization. Swap Breakage Loss: as defined in the Loan Agreement. Tax Indemnitee: (1) Security Agent, (2) each Lender, and (3) the successors, assigns, officers, directors and agents of the foregoing. Taxes: all taxes, levies, imposts, duties, charges, assessments, or withholdings of any nature whatsoever imposed by any Taxing Authority, and any penalties, additions to tax, fines, or interest thereon or additions thereto.   A-13 -------------------------------------------------------------------------------- Taxing Authority: any federal, state, or local government or other taxing authority in the United States, any foreign government or any political subdivision or taxing authority thereof, any international taxing authority, or any territory or possession of the United States or any taxing authority thereof. Transactions: the transactions contemplated by the Loan Agreement. Transfer: the transfer, sale, assignment, or other conveyance by a Lender, but not including the granting of participations by a Lender as contemplated by Section 7.1 of the Loan Agreement. Transfer Agreement: an assignment and assumption agreement substantially in the form set out in Exhibit C to the Loan Agreement. Transferee: any commercial bank or financial institution, credit or leasing company, special purpose or other entity to whom any Lender purports or intends to Transfer any or all of its Commitment or right, title, or interest in an Equipment Note it holds, pursuant to Section 7.1 of the Loan Agreement; provided, that in the event a Transferee of the Commitment is not a commercial bank or financial institution, Borrower’s written consent shall be required (which consent shall not be unreasonably withheld or delayed); and provided, further, that in any case no Transferee may be a Potential Competitor. Transportation Code: subtitle VII of title 49, United States Code. UCC: the Uniform Commercial Code as in effect in the State of New York from time to time. United States or U.S.: the United States of America; provided, that for geographic purposes, “United States” means the 50 states and the District of Columbia of the United States of America. U.S. Air Carrier: any United States air carrier who is a Citizen of the United States holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to chapter 447 of the Transportation Code for aircraft capable of carrying 10 or more individuals or 6000 pounds or more of cargo, and as to whom there is in force an air carrier operating certificate issued pursuant to FAR Part 121, or who may operate as an air carrier by certification or otherwise under any successor or substitute provisions therefor or in the absence thereof. U.S. Government: the federal government of the United States, or any instrumentality or agency thereof the obligations of which are guaranteed by the full faith and credit of the federal government of the United States. U.S. Person: any Person that is a “United States person” as defined in Code Section 7701(a)(30). Wet Lease: any arrangement whereby Borrower or a Permitted Lessee agrees to furnish the Aircraft, the Airframe, or any Engine to a third party pursuant to which the Aircraft, Airframe, or Engine is at all times in the operational control of Borrower or a Permitted Lessee, provided, that Borrower’s obligations under the Mortgage shall continue in full force and effect notwithstanding any such arrangement.   A-14 -------------------------------------------------------------------------------- ANNEX B***   -------------------------------------------------------------------------------- *** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 4 of 8 pages containing information redacted pursuant to a request for confidential treatment.   B-1 -------------------------------------------------------------------------------- EXHIBIT A AIRCRAFT DESCRIPTION The Aircraft is a Boeing model 737-7BD aircraft, consisting of (1) an airframe bearing FAA registration no. N330AT and manufacturer’s serial no. 33935, (2) two CFM International model CFM56-7B20 engines (each of which has (A) 750 or more rated takeoff horsepower or its equivalent and (B) 1750 or more pounds of thrust or its equivalent), bearing manufacturer’s serial nos. [ ] and [ ], and (3) all appliances, parts, instruments, appurtenances, accessories, furnishings, and other equipment or property incorporated in such airframe and engines.   Exh A-1 -------------------------------------------------------------------------------- EXHIBIT B FORM OF EQUIPMENT NOTE Equipment Note due [    ], 201[    ] (“Maturity Date”), issued in connection with the Boeing model 737-700 aircraft bearing United States registration mark N330AT.   No. [    ]    [    ], 200[  ] $[    ]    AirTran Airways, Inc. (“Borrower”), a Delaware corporation hereby promises to pay to [ ] (or its registered assignee) the principal sum of $[            ] (the “Original Amount”), together with interest at the Debt Rate on the unpaid balance of the Original Amount (calculated on the basis of a 360-day year [and actual number of days elapsed]1[consisting of twelve 30-day months]2) from the date hereof until paid in full. The Original Amount of this Equipment Note shall be payable in forty-eight (48) quarterly installments on the dates set forth in Schedule I hereto (each a “Payment Date”) equal to the corresponding principal amounts set forth in Schedule I hereto. Accrued but unpaid interest thereon, shall be due and payable quarterly in arrears on each Payment Date. Notwithstanding the foregoing, the final payment made on this Equipment Note shall be an amount sufficient to discharge in full the unpaid Original Amount and all accrued and unpaid interest on, and any other amounts due under, this Equipment Note. If any date on which a payment under this Equipment Note becomes due and payable is not a Business Day, then such payment shall not be made on such scheduled date but shall be made on the following Business Day (unless such extension would cause such payment to be made in a succeeding calendar month, in which case such payment shall be made on the preceding Business Day), and if such payment is made on such following Business Day, interest shall accrue on the amount of such payment during such extension at the Debt Rate. For purposes hereof, “Mortgage” means the Mortgage N330AT, dated as of [ ], between Borrower and The Royal Bank of Scotland plc New York Branch (“Security Agent”), as amended or supplemented from time to time. All terms used in this Equipment Note, if defined in the Mortgage and not in this Equipment Note, have the same meanings as in the Mortgage. This Equipment Note shall bear interest, payable on demand, at the Past-Due Rate (calculated on the basis of a 360-day year [and actual number of days elapsed]3[consisting of twelve 30-day months]4) on any overdue payment of principal, interest or any other amount required to be made hereunder for the period that it is overdue. Amounts shall be overdue if not paid when due (whether at stated maturity, by acceleration, or otherwise).   -------------------------------------------------------------------------------- 1 Insert if Fixed Rate Election has not been exercised pursuant to Section 4.5 of the Loan Agreement 2 Insert if Fixed Rate Election has been exercised pursuant to Section 4.5 of the Loan Agreement 3 Insert if Fixed Rate Election has not been exercised pursuant to Section 4.5 of the Loan Agreement 4 Insert if Fixed Rate Election has been exercised pursuant to Section 4.5 of the Loan Agreement   Exh B-1 -------------------------------------------------------------------------------- An Equipment Note Register shall be maintained at Security Agent’s Administrative Office (or at the office of any successor), for the purpose of registering transfers and exchanges of Equipment Notes, in the manner provided in Section 2.6 of the Mortgage. The Original Amount and interest and other amounts due hereunder shall be payable in Dollars in immediately available funds at Security Agent’s Administrative Office, or as otherwise provided in the Mortgage. Each such payment shall be made without any presentment or surrender of this Equipment Note. However, this Equipment Note shall be surrendered to Security Agent for cancellation promptly after any final payment. The holder hereof, by its acceptance of this Equipment Note, agrees that (except as otherwise provided in the Mortgage) each payment of the Original Amount and interest received by it hereunder shall be applied: first, to pay amounts due hereunder or under the Mortgage other than as specified in the following clauses, second, to pay accrued interest on this Equipment Note (as well as any interest on any overdue amount) to the date of such payment, third, to pay the principal of this Equipment Note then due, and fourth, the balance, if any, remaining thereafter, to pay installments of the principal of this Equipment Note remaining unpaid in the inverse order of its maturity. This Equipment Note is one of the Equipment Notes referred to in the Mortgage which have been or are to be issued by Borrower pursuant to the Mortgage. The Collateral is held by Security Agent as security, in part, for the Equipment Notes. The provisions of this Equipment Note are subject to the Mortgage. Refer to the Mortgage for a complete statement of (1) the rights and obligations of the holder of this Equipment Note, and the nature and extent of the security for this Equipment Note, and (2) the rights and obligations of the holders of any other Equipment Notes executed and delivered under the Mortgage, and the nature and extent of the security for any other Equipment Notes executed and delivered under the Mortgage. Each holder hereof agrees by its acceptance of this Equipment Note to the terms and conditions in the Security Agreement. Before this Equipment Note is duly presented for registration of transfer, Borrower and Security Agent shall treat the person in whose name this Equipment Note is registered as the owner hereof for all purposes, whether or not this Equipment Note is overdue, and neither Borrower nor Security Agent shall be affected by notice to the contrary. This Equipment Note is subject to prepayment as provided in Section 2.9 and Section 2.10 of the Mortgage, but not otherwise. In addition, this Equipment Note may be, and shall be, accelerated as provided in Section 5.2 of the Mortgage. Unless the certificate of authentication hereon has been executed by or on behalf of Security Agent by manual signature, this Equipment Note shall not be entitled to any benefit under the Mortgage or be valid or obligatory for any purpose. THIS EQUIPMENT NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.   Exh B-2 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Borrower has executed this Equipment Note.   AIRTRAN AIRWAYS, INC. By:     Name:   Title:     Exh B-3 -------------------------------------------------------------------------------- CERTIFICATE OF AUTHENTICATION This is one of the Equipment Notes referred to in the Mortgage (as defined in the foregoing Equipment Note).   THE ROYAL BANK OF SCOTLAND PLC NEW YORK BRANCH, as Security Agent By:     Name:   Title:     Exh B-4 -------------------------------------------------------------------------------- SCHEDULE 1 to Equipment Note No. [    ]   Installment No.    Payment Date    Dollar Amount 1       2       3       4       5       6       7       8       9       10       11       12       13       14       15       16       17       18       19       20       21       22       23       24       25       26       27       28       29       30       31       32       33       34       35       36       37       38       39       40       41       42       43       44       45       46       47       48         Exh B-5

SECOND LOAN MODIFICATION AGREEMENT This Second Loan Modification Agreement (this "Loan Modification Agreement") is entered into as of October 31, 2006, by and between SILICON VALLEY BANK, a California-chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at 535 Fifth Avenue, 27th Floor, New York, New York 10017 ("Bank") and AXS-ONE INC., a Delaware corporation with its chief executive office located at 301 Route 17 North, Rutherford, New Jersey 07070 ("Borrower"). 1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of September 13, 2005, evidenced by, among other documents, a certain Amended and Restated Loan and Security Agreement dated as of September 13, 2005, between Borrower and Bank, as amended by a certain First Loan Modification Agreement dated as of March 14, 2006, between Borrower and Bank (as amended, the "Loan Agreement"). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement. 2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement and the Intellectual Property Collateral as described in a certain Intellectual Property Security Agreement dated as of even date herewith (the "IP Security Agreement") (together with any other collateral security granted to Bank, the "Security Documents"). Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the "Existing Loan Documents". 3. DESCRIPTION OF CHANGE IN TERMS. A. Modifications to Loan Agreement. 1 The Loan Agreement shall be amended by deleting the following, appearing as Section 4 of the Schedule to the Loan Agreement: "SECTION 1 CREDIT LIMIT (Section 1.1): An amount not to exceed the lesser of (A) or (B), below: (A) (i) $4,000,000.00 (the "Maximum Credit Limit"); minus (ii) the aggregate amounts then undrawn on all outstanding letters of credit, foreign exchange contracts, or any other accommodations issued or incurred, or caused to be issued or incurred by Silicon for the account and/or benefit of the Borrower. (B) (i) 80.0% of the amount of the Borrower's Eligible Accounts; minus (ii) the aggregate amounts then undrawn on all outstanding letters of credit, foreign exchange contracts, or any other accommodations issued or incurred, or caused to be issued or incurred by Silicon for the account and/or benefit of the Borrower. Silicon may, from time to time, modify the advance rate(s) set forth herein in its good faith business judgment upon notice to Borrower based on changes in collection experience with respect to the Accounts or other issues or factors relating to the Accounts or the Collateral. Letter of Credit/Foreign Exchange Contract/Cash Management Services Sublimit (Section 1.6, 1.7, 1.8): $1,000,000.00" and inserting in lieu thereof the following: "SECTION 1 CREDIT LIMIT (Section 1.1): An amount not to exceed the lesser of (A) or (B), below: (A) (i) $2,000,000.00 (the "Maximum Credit Limit"); minus (ii) the aggregate amounts then undrawn on all outstanding letters of credit, foreign exchange contracts, or any other accommodations issued or incurred, or caused to be issued or incurred by Silicon for the account and/or benefit of the Borrower. (B) (i) 70.0% of the amount of the Borrower's Eligible Accounts; minus (ii) the aggregate amounts then undrawn on all outstanding letters of credit, foreign exchange contracts, or any other accommodations issued or incurred, or caused to be issued or incurred by Silicon for the account and/or benefit of the Borrower. Silicon may, from time to time, modify the advance rate(s) set forth herein in its good faith business judgment upon notice to Borrower based on changes in collection experience with respect to the Accounts or other issues or factors relating to the Accounts or the Collateral. Letter of Credit/Foreign Exchange Contract/Cash Management Services Sublimit Section 1.6, 1.7, 1.8): $1,000,000.00" B. Acknowledgment of Default; Forbearance by Bank. Borrower acknowledges that it is currently in default under the Loan Agreement by its failure to comply with (i) the financial covenant set forth in subsection (a) of Section 5 of the Schedule to the Loan Agreement (relative to Borrower's Adjusted Quick Ratio) as of the months ended July 31, 2006, August 31, 2006 and September 30, 2006, and (ii) the financial covenant set forth in subsection (b) of Section 5 of the Schedule to the Loan Agreement (relative to Borrower's EBITDAS) as of the quarter ended September 30, 2006. Bank, however, hereby agrees to forbear from exercising its rights and remedies with respect to such default until the earlier to occur of (i) an Event of Default under the Loan Agreement (other than the failure of the Borrower to comply with the above covenants) or (ii) November 10, 2006. The Borrower hereby acknowledges and agrees that except as specifically provided herein, nothing in this Section or anywhere in this Loan Modification Agreement shall be deemed or otherwise construed as a waiver by the Bank of any of its rights and remedies pursuant to the Existing Loan Documents, applicable law or otherwise. 4. FEES. Borrower shall pay to Bank a modification fee equal to Ten Thousand Dollars ($10,000.00) which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof. Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents. 5. RATIFICATION OF PERFECTION CERTIFICATE. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of August 11, 2004 between Borrower and Bank, and acknowledges, confirms and agrees the disclosures and information above Borrower provided to Bank in the Perfection Certificate has not changed, as of the date hereof. 6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 7. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations. 8. NO DEFENSES OF BORROWER. Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Bank with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder. 9. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower's representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank's agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker will be released by virtue of this Loan Modification Agreement. 10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank. [The remainder of this page is intentionally left blank] This Loan Modification Agreement is executed as of the date first written above. BORROWER: BANK: AXS-ONE INC. SILICON VALLEY BANK By: /s/ Joseph P. Dwyer By: /s/ Melissa Stepanis ------------------------------------- ---------------------------- Name: Joseph P. Dwyer Name: Melissa Stepanis ----------------------------------- -------------------------- Title: Chief Financial Officer Title: Vice President ---------------------------------- -------------------------

QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 10.8 SUMMARY OF DIRECTOR COMPENSATION         Each non-employee director will receive an annual cash retainer of $25,000 and an annual grant of $25,000 in shares of class A common stock. We'll pay non-employee directors $1,500 for each meeting of the board of directors that they attend and $1,000 for each meeting of a committee of the board of directors that they attend ($500 in the case of telephonic committee meeting). Annual retainers will be paid to the chairperson of each committee of the board of directors as follows: $20,000 for the audit committee chairperson, $5,000 for each of the compensation committee chairperson and the nominating/governance committee chairperson and $3,000 for the chairperson of any other committee established by the board of directors. Directors will also be reimbursed for expenses incurred in connection with their service as directors, including travel expenses for meeting attendance. Each of Messrs. Baldocchi, Charlesworth and Flynn and Ms. Friedman is entitled to payment of $12,000 in 2006 for service as a director during 2005. -------------------------------------------------------------------------------- QuickLinks EXHIBIT 10.8 SUMMARY OF DIRECTOR COMPENSATION

  Exhibit 10.1 January 13, 2006 Karl Moeller 27400 Loma Prieta Way Los Gatos CA 95033 Dear Karl: Alliance Semiconductor Corporation is pleased to offer you employment as an Interim Chief Financial Officer, reporting to Melvin Keating. Your starting base salary will be $20,000 per month. Your salary will be paid in accordance with Alliance’s payroll policies, as amended from time to time. In addition, you will receive an option to purchase 25,000 common shares of Alliance Semiconductor, based on the same plan and vesting schedule as Melvin Keating. Also, you will be eligible to receive the medical and dental insurance coverage provided under Alliance’s group insurance plans, and will be eligible to participate in Alliance’s 401(k) plan. You will receive ten days paid vacation per year, which accrues on a monthly basis. As an Alliance employee, you will be expected to abide by company rules and regulations. You will be expected to sign and comply with our employee agreement which requires, among other provisions, the assignment of patent rights to any invention made during your employment at Alliance, and nondisclosure of confidential and proprietary information. This offer is subject to your completion of an I-9 form and satisfactory documentation respecting your identification and right to work in the United States, no later than three days after your employment begins. Additionally, this offer of employment is contingent upon the successful completion of a background check. Employment at Alliance is on an “AT-WILL” basis. As an employee, you may terminate employment at any time, and for any reason whatsoever, with notice to Alliance. We request that, in the event of resignation, you give the company at least two weeks notice. Similarly, Alliance may terminate your employment at any time, and for any reason whatsoever, with or without cause. Furthermore, this mutual termination of employment arrangement supercedes any prior written and oral agreement between us. This letter sets forth all of the terms relating to your potential employment by Alliance, and supersedes all other discussions, whether written or oral. The terms relating to your actual or potential employment by Alliance, including the terms of this letter, may not be modified or amended, except in writing signed by both parties. Should any controversy arise between us resulting from this offer, we agree to submit such a controversy to binding arbitration, using a neutral arbitrator (either agreed upon, or appointed by a court of competent jurisdiction), under the rules of the American Arbitration Association, providing adequate discovery necessary to vindicate each party’s claims, requiring a written arbitration award, without limitation on statutory remedies, and where Alliance shall pay all reasonable costs associated with such an arbitration.   --------------------------------------------------------------------------------   Alliance Offer Of Employment Page 2 Please give this offer your careful consideration. I believe your association with Alliance would be very beneficial to both you and Alliance. Please indicate your acceptance of this employment offer by signing below and returning it to Angel Middour, in the Human Resources Department, by January 16, 2006. Sincerely, /s/ Melvin L. Keating Melvin L. Keating Interim President and CEO   Acceptance of Offer of Employment I accept this offer of employment according to the terms of this letter:                                    /s/ Karl H. Moeller, Jr.                                      signature                                    Karl H. Moeller, Jr.                                      printed name                                    1/13/2006                                      date                                    1/13/2006                                      my proposed start date    

Exhibit 10.2 PENN VIRGINIA GP HOLDINGS, L.P. LONG-TERM INCENTIVE PLAN SECTION 1. Purpose of the Plan. The Penn Virginia GP Holdings, L.P. Long-Term Incentive Plan (the “Plan”) is intended to promote the interests of Penn Virginia GP Holdings, L.P., a Delaware limited partnership (the “Partnership”), by providing to employees and directors of PVG GP, LLC (the “Company”) and its Affiliates who perform services for the Partnership incentive compensation awards for superior performance that are based on Units. The Plan is also contemplated to enhance the ability of the Company and its Affiliates to attract and retain the services of individuals who are essential for the growth and profitability of the Partnership and to encourage them to devote their best efforts to the business of the Partnership, thereby advancing the interests of the Partnership and its partners. SECTION 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: “Account” means the bookkeeping reserve account established and maintained for each Director pursuant to Section 6(d)(iii) hereof solely to determine the amount of Deferred Common Units payable to the Director pursuant to Section 6(d)(i) and shall not constitute a separate fund of assets. Each such Account shall consist of such subaccounts as the Committee deems necessary or desirable for the administration of the Plan. “Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question. As used herein, 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 voting securities, by contract or otherwise. “Award” means an Option, Restricted Unit, Phantom Unit or Deferred Common Unit granted under the Plan, and shall include any tandem DERs granted with respect to a Phantom Unit. “Board” means the Board of Directors of the Company. “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 or a series of related transactions) of all or substantially all of the assets of the Partnership or the Company to any Person or its Affiliates, other than the Partnership, the Company or any of their Affiliates, (ii) any merger, reorganization, consolidation or other transaction pursuant to which more than 50% of the combined voting power of the equity interests in the Company ceases to be owned by Persons who own such interests as of October 1, 2006, (iii) a “change of control” of Penn Virginia Corporation, as provided in its Second Amended and Restated 1999 Employee Stock Incentive Plan, or (iv) the general partner (whether the Company or any other Person) of the Partnership ceases to be an Affiliate of Penn Virginia Corporation. -------------------------------------------------------------------------------- “Committee” means the Compensation Committee of the Board or such other committee of the Board appointed by the Board to administer the Plan. “Deferred Common Unit” means a bookkeeping entry representing a single Unit. “DER” means a contingent right, granted in tandem with a specific Phantom Unit, to receive an amount in cash equal to the cash distributions made by the Partnership with respect to a Unit during the period such Phantom Unit is outstanding. “Director” means a member of the Board who is not an Employee. “Employee” means any employee of the Company or an Affiliate who performs services for the Partnership, as determined by the Committee. “Exchange Act” means the Securities Exchange Act of 1934, as amended. “Fair Market Value” means the closing sales price of a Unit on the applicable date (or if there is no trading in the Units on such date, on the next preceding date on which there was trading) as reported in The Wall Street Journal (or other reporting service approved by the Committee). In the event Units are not publicly traded at the time a determination of fair market value is required to be made hereunder, the determination of fair market value shall be made in good faith by the Committee. “Option” means an option to purchase Units granted under the Plan. “Participant” means any Employee or Director granted an Award under the Plan. “Partnership Agreement” means the Amended and Restated Agreement of Limited Partnership of Penn Virginia GP Holdings, L.P. “Person” means an individual or a corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, association, government agency or political subdivision thereof or other entity. “Phantom Unit” means a phantom (notional) Unit granted under the Plan which upon vesting entitles the Participant to receive a Unit or an amount of cash equal to the Fair Market Value of a Unit, whichever is determined by the Committee. “Restricted Period” means the period established by the Committee with respect to an Award during which the Award remains subject to forfeiture (is not vested) and is not exercisable by or payable to the Participant. “Restricted Unit” means a Unit granted under the Plan that remains subject to a Restricted Period. “Retirement” means the voluntary termination by an Optionee or a Participant of his employment with the Company and its Affiliates after such Optionee or Participant has (i) reached the age of 62 and (ii) provided at least ten consecutive Years of Service.   -2- -------------------------------------------------------------------------------- “Rule 16b-3” means Rule 16b-3 promulgated by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. “SEC” means the Securities and Exchange Commission, or any successor thereto. “Unit” means a Common Unit of the Partnership. “Unit Distribution” means any cash distribution or other distribution paid by the Company on account of the Units. “Year of Service” means any calendar year in which an employee of the Company is paid or entitled to be paid for 1,000 hours of service. SECTION 3. Administration. The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of the members of the Committee who are present at any meeting thereof at which a quorum is present, or acts unanimously approved by the members of the Committee in writing, shall be the acts of the Committee. Subject to the following and any applicable law, the Committee, in its sole discretion, may delegate any or all of its powers and duties under the Plan (provided the Chief Executive Officer is a member of the Board), including the power to grant Awards under the Plan, to the Chief Executive Officer of the Company, subject to such limitations on such delegated powers and duties as the Committee may impose, if any. Upon any such delegation all references in the Plan to the “Committee”, other than in Section 7, shall be deemed to include the Chief Executive Officer; provided, however, that such delegation shall not limit the Chief Executive Officer’s right to receive Awards under the Plan. Notwithstanding the foregoing, the Chief Executive Officer may not grant Awards to, or take any action with respect to any Award previously granted to, a person who is an officer subject to Rule 16b-3 or a member of the Board. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Units to be covered by Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled, exercised, canceled, or forfeited; (vi) interpret and administer the Plan and any instrument or agreement relating to an Award made under the Plan; (vii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (viii) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, the Partnership, any Affiliate, any Participant, and any beneficiary of any Award. SECTION 4. Units. (a) Units Available. Subject to adjustment as provided in Section 4(c), the number of Units with respect to which Awards may be granted under the Plan is 300,000.   -3- -------------------------------------------------------------------------------- If any Option, Restricted Unit or Phantom Unit is forfeited or otherwise terminates or is canceled without the delivery of Units, then the Units covered by such Award, to the extent of such forfeiture, termination or cancellation, shall again be Units with respect to which Awards may be granted. (b) Sources of Units Deliverable Under Awards. Any Units delivered pursuant to an Award shall consist, in whole or in part, of Units acquired in the open market, from any Affiliate, the Partnership or any other Person, or any combination of the foregoing, as determined by the Committee in its discretion. (c) Adjustments. In the event that the Committee determines that any distribution (whether in the form of cash, Units, other securities, or other property), recapitalization, split, reverse split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Units or other securities of the Partnership, issuance of warrants or other rights to purchase Units or other securities of the Partnership, or other similar transaction or event affects the Units such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Units (or other securities or property) with respect to which Awards may be granted, (ii) the number and type of Units (or other securities or property) subject to outstanding Awards, and (iii) the grant or exercise price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, that the number of Units subject to any Award shall always be a whole number. SECTION 5. Eligibility. Any Employee or Director shall be eligible to be designated a Participant and receive an Award under the Plan, except that only Directors shall be eligible to receive Deferred Common Units. SECTION 6. Awards. (a) Options. The Committee shall have the authority to determine the Employees and Directors to whom Options shall be granted, the number of Units to be covered by each Option, the purchase price therefor and the conditions and limitations applicable to the exercise of the Option, including the following terms and conditions and such additional terms and conditions, as the Committee shall determine, that are not inconsistent with the provisions of the Plan. (i) Exercise Price. The purchase price per Unit purchasable under an Option shall be determined by the Committee at the time the Option is granted and may be more or less than its Fair Market Value as of the date of grant. (ii) Time and Method of Exercise. The Committee shall determine the Restricted Period, i.e., the time or times at which an Option may be exercised in whole or in part, which may include, without limitation, accelerated vesting upon   -4- -------------------------------------------------------------------------------- the achievement of specified performance goals, and the method or methods by which payment of the exercise price with respect thereto may be made or deemed to have been made, which may include, without limitation, cash, check acceptable to the Company, a “cashless-broker” exercise through procedures approved by the Company, other securities or other property, a recourse note from the Participant in a form acceptable to the Company, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price. (iii) Forfeiture. Except as otherwise provided in the terms of the Option grant, upon termination of a Participant’s employment with the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason other than Retirement during the applicable Restricted Period, all Options shall be forfeited by the Participant. The Committee may, in its discretion, waive in whole or in part such forfeiture with respect to a Participant’s Options. (b) Phantom Units. The Committee shall have the authority to determine the Employees and Directors to whom Phantom Units shall be granted, the number of Phantom Units to be granted to each such Participant, the Restricted Period, the conditions under which the Phantom Units may become vested or forfeited, which may include, without limitation, the accelerated vesting upon the achievement of specified performance goals, and such other terms and conditions as the Committee may establish with respect to such Awards, including whether DERs are granted with respect to such Phantom Units. (i) DERs. To the extent provided by the Committee, in its discretion, a grant of Phantom Units may include a tandem DER grant, which may provide that such DERs shall be paid directly to the Participant, be credited to a bookkeeping account (with or without interest in the discretion of the Committee) subject to the same vesting restrictions as the tandem Award, or be subject to such other provisions or restrictions as determined by the Committee in its discretion. Notwithstanding the foregoing however, DERs shall not be granted with respect to any Award prior to the end of the Subordination Period (as defined in the Partnership Agreement). (ii) Forfeiture. Except as otherwise provided in the terms of the Phantom Units grant, upon termination of a Participant’s employment with the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason other than Retirement during the applicable Restricted Period, all Phantom Units shall be forfeited by the Participant. The Committee may, in its discretion, waive in whole or in part such forfeiture with respect to a Participant’s Phantom Units. (iii) Lapse of Restrictions. Upon or as soon as reasonably practical following the vesting of each Phantom Unit, the Participant shall be entitled to receive from the Company one Unit or cash equal to the Fair Market Value of a Unit, as determined by the Committee in its discretion.   -5- -------------------------------------------------------------------------------- (c) Restricted Units. The Committee shall have the authority to determine the Employees and Directors to whom Restricted Units shall be granted, the number of Restricted Units to be granted to each such Participant, the Restricted Period, the conditions under which the Restricted Units may become vested or forfeited, which may include, without limitation, the accelerated vesting upon the achievement of specified performance goals, and such other terms and conditions as the Committee may establish with respect to such Awards. (i) Forfeiture. Except as otherwise provided in the terms of the Restricted Units grant, upon termination of a Participant’s employment with the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason other than Retirement during the applicable Restricted Period, all Restricted Units shall be forfeited by the Participant. The Committee may, in its discretion, waive in whole or in part such forfeiture with respect to a Participant’s Restricted Units. (ii) Lapse of Restrictions. Upon or as soon as reasonably practical following the vesting of each Restricted Unit, the Participant shall be entitled to receive from the Company one Unit that is not subject to a Restricted Period. (iii) Distributions. As provided by the Committee, in its discretion, in a grant of Restricted Units, distributions on a Restricted Unit may be paid directly to the Participant or may be made subject to a risk of forfeiture and transfer restrictions during the Restricted Period, in which event such distributions shall be held, without interest, by the Company and paid to the Participant upon the vesting of the related Restricted Unit or forfeited upon the forfeiture of the related Restricted Unit, as the case may be. (d) Deferred Common Units. The Committee shall have the authority to determine the Directors to whom Deferred Common Units shall be awarded, the number of Deferred Common Units awarded to each such Director, the conditions under which the Deferred Common Units may become vested or forfeited, the Restricted Period, if any, and such other terms and conditions as the Committee may establish with respect to such Awards. (i) Unit Distributions. Except as otherwise provided in the terms of the Deferred Common Unit award, on each date on which the Partnership makes a Unit Distribution (the “Unit Distribution Date”), the Account of each Director shall be credited with, at the Committee’s discretion, either (A) an amount of cash equal to (x) the amount of cash or the fair market value of other property comprising such Unit Distribution, times (y) the number of Deferred Common Units credited to the Director’s Account as of the Unit Distribution Date or (B) that number of Deferred Common Units equal to (x) the product of (1) the amount of cash or the fair market value of other property comprising such Unit Distribution, times (2) the number of Deferred Common Units credited to the Director’s Account as of the Unit Distribution Date, divided by (y) the Fair Market Value on the Unit Distribution Date.   -6- -------------------------------------------------------------------------------- (ii) Deferred Common Unit Accounts. (A) The Committee shall establish an Account on behalf of each Director who receives Deferred Common Units. The establishment of an Account shall not require segregation of any funds of the Partnership or provide any Director with any rights to any assets of the Company or the Partnership, except as a general creditor thereof. A Director shall have no right to receive payment of any amount credited to his Account except as expressly provided in Section 6(d)(iv). (B) Each Director’s Account as of any Grant Date shall consist of Deferred Common Units credited to the Director’s Account and any Unit Distributions credited under 6(d)(i) above. (C) Periodically (as determined by the Committee), each Director shall receive a statement indicating the amounts credited to and payable from the Director’s Account. (iii) Vesting. Except as otherwise provided in the terms of the Deferred Common Unit award, each Director shall be 100% vested at all times in (i) the Deferred Common Units credited to such Director’s Account and (ii) Unit Distributions attributable thereto. (iv) Account Distributions. Except as otherwise provided in the terms of the Deferred Common Unit award, the Units represented by Deferred Common Units credited to a Director’s Account and the amount attributable to Unit Distributions credited to a Director’s Account shall be distributed to the Director on the date on which the Director ceases for any reason to be a member of the Board; provided that, upon the death of a Director, such distributions shall be made to the beneficiary designated by such Director, or, if no such designation has been made, or if the beneficiary predeceases the Director, to the Director’s estate. Each Deferred Common Unit shall be payable in one Unit. (e) General. (i) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for any other Award granted under the Plan or any award granted under any other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or awards granted under any other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards. (ii) Limits on Transfer of Awards. (A) Except as provided in (C) below, each Option shall be exercisable only by the Participant during the Participant’s lifetime, or by the person to whom the Participant’s rights shall pass by will or the laws of descent and distribution.   -7- -------------------------------------------------------------------------------- (B) Except as provided in (C) below, no Award and no right under any such Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate. (C) To the extent specifically provided by the Committee with respect to an Option grant, an Option may be transferred by a Participant without consideration to immediate family members or related family trusts, limited partnerships or similar entities or on such terms and conditions as the Committee may from time to time establish. In addition, Awards may be transferred by will and the laws of descent and distribution. (iii) Term of Awards. The term of each Award shall be for such period as may be determined by the Committee. (iv) Unit Certificates. All certificates for Units or other securities of the Partnership delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Units or other securities are then listed, and any applicable federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (v) Consideration for Grants. Awards may be granted for such consideration, including services, as the Committee determines. (vi) Delivery of Units or other Securities and Payment by Participant of Consideration. Notwithstanding anything in the Plan or any grant agreement to the contrary, delivery of Units pursuant to the exercise or vesting of an Award may be deferred for any period during which, in the good faith determination of the Committee, the Company is not reasonably able to obtain Units to deliver pursuant to such Award without violating the rules or regulations of any applicable law or securities exchange. No Units or other securities shall be delivered pursuant to any Award until payment in full of any amount required to be paid pursuant to the Plan or the applicable Award grant agreement (including, without limitation, any exercise price or tax withholding) is received by the Company. Such payment may be made by such method or methods and in such form or forms as the Committee shall determine, including, without limitation, cash, other Awards, withholding of Units, cashless-broker exercises with simultaneous sale, or any combination thereof; provided that the combined value,   -8- -------------------------------------------------------------------------------- as determined by the Committee, of all cash and cash equivalents and the Fair Market Value of any such Units or other property so tendered to the Company, as of the date of such tender, is at least equal to the full amount required to be paid to the Company pursuant to the Plan or the applicable Award agreement. (vii) Change in Control. Upon a Change in Control (or such period prior thereto as may be established by the Committee) and upon Retirement, all Awards shall automatically vest and become payable or exercisable, as the case may be, in full. In this regard, all Restricted Periods shall terminate and all performance criteria, if any, shall be deemed to have been achieved at the maximum level. To the extent an Option is not exercised upon a Change in Control, the Committee may, in its discretion, cancel such Award either without payment or by paying an amount equal to the excess, if any, of the value of a Unit over the exercise price of such Option or provide for a replacement grant with respect to such property and on such terms as it deems appropriate. Notwithstanding the foregoing, no Award that is subject to Section 409A of the Internal Revenue Code of 1986, as amended, shall be payable in the event of a Change of Control unless such Change of Control is also a “change of control” for purposes of Section 409A and the acceleration of such payment is permitted by Section 409A and the guidance issued thereunder. (viii) Compliance with Section 409A. Nothing in the Plan or any Award agreement shall operate or be construed to cause the Plan or an Award to fail to comply with the requirements of Section 409A of the Internal Revenue Code. The applicable provisions of Section 409A and the regulations thereunder, if any, that are required by Section 409A to be in the Plan are hereby incorporated by reference and the applicable provisions of Section 409A shall control over any Plan or Award agreement provision in conflict therewith. SECTION 7. Amendment and Termination. Except to the extent prohibited by applicable law: (a) Amendments to the Plan. Except as required by the rules of the principal securities exchange on which the Units are traded and subject to Section 7(b) below, the Board or the Committee may amend, alter, suspend, discontinue, or terminate the Plan in any manner, including increasing the number of Units available for Awards under the Plan, without the consent of any partner, Participant, other holder or beneficiary of an Award, or other Person; provided, however, that no amendment to the Plan may be made without the approval of a Unit Majority (as defined in the Partnership Agreement) that would either (i) accelerate vesting to prior to the end of the Subordination Period, except as provided in the current definition of Restricted Period, or (ii) permit DERs to be granted prior to the end of the Subordination Period. (b) Amendments to Awards. Subject to Section 7(a), the Committee may waive any conditions or rights under, amend any terms of, or alter any Award theretofore granted, provided no change, other than pursuant to Section 7(c), in any Award shall materially reduce the benefit to a Participant without the consent of such Participant.   -9- -------------------------------------------------------------------------------- (c) Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(c) of the Plan) affecting the Partnership or the financial statements of the Partnership, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. SECTION 8. General Provisions. (a) No Rights to Award. No Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants. The terms and conditions of Awards need not be the same with respect to each recipient. (b) Withholding. The Company or any Affiliate is authorized to withhold from any Award, from any payment due or transfer made under any Award or from any compensation or other amount owing to a Participant the amount (in cash, Units, other securities, Units that would otherwise be issued pursuant to such Award or other property) of any applicable taxes payable in respect of the grant of an Award, its exercise, the lapse of restrictions thereon, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy its withholding obligations for the payment of such taxes. (c) No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate or to remain on the Board, as applicable. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award agreement. (d) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware law without regard to its conflict of laws principles. (e) Severability. If any provision of the Plan or any award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or award and the remainder of the Plan and any such Award shall remain in full force and effect.   -10- -------------------------------------------------------------------------------- (f) Other Laws. The Committee may refuse to issue or transfer any Units or other consideration under an Award if, in its sole discretion, it determines that the issuance or transfer or such Units or such other consideration might violate any applicable law or regulation, the rules of the principal securities exchange on which the Units are then traded, or entitle the Partnership or an Affiliate to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to the relevant Participant, holder or beneficiary. (g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any participating Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any participating Affiliate pursuant to an award, such right shall be no greater than the right of any general unsecured creditor of the Company or any participating Affiliate. (h) No Fractional Units. No fractional Units shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Units or whether such fractional Units or any rights thereto shall be canceled, terminated, or otherwise eliminated. (i) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. (j) Facility Payment. Any amounts payable hereunder to any person under legal disability or who, in the judgment of the Committee, is unable to properly manage his financial affairs, may be paid to the legal representative of such person, or may be applied for the benefit of such person in any manner which the Committee may select, and the Company shall be relieved of any further liability for payment of such amounts. (k) Gender and Number. Words in the masculine gender shall include the feminine gender, the plural shall include the singular and the singular shall include the plural. SECTION 9. Term of the Plan. The Plan shall be effective on the date of its approval by the Board and shall continue until the date terminated by the Board or Units are no longer available for the payment of Awards under the Plan, whichever occurs first. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award granted prior to such termination, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under such Award, shall extend beyond such termination date.   -11-

Exhibit 10.79 AMENDMENT NO. 8 TO THE SENIOR CREDIT FACILITY AMENDMENT NO. 8 TO LOAN AND SECURITY AGREEMENT, dated as of September 30, 2005, entered into by and among Wachovia Bank, National Association, successor by merger to Congress Financial Corporation (Florida), in its capacity as agent acting for and on behalf of the parties to the Loan Agreement (as hereinafter defined) as lenders (in such capacity, “Agent”), the parties to the Loan Agreement as lenders (individually a “Lender” and collectively, “Lenders”), Supreme International, LLC, a Delaware limited liability company formerly known as Supreme International, Inc. (“Supreme”), Jantzen, LLC, a Delaware limited liability company formerly known as Jantzen, Inc. (“Jantzen”), Perry Ellis Menswear, LLC, a Delaware limited liability company formerly known as Perry Ellis Menswear, Inc. (“Perry Ellis Menswear”), Perry Ellis Europe Limited, formerly known as Farah Manufacturing (U.K.) Limited, a private limited company incorporated in England and Wales (“Perry Europe”), Salant Holding, LLC, a Delaware limited liability company formerly known as Salant Holding Corporation (“Salant Holding” and together with Supreme, Jantzen, Perry Europe and Perry Ellis Menswear, each individually “Borrower” and collectively, “Borrowers”), Perry Ellis International, Inc., a Florida corporation (“Parent”), PEI Licensing, Inc., a Delaware corporation (“PEI Licensing”), Jantzen Apparel, LLC, a Delaware limited liability company formerly known as Jantzen Apparel Corp. (“Jantzen Apparel”), Supreme Real Estate I, LLC, a Florida limited liability company (“Supreme I”), Supreme Real Estate II, LLC, a Florida limited liability company (“Supreme II”), Supreme Realty, LLC, a Florida limited liability company (“Supreme Realty”), Supreme Munsingwear Canada Inc., a Canada corporation (“Supreme Canada”), Perry Ellis Shared Services Corporation, a Delaware corporation (“PE Shared Services”), Winnsboro DC, LLC, a Delaware limited liability company (“Winnsboro”), Tampa DC, LLC, a Delaware limited liability company (“Tampa DC”), Perry Ellis International Group Holdings Limited, a private company incorporated under the laws of Ireland having its principal place of business in the Bahamas (“Group Holdings”) and Perry Ellis Real Estate, LLC, a Delaware limited liability company formerly known as Perry Ellis Real Estate Corporation (“PE Real Estate” and, together, with Parent, PEI Licensing, Jantzen Apparel, Supreme I, Supreme II, Supreme Realty, Group Holdings, PE Shared Services, Winnsboro, Tampa DC, and Supreme Canada, each individually a “Guarantor” and collectively, “Guarantors”). W I T N E S S E T H : WHEREAS, Agent, Lenders, Borrowers and Guarantors have entered into financing arrangements pursuant to which Lenders (or Agent on behalf of Lenders) have made and may make loans and advances and provide other financial accommodations to Borrowers as set forth in the Loan and Security Agreement, dated October 1, 2002, by and among Agent, Lenders, Borrowers and Guarantors, as amended by Amendment No. 1 to Loan and Security Agreement, dated June 19, 2003, Amendment No. 2 to Loan and Security Agreement, dated September 22, 2003, Amendment No. 3 to Loan and Security Agreement, dated December 1, 2003, Amendment No. 4 to Loan and Security Agreement, dated February 25, 2004, Amendment No. 5 to Loan and -------------------------------------------------------------------------------- dated as of September 30, 2004 and Amendment No. 7 to Loan and Security Agreement (“Amendment No. 7”), dated as of February 26, 2005 (as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the “Loan Agreement”, and together with all agreements, documents and instruments at any time executed and/or delivered in connection therewith or related thereto, as from time to time amended, modified, supplemented, extended, renewed, restated, or replaced, collectively, the “Financing Agreements”); WHEREAS, Borrowers and Guarantors have requested that Agent and Lenders agree to permit Perry Europe to incur certain unsecured indebtedness and make certain other amendments to the Loan Agreement, and Agent and Lenders are willing to so consent, subject to the terms and conditions set forth in this Amendment No. 8; and WHEREAS, by this Amendment No. 8, Agent, Lenders, Borrowers and Guarantors desire and intend to evidence such consent and amendments. NOW, THEREFORE, in consideration of the foregoing, the mutual agreements and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. 1.1 Additional Definitions. As used herein, the following terms shall have the meanings given to them below, and the Loan Agreement and the other Financing Agreements are hereby amended to include, in addition and not in limitation, the following definitions: (a) “Amendment No. 7 Post-Closing Letter” shall mean the letter agreement with respect to certain post-closing items, dated as of February 26, 2005, by and among Agent, Borrowers and Guarantors. (b) “Amendment No. 8” shall mean Amendment No. 8 to Loan and Security Agreement by and among Agent, Lenders, Borrowers and Guarantors, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.2 Interpretation. For purposes of this Amendment No. 8, unless otherwise defined herein, all capitalized terms used herein which are defined in the Loan Agreement shall have the meanings given to such terms in the Loan Agreement. 2. Conditions Precedent to Loans to Perry Europe. Section 4 of the Loan Agreement is hereby amended by adding the following at the end of such Section: “4.3 Conditions Precedent to Loans to Perry Europe. The satisfaction of each of the conditions set forth on Schedule 4.3 hereto (the “Perry Europe Conditions”) is an additional condition precedent to (a) the making of Loans and/or providing Letter of Credit Accommodations to Perry Europe and (b) the inclusion of any assets of Perry Europe in the Borrowing Base (it being understood that Borrowers and Guarantors shall not be obligated to satisfy the Perry Europe Conditions pursuant to the Amendment No. 7 Post-Closing Letter).   2 -------------------------------------------------------------------------------- 3. Indebtedness. Section 9.9 of the Loan Agreement is hereby amended by: 3.1 deleting subsection (n) of such Section in its entirety and replacing it with the following: “(n) contingent indebtedness owing to the issuers of surety bonds (i) issued for the account of Borrowers and Guarantors (excluding Perry Europe) in an aggregate outstanding amount not to exceed $6,000,000 and (ii) issued for the account of Perry Europe in an aggregate outstanding amount not to exceed £600,000.” 3.2 deleting the period at the end of subsection (r) of such Section and replacing it with “;” 3.3 adding at the end of such Section a new subsection as follows: “(s) Indebtedness of Perry Europe to Barclays Bank or another financial institution acceptable to Agent, provided, that, (i) in no event shall the aggregate outstanding amount of such Indebtedness exceed £700,000, of which up to £300,000 shall be in the form of letters of credit, (ii) such Indebtedness shall be unsecured; except, that, the issuer of such letters of credit (“UK Issuer”) may hold a security interest or lien solely on the inventory purchased with the proceeds of any such letter of credit provided, that, such security interest or lien shall at all times only secure reimbursement obligations of Perry Europe for the letter of credit used to purchase the specific Inventory constituting the collateral of UK Issuer and (iii) Perry Europe shall furnish to Agent all notices or demands in connection with such Indebtedness either received by Perry Europe or on its behalf promptly after the receipt thereof, concurrently with the sending thereof, as the case may be.” 4. Schedules to Loan Agreement. The Loan Agreement is hereby amended by adding a new Schedule 4.3 thereto in the form of Exhibit A to this Amendment No. 8. 5. Representations, Warranties and Covenants. Borrowers and Guarantors, jointly and severally, represent, warrant and covenant with and to Agent and Lenders as follows, which representations, warranties and covenants shall survive the execution and delivery hereof: 5.1 this Amendment No. 8 has been duly authorized, executed and delivered by all necessary action on the part of each Borrower and Guarantor which is a party hereto and, if necessary, their respective stockholders, and is in full force and effect as of the date hereof, and the agreements and obligations of Borrowers and Guarantors contained herein constitute legal, valid and binding obligations of Borrowers and Guarantors enforceable against them in accordance with their terms except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and (ii) the application of general principles of equity (regardless   3 -------------------------------------------------------------------------------- accordance with their terms except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and (ii) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); 5.2 neither this Amendment No. 8 nor the transactions contemplated hereby are in contravention of any applicable law, or the terms of any agreement to which any Borrower or Guarantor is a party or by which any property of any Borrower or Guarantor is bound; and 5.3 as of the date hereof, no Default or Event of Default exists or has occurred and is continuing. 6. Conditions Precedent. The effectiveness of the amendments contained herein shall only be effective upon the satisfaction of each of the following conditions precedent in a manner satisfactory to Agent: 6.1 Agent shall have received executed counterparts of this Amendment No. 8, duly authorized, executed and delivered by Borrowers, Guarantors and the Required Lenders; 6.2 No Default or Event of Default shall exist or have occurred and be continuing; and 6.3 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 of this Amendment No. 8. 7. Effect of this Amendment. This Amendment No. 8 and the instruments and agreements delivered pursuant hereto (if any) constitute the entire agreement of the parties with respect to the subject matter hereof and thereof, and supersede all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof and thereof. Except as expressly amended pursuant hereto, no other changes or modifications to the Financing Agreements are intended or implied, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent that any provision of the Loan Agreement or any of the other Financing Agreements are inconsistent with the provisions of this Amendment No. 8, the provisions of this Amendment No. 8 shall control. 8. Further Assurances. Each Borrower and Guarantor shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Agent or Lenders to effectuate the provisions and purposes of this Amendment No. 8. 9. Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of Florida (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 Stale of Florida).   4 -------------------------------------------------------------------------------- 10. Binding Effect. This Amendment No. 8 shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 11. Counterparts. This Amendment No. 8 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 No. 8, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. Delivery of an executed counterpart of this Amendment No. 8 by telecopier shall have the same force and effect as delivery of an original executed counterpart of this Amendment No. 8. Any party delivering an executed counterpart of this Amendment No. 8 by telecopier also shall deliver an original executed counterpart of this Amendment No. 8, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment No. 8 as to such party or any other party. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]   5 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 8 to be duly executed and delivered by their authorized officers as of the day and year first above written.   SUPREME INTERNATIONAL, LLC, formerly known as Supreme International, Inc. By:   Perry Ellis International, Inc., its Managing Member By:   /s/    Illegible Title:      JANTZEN, LLC, formerly known as Jantzen, Inc. By:   Perry Ellis International, Inc., its Managing Member By:   /s/    Illegible Title:      PERRY ELLIS MENSWEAR, LLC, formerly known as Perry Ellis Menswear, Inc. By:   Perry Ellis International, Inc., its Managing Member By:   /s/    Illegible Title:      SALANT HOLDING, LLC, formerly known as Salant Holding Corporation By:   Perry Ellis International, Inc., its Managing Member By:   /s/    Illegible Title:      [SIGNATURES CONTINUE ON FOLLOWING PAGE]   6 -------------------------------------------------------------------------------- [SIGNATURES CONTINUED FROM PRECEDING PAGE]   PERRY ELLIS EUROPE LIMITED, formerly known as Farah Manufacturing (U.K.) Limited By:   /s/    Illegible Title:      By:      Title:      Present when the Common Seal of PERRY ELLIS INTERNATIONAL GROUP HOLDINGS LIMITED hereunto offered By:   /s/    Illegible Title:      By:   /s/    Illegible Title:      PERRY ELLIS INTERNATIONAL, INC. PEI LICENSING, INC. By:   /s/    Illegible Title:      SUPREME MUNSINGWEAR CANADA, INC. By:   /s/    Illegible Title:      [SIGNATURES CONTINUE ON FOLLOWING PAGE]   7 -------------------------------------------------------------------------------- [SIGNATURES CONTINUED FROM PRECEDING PAGE]   JANTZEN APPAREL, LLC, formerly known as Jantzen Apparel Corp. By:   PEI Licensing, Inc., its Managing Member By:   /s/    Illegible Title:      SUPREME REAL ESTATE I, LLC By:   /s/    Illegible Title:      SUPREME REAL ESTATE II, LLC By:   /s/    Illegible Title:      SUPREME REALTY, LLC By:   /s/    Illegible Title:      [SIGNATURES CONTINUE ON FOLLOWING PAGE]   8 -------------------------------------------------------------------------------- [SIGNATURES CONTINUED FROM PRECEDING PAGE]   PERRY ELLIS SHARED SERVICES CORPORATION By:   /s/    Illegible Title:      WINNSBORO DC, LLC By:   Perry Ellis International Inc., its Managing Member By:   /s/    Illegible Title:      TAMPA DC, LLC By:   Perry Ellis International Inc., its Managing Member By:   /s/    Illegible Title:      PERRY ELLIS REAL ESTATE, LLC, formerly known as Perry Ellis Real Estate Corporation By:   Perry Ellis International Inc., its Managing Member By:   /s/    Illegible Title:      [SIGNATURES CONTINUE ON FOLLOWING PAGE]   9 -------------------------------------------------------------------------------- [SIGNATURES CONTINUED FROM PRECEDING PAGE]   AGREED:     WACHOVIA BANK, NATIONAL ASSOCIATION, successor by merger to Congress Financial Corporation (Florida), as Agent and a Lender     By:   /s/    Illegible       Title:   Director       THE CIT GROUP/COMMERCIAL SERVICES, INC.     By:   /s/    Illegible       Title:   Vice President       THE ISRAEL DISCOUNT BANK OF NEW YORK     By:   /s/    David Keinan     By:   /s/    Dilian G. Schulz Title:   Senior Vice President Regional Manager for Florida     Title:   First Vice President & Chief Credit Officer for Florida [SIGNATURES CONTINUE ON FOLLOWING PAGE]   10 -------------------------------------------------------------------------------- [SIGNATURES CONTINUED FROM PRECEDING PAGE]   HSBC BANK USA, NATIONAL ASSOCIATION By:      Title:      HSBC BUSINESS CREDIT (USA) INC. By:   /s/    Illegible Title:   Vice President BURDALE FINANCIAL LIMITED By:   /s/    Illegible Title:   Credit Manager   11 -------------------------------------------------------------------------------- EXHIBIT A TO AMENDMENT NO. 8 SCHEDULE 4.3 Conditions Precedent to UK Borrowing 1. Agent shall have conducted, in manner satisfactory to Agent, a field examination with respect to the Accounts, Inventory and Records of Perry Europe; 2. Agent shall have received the following duly executed documents, in form and substance satisfactory to Agent, (a) a share mortgage by Parent in favor of Agent with respect to the remaining thirty-five percent (35%) of the issued and outstanding shares of Group Holdings to secure the guarantee by Parent of the Obligations of the Foreign Loan Parties (other than Supreme Canada), (b) a debenture duly executed by Group Holdings in favor of Agent, (c) a share mortgage by Group Holdings in favor of Agent with respect to all of the issued and outstanding shares of Perry Europe, and (d) a debenture duly executed by Perry Europe in favor of Agent (together, the “Foreign Law Security Documents”); 3. the share mortgage with respect to sixty-five (65%) of the issued and outstanding shares of Group Holdings which is being held in escrow pursuant to the Escrow Agreement, dated                     , 2005, between Parent and Agent, shall be released from escrow. 4. Agent shall have received, in form and substance satisfactory to Agent, a certified copy of the resolutions of the board of directors of each Foreign Loan Party (other than Supreme Canada) approving such Foreign Loan Party’s entry into the Foreign Law Security Documents to which it is a party, and any related documentation; 5. Agent shall have received, in form and substance satisfactory to Agent, a director’s certificate from each of the Foreign Loan Parties (other than Supreme Canada) (a) certifying that all corporate action required to enable such Foreign Loan Party to enter into, execute and perform its obligations under the Foreign Law Security Documents to which it is a party and to authorize the transactions contemplated therein has been taken, (b) setting out the specimen signatures of those persons authorized to execute those Foreign Law Security Documents to which it is a party on behalf of such Foreign Loan Party (or confirming that the position as set out in the director’s certificate delivered by such Foreign Loan Party to Agent in respect of Amendment No. 7 has not changed); (c) certifying that the performance by such Foreign Loan Party of its rights and obligations under the Foreign Law Security Documents would not cause any borrowing limit binding on it to be exceeded; and (d) certifying that there has been no change to the constitutional documents of such Foreign Loan Party since certified copies were delivered to Agent as a condition precedent under Amendment No. 7; 6. Agent shall have received, in form and substance satisfactory to Agent, a certified copy of each notice required to be dispatched pursuant to the Foreign Law Security Documents and acknowledgements from all recipients of such notices as required by the Foreign Law   1 -------------------------------------------------------------------------------- Security Documents or agreement by the relevant recipient of the form of acknowledgement to be given by it; 7. Agent shall have received, in form and substance satisfactory to Agent, a copy of the mandate for each Blocked Account in the United Kingdom, which are to be operated in accordance with the terms of the Loan Agreement, duly completed (so far as possible) by Perry Europe and evidence satisfactory to Agent that such Blocked Accounts have been opened; 8. Agent shall have received evidence, in form and substance satisfactory to Agent, that Agent has a valid and perfected fixed charge on the Accounts of Perry Europe and a valid and perfected floating charge on all of the other assets of each Foreign Loan Party (other than Supreme Canada), subject only to the liens permitted under Section 9.8 of the Loan Agreement. 9. Agent shall have received, in form and substance satisfactory to Agent, results of all final company and winding up searches in relation to each Foreign Loan Party (other than Supreme Canada); 10. Agent shall have received stock certificates representing one hundred percent (100%) of the issued and outstanding shares of Capital Stock of Perry Europe and the remaining thirty-five percent (35%) of the issued and outstanding shares of Capital Stock of Group Holdings, in each case together with a related stock transfer form executed in blank and with a certified copy of the register of members of each Foreign Loan Party (other than Supreme Canada); and 11. Agent shall have received, in form and substance satisfactory to Agent, legal opinions in respect of the security constituted by, and the Foreign Loan Parties’ (other than Supreme Canada) entry into, the Foreign Law Security Documents.   2

  Exhibit 10.75 GUARANTY      GUARANTY, dated as of August 30, 2006, made by Business Objects S.A., a corporation organized and existing under the laws of the Republic of France (the “Guarantor”), in favor of Citigroup Inc. and each subsidiary or affiliate thereof (including Citibank, N.A. and each of its branches wherever located (“Citigroup”). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce Citigroup to extend and/or maintain credit to or for the account of one or more of the Guarantor’s direct or indirect subsidiaries listed in Schedule A hereto (which Schedule A is made a part hereof and may be amended, supplemented or otherwise modified from time to time by your and our mutual agreement)(each, a “Borrower”) in the currencies set forth opposite the name of such Borrower in Schedule A, the Guarantor agrees as follows:      1. Guaranty. The Guarantor unconditionally guarantees the punctual payment when due, whether upon maturity, by acceleration or otherwise, of all obligations (now or hereafter existing) of each Borrower to Citigroup in any form, including obligations under any and all extensions of credit extended and/or maintained by Citigroup or any other obligations owing by the Borrower to Citigroup under interest rate swaps, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts or otherwise, whether for principal, interest, fees, expenses or otherwise, in each case strictly in accordance with the terms thereof (all such obligations being the “Obligations”). If any Borrower fails to pay any Obligation in full when due (whether at stated maturity, by acceleration or otherwise), the Guarantor will promptly pay the same to Citigroup. The Guarantor will also pay to Citigroup any and all expenses (including without limitation, reasonable legal fees and expenses) incurred by Citigroup in enforcing its rights under this Guaranty. This Guaranty is a guaranty of payment and not merely of collection.      2. Guaranty Absolute. The liability of the Guarantor under this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and the Guarantor hereby irrevocably waives any defenses it may now or hereafter acquire in any way relating to, any or all of the following: (i) any illegality, lack of validity or enforceability of any Obligation, (ii) any amendment, modification, waiver or consent to departure from the terms of any Obligation, including any renewal or extension of the time or change of the manner or place of payment, (iii) any exchange, substitution, release, non-perfection or impairment of any collateral securing payment of any Obligation, (iv) any change in the corporate existence, structure or ownership of any Borrower, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Borrower or its assets or any resulting release or discharge of any Obligation, (v) the existence of any claim, set-off or other rights that the Guarantor may have at any time against any Borrower, Citigroup, or any other corporation or person, whether in connection herewith or any unrelated transactions, provided that nothing herein will prevent the assertion of any such claim by separate suit or compulsory counterclaim, (vi) any law, regulation, decree or order of any jurisdiction, or any other event, affecting any term of any Obligation or Citigroup’s rights with respect thereto, including, without limitation: (A) the application of any such law, regulation, decree or order, including any prior approval, which would prevent the exchange of a Non-USD Currency (as hereinafter defined) for U.S. Dollars or the remittance of funds outside of such jurisdiction or the unavailability of U.S. Dollars in any legal exchange market in such jurisdiction in accordance with normal commercial practice; or (B) a declaration of banking moratorium or any suspension of payments by banks in such jurisdiction or the imposition by such jurisdiction or any governmental authority thereof of any moratorium on, the required rescheduling or restructuring of, or required approval of payments on, any indebtedness in such jurisdiction; or (C) any expropriation, confiscation, nationalization or requisition by such country or any governmental authority that directly or indirectly deprives any Borrower of any assets   --------------------------------------------------------------------------------   or their use or of the ability to operate its business or a material part thereof; or (D) any war (whether or not declared), insurrection, revolution, hostile act, civil strife or similar events occurring in such jurisdiction which has the same effect as the events described in clause (A), (B) or (C) above (in each of the cases contemplated in clauses (A) through (D) above, to the extent occurring or existing on or at any time after the date of this Guaranty), and (vii) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by Citigroup that might otherwise constitute a defense available to, or a legal or equitable discharge of, any Borrower or the Guarantor or any other guarantor or surety.      Subject to the provisions of Section 7 below, without limiting the generality of the foregoing, the Guarantor guarantees that it shall pay Citigroup strictly in accordance with the express terms of any document or agreement evidencing any Obligation, including in the amounts and in the currency expressly agreed to thereunder, irrespective of and without giving effect to any laws of the jurisdiction where the relevant Borrower is principally located in effect from time to time, or any order, decree or regulation in the jurisdiction where the relevant Borrower is principally located.      It is the intent of this Section 2 that the Guarantor’s obligations hereunder are and shall be absolute and unconditional under any and all circumstances.      3. Waiver. The Guarantor waives promptness, diligence, notice of acceptance, notice of dishonor and any other notice with respect to any Obligation and this Guaranty and any requirement that Citigroup exercise any right or take any action against any Borrower or any collateral security or credit support.      4. Reinstatement. This Guaranty will continue to be effective or be reinstated, as the case may be, if at any time any payment of any Obligation is rescinded or must otherwise be returned by Citigroup upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as though such payment had not been made.      5. Subrogation. The Guarantor will not assert, enforce or otherwise exercise any rights which it may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until payment in full of the Obligations and the termination of any and all agreements under which Citigroup is committed to provide extensions of credit.      6. Taxes. Any and all payments by the Guarantor hereunder will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding income or franchise taxes imposed on Citigroup’s net income by the jurisdiction under the laws of which Citigroup is organized or any political subdivision thereof or by the jurisdiction of Citigroup’s lending office with respect to the applicable Borrower or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being “Taxes”). If the Guarantor is required by law to deduct any Taxes from or in respect of any sum payable hereunder (i) the sum payable will be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) Citigroup will receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Guarantor will make such deductions, and (iii) the Guarantor will pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. If and to the extent that Citigroup, in its sole discretion (exercised in good faith), determines that it has received or been granted a credit against any Taxes in respect of which it has received additional payments under this paragraph 6, and such credit, has been obtained, utilized and fully retained by Citigroup on an affiliated group basis, then Citigroup shall pay to the Guarantor an amount which Citigroup determines ,in its sole discretion (exercised in good faith) will leave it, after the payments, in the same after-tax position as 2 --------------------------------------------------------------------------------   it would have been in had the payments required under this paragraph not been required to be made by the Guarantor; provided however that (i) Citigroup shall be the sole judge of the amount of such credit and the date on which it is received, (ii) Citigroup shall not be obliged to disclose information regarding its tax affairs or tax computations, (iii) nothing herein shall interfere with Citigroup’s right to manage its tax affairs in whatever manner it sees fit; and (iv) if Citigroup shall subsequently determine that it has lost all or a portion of such tax credit, the Guarantor shall promptly remit to Citigroup the amount certified by Citigroup to be the amount necessary to restore Citigroup to the position it would have been in if no payment had been made pursuant to this section. In addition, the Guarantor will pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Guaranty or the Obligations (“Other Taxes”). The Guarantor will promptly furnish to Citigroup the original or a certified copy of a receipt evidencing payment thereof. The Guarantor will indemnify Citigroup for the full amount of Taxes or Other Taxes paid by Citigroup or any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, with the exception of any liability resulting directly or indirectly from Citigroup’s negligence or willful misconduct, whether or not such Taxes or Other Taxes were correctly or legally asserted, within 30 days of Citigroup’s request therefor, accompanied by a statement in reasonable detail showing the calculation thereof; provided, however, that the Guarantor shall not be liable for any penalties, interest or expenses unless it was timely notified of the amounts due and given the opportunity to satisfy the obligation prior to such penalties, interest or expenses being incurred, provided that Citigroup was made aware of such penalties, interest or expenses prior to their imposition. To the extent any such Taxes or Other Taxes were not correctly or legally asserted, Citigroup will provide documentation and such other information or assistance Guarantor may require in any attempts to reclaim such payments and will credit any refunds of such amount (including any refunds of interest or penalties) to Guarantor within 30 day of any such refund. Without prejudice to the survival of any other agreement contained herein, the Guarantor’s agreements and obligations contained in this Section will survive the payment in full of the Obligations, principal and interest hereunder and any termination of this Guaranty.      Notwithstanding anything to the contrary contained herein or in any document or agreement evidencing an Obligation, the Guarantor and Citigroup (and each of their respective employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to any of the foregoing persons relating to such U.S. tax treatment and U.S. tax structure.      7. Place and Currency of Payment. If any Obligation is payable in U.S. Dollars, the Guarantor will make payment hereunder to Citigroup in U.S. Dollars at 399 Park Avenue, New York, New York. If any Obligation is payable in a currency other than U.S. Dollars (a “Non-USD Currency”) and/or at a place other than the United States, and such payment is not made as and when agreed, the Guarantor will, at Citigroup’s option, either (i) make payment in such Non-USD Currency and at the place where such Obligation is payable, or (ii) pay Citigroup in U.S. Dollars at 399 Park Avenue, New York, New York. In the event of a payment pursuant to clause (ii) above, the Guarantor will pay Citigroup the equivalent of the amount of such Obligation in U.S. Dollars calculated at the rate of exchange at which, in accordance with normal banking procedures, Citigroup may buy such Non-USD Currency in New York, New York on the date the Guarantor makes such payment; provided, however, that the foregoing provisions of this sentence shall not apply to any payments hereunder in respect of Obligations that have been re-denominated into a Non-USD Currency as a result of the application of any law, order, decree or regulation in any jurisdiction other than the United States, which Obligations shall, for purposes of this Guaranty, be deemed to remain denominated in U.S. Dollars and payable to Citigroup in accordance with the first sentence of this Section 7. 3 --------------------------------------------------------------------------------        8. Set-Off. If the Guarantor fails to pay any of its obligations hereunder upon demand, Citigroup is authorized at any time and from time to time, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Citigroup to or for the Guarantor’s credit or account against any and all of the Obligations. Citigroup will promptly notify the Guarantor after any such set-off and application, provided that the failure to give such notice will not affect the validity of such set-off and application. Citigroup’s rights under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that Citigroup may have.      9. Representations and Warranties. The Guarantor represents and warrants that:      (i) the execution, delivery and performance by the Guarantor of this Guaranty are within its corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (x) its charter or by-laws or (y) any law or any contractual restriction binding on or affecting the Guarantor or any entity that controls it;      (ii) no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by the Guarantor of this Guaranty;      (iii) this Guaranty has been duly executed and delivered by the Guarantor and is its legal, valid and binding obligation, enforceable against the Guarantor in accordance with its terms;      (iv) the consolidated balance sheets of the Guarantor and its subsidiaries as at December 31, 2005, and the related consolidated statements of income and retained earnings of the Guarantor and its subsidiaries for the fiscal year then ended, copies of which have been furnished to Citigroup, fairly present in all material respects the financial condition of the Guarantor and its subsidiaries as at such date and the results of the operations of the Guarantor and its subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since December 31, 2004 there has been no material adverse change in the business, condition (financial or otherwise), operations, performance or properties of the Guarantor or of the Guarantor and its subsidiaries taken as a whole;      (v) there is no action, suit or proceeding pending against, or to the Guarantor’s knowledge, threatened in writing against or affecting the Guarantor or any of its subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a material likelihood of an adverse decision which could reasonably be expected to have a material adverse affect on the business, condition (financial or other), or results of operations of the Guarantor and its subsidiaries, taken as a whole, or which would impair the ability of the Guarantor to perform its obligations hereunder, or which in any manner draws into question the legality, validity or enforceability of this Guaranty; and      (vi) no report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of the Guarantor to Citigroup in connection with the transactions contemplated hereby and the negotiation of this Guaranty or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to any projected financial information, the Guarantor represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time; and 4 --------------------------------------------------------------------------------        (vii) the Guarantor and its subsidiaries on a consolidated basis are Solvent on the date hereof, and prior to and after giving effect to each Borrowing (as defined in the last paragraph of this Section 9). “Solvent” means, when used with respect to the Guarantor and its subsidiaries on a consolidated basis, that at the time of determination (a) the assets of the Guarantor and its subsidiaries on a consolidated basis, at a fair valuation, are in excess of the total amount of their liabilities (including contingent liabilities); (b) the present fair saleable value of their assets is greater than their probable liability on their existing debts as such debts become absolute and matured; (c) they are then able and expect to be able to pay their obligations (including contingent obligations) as they mature; and (d) they have capital reasonably sufficient to carry on their business as conducted and proposed to be conducted. The amount of any contingent liability at any time shall be computed as the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. Each of the giving of the applicable notice of borrowing and the acceptance by the Borrower of the proceeds of any transaction creating an Obligation (a “Borrowing”) will be deemed to constitute a representation and warranty by the Guarantor that on the date of such Borrowing all of the foregoing statements are true.      10. Covenants. So long as any Obligations remain unpaid or Citigroup has any commitment to create additional Obligations, the Guarantor will:      (i) [Section Deleted]      (ii) [Section Deleted]      (iii) as soon as possible, and in any event within five days after the occurrence of each Guarantor Event of Default (as defined in Section 11 of this Guaranty) and each event which, with the giving of notice and/or the passage of time would constitute a Guarantor Event of Default (a “Guarantor Default”), deliver to Citigroup a statement of the Guarantor’s chief financial officer, setting forth details of such Guarantor Event of Default or Guarantor Default and the action that the Guarantor has taken or proposes to take with respect thereto; and      (iv) after the occurrence of a default by the Guarantor which with notice or lapse of time would become a Gurantor Event of Default, permit Citigroup and any of its agents or representatives to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Guarantor and any of its subsidiaries, and to discuss the affairs, finances and accounts of the Guarantor and its subsidiaries with any of their officers or directors and with their independent certified public accountants      (v) insure that each document or agreement which evidences an Obligation contains (x) an event of default which occurs upon the occurrence of a Guarantor Event of Default, and (y) a condition precedent to each Borrowing to the effect set forth in the last paragraph of Section 9 of this Guaranty.      11. Guarantor Events of Default. Each of the following events will constitute a “Guarantor Event of Default”: 5 --------------------------------------------------------------------------------        (i) the Guarantor fails to pay any amount payable under this Guaranty when the same becomes due and payable;      (ii) the Guarantor fails to perform or observe any other term, covenant or agreement contained in this Guaranty if such failure remains unremedied for 10 days after written notice thereof has been given to the Guarantor by Citigroup;      (iii) any representation or warranty made or deemed made by the Guarantor herein proves to have been incorrect in any material respect when made;      (iv) the Guarantor or any of its subsidiaries fails to pay any principal of or premium or interest on any indebtedness for borrowed money that is outstanding in a principal or notional amount of at least $15,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure continues after the applicable grace period, if any, specified in the agreement or instrument relating to such indebtedness; or any other event shall occur or condition exists under any agreement or instrument relating to any such indebtedness and continues after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such indebtedness; or any such indebtedness is declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such indebtedness is required to be made, in each case prior to the stated maturity thereof;      (v) the Guarantor or any of its subsidiaries is generally not paying its debts as such debts become due, or admits in writing its inability to pay such debts generally, or makes a general assignment for the benefit of creditors; or any proceeding is instituted by or against the Guarantor or any of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for the Guarantor or any of its subsidiaries or for any substantial part of the Guarantor’s or such subsidiary’s property and, in the case of any such proceeding instituted against the Guarantor or such subsidiary (but not instituted by the Guarantor or such subsidiary), either such proceeding remains undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official) occurs; or the Guarantor or any of its subsidiaries takes any corporate action to authorize any of the actions set forth above in this subsection (v);      (vi) any judgment or order for the payment of money in excess of $15,000,000 is rendered against the Guarantor or any of its subsidiaries, which remains unsatisfied, and either (x) enforcement proceedings have been commenced by any creditor upon such judgment or order or (y) there is any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect ; provided, however, that any such judgment or order shall not be an Event of Default under this Section 11 if and for so long as (i) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering payment thereof and (ii) such insurer, which shall be rated at least “A” by A.M. Best Company, has been notified of , and has not disputed the claim made for payment of, the amount of such judgment or order; and 6 --------------------------------------------------------------------------------        (vii) [Section intentionally omitted]      (viii) the occurrence of an “Event of Default” under and as defined in the Credit Facilities Agreement dated December 3, 2004 (the “Soc Gen Agreement”) between Societe Generale and Business Object SA covering credit facilities in the maximum amount of 100,000,000 (EUR), or any event that would constitute an Event of Default under the Soc Gen Agreement upon the giving of notice or the lapse of time or both. Upon the occurrence and during the continuance of a Guarantor Event of Default and upon the demand of Citigroup made from time to time, the Guarantor will purchase from, and pay Citigroup for, the outstanding Obligations (including any contingent Obligations) at a purchase price equal to the aggregate amount of the outstanding Obligations (including any contingent Obligations). Such purchase will be made not later than 12:00 noon two business days after the date of such demand for purchase, and in a place and currency as set forth in Section 7. The Guarantor hereby agrees that the purchase of the Obligations (including any contingent Obligations) by it hereunder will be without recourse to or representation or warranty by Citigroup. The foregoing remedy is in addition to any other rights and remedies otherwise available to Citigroup, including without limitation, any rights and remedies available to it under the documents or instruments evidencing the Obligations (including any contingent Obligations).      12. Continuing Guaranty. This is a continuing guaranty and applies to all Obligations whenever arising. This Guaranty is irrevocable and will remain in full force and effect until the payment in full of the Obligations and all amounts payable hereunder and the termination of all of the agreements relating to the Obligations.      13. Amendments, Etc. No amendment or waiver of any provision of this Guaranty, and no consent to departure by the Guarantor herefrom, will in any event be effective unless the same is in writing and signed by Citibank, N.A., on behalf of Citigroup, and then such waiver or consent will be effective only in the specific instance and for the specific purpose for which given.      14. Addresses. All notices and other communications provided for hereunder will be in writing (including telecopier communication), and mailed, telecopied or delivered to it, if to the Guarantor, at its address at 3030 Orchard Parkway, San Jose, CA 95134, United States, Attention: Jim Tolonen, and if to Citigroup, at its address at 388 Greenwich St., 21st Floor, New York, NY 10013, Attention: Mr. Ross Levitsky, Director — National Corporate Bank, Citigroup, or, as to either party, at such other address as is designated by such party in a written notice to the other party. All such notices and other communications will, when mailed or telecopied, be effective when deposited in the mails or telecopied, respectively.      15. Guarantor’s Credit Decision, Etc. The Guarantor has, independently and without reliance on Citigroup and based on such documents and information as the Guarantor has deemed appropriate, made its own credit analysis and decision to enter into this Guaranty. The Guarantor has adequate means to obtain from each Borrower on a continuing basis information concerning the financial condition, operations and business of the Borrower, and the Guarantor is not relying on Citigroup to provide such information now or in the future. The Guarantor acknowledges that it will receive substantial direct and indirect benefit from the extensions of credit contemplated by this Guaranty.      16. Judgment. If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder in U.S. Dollars into a Non-USD Currency, the Guarantor agrees that the rate of exchange used 7 --------------------------------------------------------------------------------   will be that at which, in accordance with normal banking procedures, Citigroup could purchase U.S. Dollars with such Non-USD Currency on the business day preceding that on which final judgment is given. The obligation of the Guarantor in respect of any sum due hereunder will, notwithstanding any judgment in a Non-USD Currency, be discharged only to the extent that on the date the Guarantor makes payment to Citigroup of any sum adjudged to be so due in such Non-USD Currency, Citigroup may, in accordance with normal banking procedures, purchase U.S. Dollars with such Non-USD Currency; if the U.S. Dollars so purchased are less than the sum originally due to Citigroup in U.S. Dollars, the Guarantor agrees, as a separate obligation and notwithstanding any such judgment, to indemnify Citigroup against such loss, and if the U.S. Dollars so purchased exceed the sum originally due to Citigroup in U.S. Dollars, Citigroup agrees to remit to the Guarantor such excess.      17. Governing Law. This Guaranty shall be governed by, and construed in accordance with, the law of the State of New York.      18. Consent to Jurisdiction, Etc. The Guarantor irrevocably (i) submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City in any action or proceeding arising out of or relating to this Guaranty or the Obligations, (ii) agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court or in such Federal court, and (iii) waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding, and (iv) irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Guarantor at its address specified in Section 14.: A final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing herein will affect Citigroup’s right to serve legal process in any other manner permitted by law or affect Citigroup’s right to bring any action or proceeding against the Guarantor or its property in the courts of other jurisdictions. To the extent that the Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Guarantor irrevocably waives such immunity in respect of its obligations under this Guaranty. 19. WAIVER OF JURY TRIAL. THE GUARANTOR IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS GUARANTY OR CITIGROUP’S ACTIONS IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT HEREOF             Business Objects S.A.       By:   /s/ Jim Tolonen        Name:   Jim Tolonen        Title:   Chief Financial Officer                Citigroup Inc.       By:   /s/ Ross Levitsky        Name:   Ross Levitsky        Title:   Director, VP    8 --------------------------------------------------------------------------------   SCHEDULE A (as of August 1, 2006) Business Objects S.A.           Subsidiary   Jurisdiction of the Borrower   Currencies Business Objects Corp.   Canada   All Currencies 44 Chipmann Hill, Suite 1000         P.O. Box 7289, Station “A”         Saint John, NB E2l 4S6         Canada         Business Objects Americas   United States   All Currencies 3030 Orchard Parkway         San Jose, CA 95134         United States                   Business Objects (UK) Ltd.   United Kingdom   All Currencies 100 New Bridge Street         London, EC4V 6JA         England          

-3-   EXECUTIVE EMPLOYMENT AGREEMENT   ASPREVA PHARMACEUTICALS CORPORATION   PRIVATE AND CONFIDENTIAL   November 1, 2005 Richard Jones 19, Chlupfgasse Bassersdorf CH 8303   Dear Richard:   Re:     Terms of Employment with ASPREVA PHARMACEUTICALS CORPORATION (the "Corporation")   This Agreement confirms the terms and conditions of your employment by the Corporation and will constitute your employment agreement. Those terms and conditions are set out below:   Position and Duties. You will be employed by and will serve the Corporation as its Senior Vice President, Search, Discovery and Evaluation and a member of the corporation's executive management team, having the duties and functions customarily performed by, and have all responsibilities customary to, a Senior Vice President, Search, Discovery and Evaluation of a corporation engaged in a business similar to that of the Corporation, including those duties and functions particularly described in Schedule A attached to this Agreement. You will report directly to the President of the Corporation. Your duties and functions pertain to the Corporation and any of its subsidiaries from time to time and may be varied or added to from time to time by the President, at his discretion, exercised reasonably.   1. Term. The terms and conditions of this Agreement shall have effect as of and from 1st March, 2006 (the "Effective Date") and your employment as Senior Vice President, Search, Discovery and Evaluation of the Corporation shall continue for a period of 4 years, renewable thereafter by mutual written agreement of the parties for successive one year terms, or until earlier terminated as provided in this Agreement.   2. Base Salary. The Corporation shall pay you a base salary at the rate of $290,000 CDN per year (the "Base Salary"), payable semi-monthly, subject to the withholding of all applicable statutory deductions from such Base Salary and including any taxable benefits received under this Agreement or in respect of your employment.   3. Signing Bonus. One month after joining the Corporation, upon both parties executing this Agreement, the Corporation shall pay to you a one-time signing bonus (the "Signing Bonus") of $15,000 CDN, subject to the withholding of all applicable statutory deductions in respect of such Signing Bonus. You shall be required to promptly repay the Signing Bonus to the Corporation if you terminate your employment pursuant to Section 15 (Termination by Executive) within 2 years following the Effective Date. In addition, the Corporation shall have the right to set off the Signing Bonus against any amounts owed by the Corporation to you on the effective date of termination of your employment. -------------------------------------------------------------------------------- -4-   4. Annual Review. The compensation committee (the "Compensation Committee") established by the Board of Directors (the "Board") of the Corporation for the purposes of this Agreement shall review your Base Salary annually. This review shall not result in a decrease of your Base Salary nor shall it necessarily result in an increase in your Base Salary and any increase shall be in the discretion of the Board.   5. Performance Bonus. The Corporation shall review the performance of your duties and functions under this Agreement annually and shall pay you a bonus of up to 30% of your Base Salary if the Board, in its sole discretion, determines that certain short-term and long-term business performance objectives of the Corporation and objectives related to your personal performance (together, the "Objectives"), respectively weighted 40% and 60%, have been achieved. The Objectives will be established from time to time by the Board or the Compensation Committee after consultation with you. Payment of the performance bonus set out in this Section 5 shall be made to you within a reasonable time following the end of each fiscal year and shall be subject to the withholding of all applicable statutory deductions by the Corporation.   6. Benefits. The Corporation will arrange for you to be provided with health, medical, dental, accident and life insurance and such other benefits as are reasonable and appropriate for an executive level benefits plan, as determined by the Board from time to time, based on the recommendations of the Compensation Committee after consultation with you. These benefits will be consistent with other Senior Vice Presidents and will be comparable to those set out below in Exhibit B. You may be required to provide information and undergo reasonable assessments of the applicable insurer in order to determine your eligibility for benefits coverage. You acknowledge and agree that coverage under any benefit plan in effect from time to time is subject to availability and other requirements of the applicable insurer and the Corporation makes no promise about your eligibility for or entitlement to benefits and will have no liability or responsibility in the event you are denied coverage. You further acknowledge and agree that the components of the benefits package may be amended, modified or terminated from time to time by the Corporation in its sole discretion, and this may include terminating or changing carriers.   7. Vacation. During your employment with the Corporation under this Agreement, you will be entitled to an annual paid vacation as determined by the Corporation from time to time, not less than 20 days per annum, plus up to three days company designated days and within policy guidelines up to 3 days paid parental leave. The Corporation reserves the right, acting reasonably, to request that vacations be scheduled so as not to conflict with critical business operations.   8. Relocation and Reimbursement. You acknowledge and agree that the Corporation's head office is located in the metropolitan area of Victoria, British Columbia and that the principal place of your employment is at such head office. You shall relocate your principal residence from Bassersdorf, Zurich, to a new location in the metropolitan area of Victoria, British Columbia upon commencing employment with the Corporation under this Agreement. In consideration of your agreement to relocate your principal residence, the Corporation shall reimburse you for the cost of one house- hunting trip to Victoria for you and your spouse and shall provide to you the following amounts (the "Relocation Allowance") associated with your move:     (a) reasonable moving expenses to a maximum of $35,000 CDN incurred by you to relocate you and your spouse and family, plus personal possessions from Bassersdorf, Zurich to your new residence in the metropolitan area of Victoria, British Columbia, subject to receipt by the Corporation of the applicable invoice or invoices for such expenses; to be used over a period of no more than 2 years;     (b) professional fees for the first three years related to tax advice provided by accountants of your choice to a maximum of $3,000 CDN in year 1, $2,000 CDN in year 2 and $1,000 CDN in year 3 and; -------------------------------------------------------------------------------- -5-   Should you resign your employment with the Corporation pursuant to Section 17 or be terminated for Cause pursuant to Section 19 in the first three (3) years of your employment with the Corporation, you agree to repay the Relocation Allowance to the Corporation in accordance with the following schedule:   Years of Employment Repayment of Relocation Allowance     0-1 year Full repayment of Relocation Allowance     1 -2 years Repayment of 2/3 of Relocation Allowance     2-3 years Repayment of 1/3 of Relocation Allowance     after 3 years Nil   9. Reimbursement for Expenses. During your employment under this Agreement, the Corporation shall reimburse you for reasonable travelling and other expenses actually and properly incurred by you in connection with the performance of your duties and functions, such reimbursement to be made in accordance with, and subject to, the policies of the Corporation from time to time. For all such expenses you will be required to keep proper accounts and to furnish statements, vouchers, invoices and/or other supporting documents to the Corporation.   10. Stock Options. You will receive 100,000 stock options at an exercise price and on such other terms set forth in the Aspreva 2002 Incentive Stock Option Plan, subject to approval of the Board and applicable securities regulatory authorities and to execution and delivery by you of a stock option agreement in a form acceptable to the Corporation. The stock options shall, vest and be exercisable in the following way:   (a) No options will vest for the first year (12 months) following the grant;     (b) options will begin to vest at the rate of 1 /36th of the grant, each month at the end of each month (for a period of 36 months).     (c) All options from this grant will be vested at the end of the 36 months, following the initial 12 month waiting period.   The options granted in this Section 10 will cease to vest:     (d) on the date you provide the Corporation with written notice of your decision to resign your employment pursuant to Section 15 (Termination by Executive);     (e) on the date the Corporation provides you with written notice of its decision to terminate your employment pursuant to Section 16 (Termination without Cause);     (f) on the date the Corporation terminates your employment pursuant to Section 17 (Termination for Cause); or   (g) otherwise on the date this Agreement is terminated or deemed terminated.   For greater certainty, neither the period of notice nor any payment in lieu thereof will be considered as extending the period of your employment with respect to the vesting or exercise of the options granted in this Section 10. -------------------------------------------------------------------------------- -6-   In accordance with Section 6.5 of the Aspreva 2002 Incentive Stock Option Plan, should your employment with the Corporation end pursuant to Section 16 or 17 of this agreement, you will have three (3) months from the date your employment ended to exercise your vested stock options, failing which these options shall expire. Should your employment with the Corporation end pursuant to Section 18 of this agreement, your options shall expire on the date your employment was terminated.   11. Compliance with Insider Trading Guidelines and Restrictions. As a result of your position as Senior Vice President, Search, Discovery and Evaluation, you are subject to insider trading regulations and restrictions and are required to file insider reports disclosing the grant of any options as well as the purchase and sale of any shares in the capital of the Corporation. The Corporation may from time to time publish trading guidelines and restrictions for its employees, officers and directors as are considered by the Board, in its discretion, prudent and necessary for a publicly listed company. It is a term of your employment as a senior officer of the Corporation that you comply with such guidelines and restrictions.   12. Directors' & Officers' Liability Insurance. The Corporation shall use commercially reasonable efforts to provide you with directors' and officers' liability insurance under the policies for such insurance arranged by the Corporation from time to time upon such terms and in such amounts as the Board may reasonably determine in its discretion.   13. No Other Compensation or Benefits. You expressly acknowledge and agree that unless otherwise expressly agreed in writing by the Corporation subsequent to execution of this Agreement by the parties hereto, you shall not be entitled by reason of your employment by the Corporation or by reason of any termination of such employment, to any remuneration, compensation or benefits other than as expressly set forth in this Agreement.   14.     Service to Employer. During your employment under this Agreement you will:     (a) well and faithfully serve the Corporation, at all times act in, and promote, the best interests of the Corporation, and devote substantially the whole of your working time, attention and energies to the business and affairs of the Corporation;     (b) comply with all reasonable rules, regulations, policies and procedures of the Corporation; and     (c) not, without the prior approval of the Board, to carry on or engage in any other business or occupation or become a director, officer, employee or agent of or hold any position or office with any other corporation, firm or person, except as a volunteer for a non-profit organization, for personal investments or a personal holding company, which may include members of your family as shareholders.   15.     Termination By Executive   (a)         Subject to Section 19 (Termination Following Change in Control), you may resign as Senior Vice President, Search, Discovery and Evaluation at any time, but only by giving the Corporation at least 3 months' prior written notice of the effective date of your resignation. On the giving of any such notice, the Corporation shall have the right to elect, in lieu of the notice period, to pay you a lump sum equal to 3 months' Base Salary, as referred to in Section 2 (Base Salary) and as adjusted from time to time in accordance with Section 4 (Annual Review), plus other sums owed for arrears of salary, vacation pay and, if granted pursuant to Section 5 (Performance Bonus), bonus. -------------------------------------------------------------------------------- -7-   (b)         If the Corporation elects to pay you such lump sum in lieu of the 3 months' notice period, the Corporation shall, subject to the terms and conditions of any benefit plans in effect from time to time, maintain the benefits and payments set out in Section 6 (Benefits) of this Agreement for 3 months after the date of your notice, but in all other respects, your resignation and the termination of your employment will be effective immediately upon your receipt of the lump sum.   16. Termination by the Corporation Without Cause.     (a) The Corporation may terminate your employment as Senior Vice President, Search, Discovery and Evaluation at any time without Cause (as defined below) by giving you written notice of such termination and in all respects, except as set out below, the termination of your employment will be effective immediately upon your receipt of such notice. If you are a director of the Corporation you will be deemed to have resigned as a director, effective upon your receipt of the notice of termination without any further action on your part.     (b) If your employment is terminated by the Corporation pursuant to this Section 16, the Corporation shall pay to you as a lump sum the number of months of Base Salary, as referred to in Section 2 (Base Salary) and as adjusted from time to time in accordance with Section 4 (Annual Review) set out in the table below depending upon the year of employment in which you are terminated, plus such other sums owed for arrears of salary, vacation pay and, if granted pursuant to Section 5 (Performance Bonus), bonus:   Year of Employment Lump Sum Payment of Base Salary (as adjusted)     1-2 6 months     after 2 12 months     (c) To the extent permitted by law and subject to the terms and conditions of any benefit plans in effect from time to time, the Corporation shall maintain the benefits and payments set out in Section 6 (Benefits) of this Agreement (the "Maintenance Payments") during a period of 6 months following termination.     (d) The payments of Base Salary and benefits set out in this Section 16 shall be in lieu of any applicable notice period.     (e) To the extent permitted by law, these terms will remain in effect, until or unless any more favourable terms have or will be offered to you or other senior officers of the company, at which point those more favourable terms will be deemed to form part of this agreement.   17. Termination by the Corporation for Cause. Notwithstanding Section 15 (Termination by Executive), Section 16 (Termination by the Corporation Without Cause), or Section 19 (Termination Following Change of Control), the Corporation may terminate your employment as Senior Vice President, Search, Discovery and Evaluation for Cause upon written notice of such termination at any time without any notice or severance. In this Agreement, "Cause" shall include, but not be limited to, the following:   (a)         the commission of theft, embezzlement, fraud, obtaining funds or property under false pretences or similar acts of misconduct with respect to the property of the Corporation or its employees or the Corporation's customers or suppliers; -------------------------------------------------------------------------------- -8-   (b) your entering of a guilty plea or conviction for any crime involving fraud, misrepresentation or breach of trust, or for any serious criminal offence that impacts adversely on the Corporation; or   (c)       any other matter constituting just cause at common law.   any of which shall entitle the Corporation to terminate your employment under this Section 17. If you are a director of the Corporation you will be deemed to have resigned as a director, effective upon your receipt of the notice of termination without any further action on your part.   18. Termination Following Change in Control. Concurrently with execution and delivery of this Agreement, you and the Corporation shall enter into a "Change of Control Agreement" in the form attached hereto as Schedule B setting out the compensation provisions to be applicable in the event of the termination of your employment as Senior Vice President, Search, Discovery and Evaluation of the Corporation in certain circumstances following a "Change in Control" of the Corporation (as defined in the Change of Control Agreement), and will remain the same as the treatment of all other senior officers.   19. No Additional Compensation upon Termination. It is agreed that neither you nor the Corporation shall, as a result of the termination of your employment, be entitled to any notice, fee, salary, bonus, severance or other payments, benefits or damages arising by virtue of, or in any way relating to, your employment or any other relationship with the Corporation (including termination of such employment or relationship) in excess of what is specified or provided for in Section 15 (Termination by Executive), Section 16 (Termination by the Corporation Without Cause), Section 17 (Termination by the Corporation for Cause), or Section 19 (Termination Following Chance in Control), whichever is applicable. Payment of any amount whatsoever pursuant to Section 15 (Termination by Executive), Section 16 (Termination by the Corporation Without Cause), Section 17 (Termination by the Corporation for Cause), or Section 19 (Termination Following Change in Control) shall be subject to the withholding of all applicable statutory deductions by the Corporation.   20. Confidentiality and Assignment of Inventions. Concurrently with execution and delivery of this Agreement and in consideration of your employment by the Corporation, you and the Corporation will enter into a "Confidentiality Agreement and Assignment of inventions" in the form attached hereto as Schedule C.   21. Disclosure of Conflicts of Interest. During your employment with the Corporation, you will promptly, fully and frankly disclose to the Corporation in writing:     (a) the nature and extent of any interest you or your Associates (as hereinafter defined) have or may have, directly or indirectly, in any contract or transaction or proposed contract or transaction of or with the Corporation or any subsidiary or affiliate of the Corporation;     (b) every office you may hold or acquire, and every property you or your Associates may possess or acquire, whereby directly or indirectly a duty or interest might be created in conflict with the interests of the Corporation or your duties and obligations under this Agreement; and   (c)       the nature and extent of any conflict referred to in subsection (b) above.   In this Agreement the expression "Associate" shall include all those persons and entities that are included within the definition or meaning of "associate" as set forth in Section 1(1) of the Company Act (British Columbia), as amended, or any successor legislation of similar force and effect, and shall also include your spouse, children, parents, brothers and sisters. -------------------------------------------------------------------------------- -9-   22. Avoidance of Conflicts of Interest. You acknowledge that it is the policy of the Corporation that all interests and conflicts of the sort described in Section 21 (Disclosure of Conflicts of Interest) be avoided, and you agree to comply with all policies and directives of the Board from time to time regulating, restricting or prohibiting circumstances giving rise to interests or conflicts of the sort described in Section 21 (Disclosure of Conflicts of Interest). During your employment with the Corporation, without Board approval, in its sole discretion, you shall not enter into any agreement, arrangement or understanding with any other person or entity that would in any way conflict or interfere with this Agreement or your duties or obligations under this Agreement or that would otherwise prevent you from performing your obligations hereunder, and you represent and warrant that you or your Associates have not entered into any such agreement, arrangement or understanding, provided however you will be permitted to accept teaching or academic activities appointments as long as such activities related to such appointments do not conflict or hinder the performance of your duties.   23.     Provisions Reasonable. It is acknowledged and agreed that:     (a) both before and since the Effective Date the Corporation has operated and competed and will operate and compete in a global market, with respect to the business of the Corporation set out in Schedule D attached hereto (the "Business");     (b) competitors of the Corporation and the Business are located in countries around the world;     (c) in order to protect the Corporation adequately, any enjoinder of competition would have to apply world wide;     (d) during the course of your employment by the Corporation, both before and after the Effective Date, on behalf of the Corporation, you have acquired and will acquire knowledge of, and you have come into contact with, initiated and established relationships with and will come into contact with, initiate and establish relationships with, both existing and new clients, customers, suppliers, principals, contacts and prospects of the Corporation, and that in some circumstances you have been or may well become the senior or sole representative of the Corporation dealing with such persons; and     (e) in light of the foregoing, the provisions of Section 24 (Restrictive Covenant) below are reasonable and necessary for the proper protection of the business, property and goodwill of the Corporation and the Business.   24. Restrictive Covenant. Subject to the exceptions set out in Schedule E attached hereto, you agree that you will not, either alone or in partnership or in conjunction with any person, firm, company, corporation, syndicate, association or any other entity or group, whether as principal, agent, employee, director, officer, shareholder, consultant or in any capacity or manner whatsoever, whether directly or indirectly, for the Term of Employment and continuing for a period of 6 months from the lawful termination of your employment, regardless of the reason for such termination:     (a)        carry on or be engaged in, concerned with or interested in, or advise, invest in or give financial assistance to, any business, enterprise or undertaking that:      (i) is involved in the Business or in the sale, distribution, development or supply of any product or service that is competitive with the Business or any product or service of the Business; or    (ii) competes with the Corporation with respect to any aspect of the Business; -------------------------------------------------------------------------------- -10-   provided, however, that the foregoing will not prohibit you from acquiring, solely as an investment and through market purchases, securities of any such enterprise or undertaking which are publicly traded, so long as you are not part of any control group of such entity and such securities, which if converted, do not constitute more than 5% of the outstanding voting power of that entity;     (b) solicit, agree to be employed by, or agree to provide services to any person, firm, corporation or other entity that was a client, customer, supplier, principal, shareholder, investor, collaborator, strategic partner, licensee, contact or prospect of the Corporation during the time of your employment with the Corporation, whether before or after the Effective Date, for any business purpose that is competitive with the Business or any product or service of the Business; or     (c) divert, entice or take away from the Corporation or attempt to do so or solicit for the purpose of doing so, any business of the Corporation, or any person, firm, corporation or other entity that was an employee, client, customer, supplier, principal, shareholder, investor, collaborator, strategic partner, licensee, contact or prospect of the Corporation during the time of your employment with the Corporation, whether before or after the Effective Date.   25. Remedies. You acknowledge and agree that any breach or threatened breach of any of the provisions of Section 11 (Compliance with Insider Trading Guidelines and Restrictions), Section 14 (Service to Employer), Section 20 (Confidentiality and Assignment of Inventions), Section 21 (Disclosure of Conflicts of Interest), Section 22 (Avoidance of Conflicts of Interest) or Section 24 (Restrictive Covenant) could cause irreparable damage to the Corporation or its partners, subsidiaries or affiliates, that such harm could not be adequately compensated by the Corporation's recovery of monetary damages, and that in the event of a breach or threatened breach thereof, the Corporation shall have the right to seek an injunction, specific performance or other equitable relief as well as any equitable accounting of all your profits or benefits arising out of any such breach. It is further acknowledged and agreed that the remedies of the Corporation specified in this Section 25 are in addition to and not in substitution for any rights or remedies of the Corporation at law or in equity and that all such rights and remedies are cumulative and not alternative and that the Corporation may have recourse to any one or more of its available rights or remedies as it shall see fit.   26. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Corporation and its successors and assigns. Your rights and obligations contained in this Agreement are personal and such rights, benefits and obligations shall not be voluntarily or involuntarily assigned, alienated or transferred, whether by operation of law or otherwise, without the prior written consent of the Corporation. This Agreement shall otherwise be binding upon and inure to the benefit of your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, legatees and permitted assigns.   27. Agreement Confidential. Both parties shall keep the terms and conditions of this Agreement confidential except as may be required to enforce any provision of this Agreement or as may otherwise be required by any law, regulation or other regulatory requirement.   28. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the Province of British Columbia and applicable laws of Canada and the parties hereto attorn to the exclusive jurisdiction of the provincial and federal courts of such province.   29. Exercise of Functions. The rights of the Corporation as provided in this Agreement may be exercised on behalf of the Corporation only by the Board. -------------------------------------------------------------------------------- -11-   30. Entire Agreement. The terms and conditions of this Agreement are in addition to and not in substitution for the obligations, duties and responsibilities imposed by law on employers and employees of corporations generally, and you and the Corporation agree to comply with such obligations, duties and responsibilities. Except as otherwise provided in this Agreement, this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and may only be varied by further written agreement signed by you and the Corporation. This Agreement supersedes any previous communications, understandings and agreements between you and the Corporation regarding your employment. It is acknowledged and agreed that this Agreement is mutually beneficial and is entered into for fresh and valuable consideration with the intent that it shall constitute a legally binding agreement.   31. Further Assurances. The parties will execute and deliver to each other such further instruments and assurances and do such further acts as may be required to give effect to this Agreement.   32. Surviving Obligations. Your obligations and covenants under Section 20 (Confidentiality and Assignment of Inventions), Section 24 (Restrictive Covenant) and Section 25 (Remedies) shall survive the termination of this Agreement.   33. Independent Legal Advice. You hereby acknowledge that you have obtained or have had an opportunity to obtain independent legal advice in connection with this Agreement, and further acknowledge that you have read, understand, and agree to be bound by all of the terms and conditions contained herein.   34. Notice. All notices and other communications that are required or permitted by this Agreement must be in writing and shall be hand delivered or sent by express delivery service or certified or registered mail, postage prepaid, or by facsimile transmission (with written confirmation copy by registered mail) to the parties at the addresses indicated below.   If to Aspreva:   Aspreva Pharmaceuticals Corporation Farris, Vaughan, Wills & Murphy 26th Floor, 700 West Georgia Street Vancouver, BC.V7Y1B3   Attn: R. Hector MacKay-Dunn   If to Name: Richard Jones 19, Chlupfgasse Bassersdorf CH Zurich 8303   Any such notice shall be deemed to have been received on the earlier of the date actually received or the date five (5) days after the same was posted or sent. Either party may change its address or its facsimile number by giving the other party written notice, delivered in accordance with this Section.   35. Severabilitv. If any provision of this Agreement or any part thereof shall for any reason be held to be invalid or unenforceable in any respect, then such invalid or unenforceable provision or part shall be severable and severed from this Agreement and the other provisions of this Agreement shall remain in effect and be construed as if such invalid or unenforceable provision or part had never been contained herein.   36. Waiver. Any waiver of any breach or default under this Agreement shall only be effective if in writing signed by the party against whom the waiver is sought to be enforced, and no waiver shall be implied by any other act or conduct or by any indulgence, delay or omission. Any waiver shall only apply to the specific matter waived and only in the specific instance in which it is waived. -------------------------------------------------------------------------------- - 12-   37.    Counterparts'. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and such counterparts will together constitute but one Agreement.   If you accept and agree to the foregoing, please confirm your acceptance and agreement by signing the enclosed duplicate copy of this letter where indicated below and by returning it to us. You are urged to consider fully all the above terms and conditions and to obtain independent legal advice Or any other advice you feel is necessary before you execute this agreement.                                                                               Yours truly,                                                                            ASPREVA PHARMACEUTICALS CORPORATION                                                                              By:/s/ Noel Hall                                                                                                                                    Authorized Signatory Accepted and agreed to by Richard Jones as of the 1st day of November 2005. /s/ Richard Jones                                         Richard Jones --------------------------------------------------------------------------------     --------------------------------------------------------------------------------   SCHEDULE C   CONFIDENTIALITY AGREEMENT AND ASSIGNMENT OF INVENTIONS   ASPREVA PHARMACEUTICALS CORPORATION   PRIVATE AND CONFIDENTIAL   November 1,2005 Richard Jones 19, Chlupfgasse Bassersdorf CH 8303   Dear Richard:   The purpose of this letter is to confirm and record the terms of the agreement (the "Agreement") between you and Aspreva Pharmaceuticals Corporation ("Aspreva") concerning the terms on which you will (i) receive from and disclose to Aspreva proprietary and confidential information; (ii) agree to keep the information confidential, to protect it from disclosure and to use it only in accordance with the terms of this Agreement; and (iii) assign to Aspreva all rights, including any ownership interest which may arise in all inventions and intellectual property developed or disclosed by you over the course of your work during your employment with Aspreva. The effective date ("Effective Date") of this Agreement is the date that you start or started working at Aspreva, as indicated in the employment agreement between you and Aspreva dated as of 1st March, 2006.   In consideration of the offer of employment by Aspreva and the payment by Aspreva to you of the sum of CDN$1.00 and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, you and Aspreva hereby agree as follows:   INTERPRETATION   1.2               Definitions. In this Agreement:   (a)        "Confidential Information", subject to the exemptions set out in Section 2.8, shall mean any information relating to Aspreva's Business (as hereinafter defined), whether or not conceived, originated, discovered, or developed in whole or in part by you, that is not generally known to the public or to other persons who are not bound by obligations of confidentiality and:   (i)     from which Aspreva derives economic value, actual or potential, from the information not being generally known; or   (ii)     in respect of which Aspreva otherwise has a legitimate interest in maintaining secrecy;   and which, without limiting the generality of the foregoing, shall include;     --------------------------------------------------------------------------------   -2-   (iii)         all proprietary information licensed to, acquired, used or developed by Aspreva in its search and development activities including but not restricted to the development and commercialization of drugs for rare diseases and conditions and orphan drugs as defined by the U.S. Orphan Drug Act, other scientific strategies and concepts, designs, know-how, information, material, formulas, processes, research data and proprietary rights in the nature of copyrights, patents, trademarks, licenses and industrial designs;   (iv)         all information relating to Aspreva's Business, and to all other aspects of Aspreva's structure, personnel, and operations, including financial, clinical, regulatory, marketing, advertising and commercial information and strategies, customer lists, compilations, agreements and contractual records and correspondence; programs, devices, concepts, inventions, designs, methods, processes, data, know-how, unique combinations of separate items that is not generally known and items provided or disclosed to Aspreva by third parties subject to restrictions on use or disclosure;   (v)         all know-how relating to Aspreva's Business including., all biological, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, clinical, safety, manufacturing and quality control data and information, and all applications, registrations, licenses, authorizations, approvals and correspondence submitted to regulatory authorities;   (vi)         all information relating to the businesses of competitors of Aspreva including information relating to competitors' research and development, intellectual property, operations, financial, clinical, regulatory, marketing, advertising and commercial strategies, that is not generally known;   (vii)         all information provided by Aspreva's agents, consultants, lawyers, contractors, licensors or licensees to Aspreva and relating to Aspreva's Business; and   (viii)         all information relating to your compensation and benefits, including your salary, vacation, stock options, rights to continuing education, perquisites, severance notice, rights on termination and all other compensation and benefits, except that you shall be entitled to disclose such information to your bankers, advisors, agents, consultants and other third parties who have a duty of confidence to you and who have a need to know such information in order to provide advice, products or services to you.   (b) "Inventions" shall mean any and all discoveries, developments, enhancements, improvements, concepts, formulas, processes, ideas, writings, whether or not reduced to practice, industrial and other designs, patents, patent applications, provisional patent applications, continuations, continuations-in-part, substitutions, divisionals, reissues, renewals, re-examinations, extensions, supplementary protection certificates or the like, trade secrets or utility models, copyrights and other forms - of intellectual property including all applications, registrations and related foreign applications filed and registrations granted thereon.   (c) "Work Product" shall mean any and all Inventions and possible Inventions relating to Aspreva's Business resulting from any work performed by you for Aspreva that you may invent or co-invent during your involvement in any capacity with Aspreva, except those Inventions invented by you entirely on your own time that do not relate to Aspreva's Business or do not derive from any equipment, supplies, facilities, Confidential Information or other information, gained, directly or indirectly, by you from or through your involvement in any capacity with Aspreva.     -------------------------------------------------------------------------------- -3-   (d)         "Aspreva's Business" shall mean the businesses actually carried on by Aspreva, directly or indirectly, whether under an agreement with or in collaboration with, any other party including but not exclusively, the development and commercialization of drugs for rare diseases and conditions and orphan drugs as defined by the U.S. Orphan Drug Act.   2.                  CONFIDENTIALITY   2.1                 Basic Obligation of Confidentiality. You hereby acknowledge and agree that in the course of your involvement with Aspreva, Aspreva may disclose to you or you may otherwise have access or be exposed to Confidential Information. Aspreva hereby agrees to provide such access to you and you agree to receive and hold all Confidential Information on the terms and conditions set out in this Agreement. Except as set out in this Agreement, you will keep strictly confidential all Confidential Information and all other information belonging to Aspreva that you acquire, observe or are informed of, directly or indirectly, in connection with your involvement, in any capacity, with Aspreva.   2.2                  Fiduciary Capacity. You will be and act toward Aspreva as a fiduciary in respect of the Confidential Information.   2.3                  Non-disclosure. Unless Aspreva first gives you written permission to do so under Section 2.7 of this Agreement, you will not at any time, either during or after your involvement in any capacity with Aspreva;   (a)     use or copy Confidential Information or your recollections thereof;     (b) publish or disclose Confidential Information or your recollections thereof to any person other than to employees of Aspreva who have a need to know such Confidential Information for their work for Aspreva;     (c) permit or cause any Confidential Information to be used, copied, published, disclosed, translated or adapted except as otherwise expressly permitted by this Agreement;     (d) permit or cause any Confidential Information to be stored off the premises of Aspreva, including permitting or causing such Information to be stored in electronic format on personal computers, except in accordance with written procedures of Aspreva, as amended from time to time in writing; or     (e) communicate the Confidential Information or your recollections thereof to another employee of Aspreva in a public place or using methods of communication that are capable of being intercepted (such as unencrypted messages using the internet or cellular phones) or overheard, without the written permission of Aspreva. 2.4               Taking Precautions. You will take all reasonable precautions necessary or prudent to prevent material in your possession or control that contains or refers to Confidential Information from being discovered, used or copied by third parties.   2.5                Aspreva's Ownership of Confidential Information. As between you and Aspreva, Aspreva shall own all right, title and interest in and to the Confidential Information, whether or not created or developed by you.   2.6                Control of Confidential Information and Return of Information. All physical materials produced or prepared by you containing Confidential Information, including, without limitation, biological material, chemical entities, test results, notes of experiments, computer files, photographs, x-ray film, designs, devices, formulas, memoranda, drawings, plans, prototypes, samples, accounts, reports, financial statements, estimates and materials prepared in the course of your responsibilities to or for the benefit of Aspreva, shall belong to Aspreva, and you will promptly turn over to Aspreva's possession     -------------------------------------------------------------------------------- -4-   every original and copy of any and all such items in your possession or control upon request by Aspreva. You shall not permit or cause any physical materials to be stored off the premises of Aspreva, unless in accordance with written procedures of Aspreva, as amended from time to time in writing. You shall not transfer any biological material to another person outside of Aspreva, unless a material transfer agreement has been signed by both Aspreva and the other party. You shall not accept any biological material from another person outside of Aspreva, unless in accordance with written procedures of Aspreva, as amended from time to time in writing.   2.7            Purpose of Use. You will use Confidential Information only for purposes authorised or directed by Aspreva.   2.8            Exemptions. Your obligation of confidentiality under this Agreement will not apply to any of the following:     (a) information that is already known to you, though not due to a prior disclosure by Aspreva or by a person who obtained knowledge of the information, directly or indirectly, from Aspreva;     (b) information disclosed to you by another person who is not obliged to maintain the confidentiality of that information and who did not obtain knowledge of the information, directly or indirectly, from Aspreva;     (c) information that is developed by you independently of Confidential Information received from Aspreva and such independent development can be documented by you;      (d)       other particular information or material which Aspreva expressly exempts by written instrument signed by Aspreva;   (e)       information or material that is in the public domain through no fault of your own; and     (f) information or material that you are obligated by law to disclose, to the extent of such obligation, provided that:   (i)          in the event that you are required to disclose such information or material, then, as soon as you become aware of this obligation to disclose, you will provide Aspreva with prompt written notice so that Aspreva may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement;   (ii)         if Aspreva agrees that the disclosure is required by law, it will give you written authorization to disclose the information for the required purposes only;   (iii)         if Aspreva does not agree that the disclosure is required by law, this Agreement will continue to apply, except to the extent that a Court of competent jurisdiction orders otherwise; and   (iv)         if a protective order or other remedy is not obtained or if compliance with this Agreement is waived, you will furnish only that portion of the Confidential Information that is legally required and will exercise all reasonable efforts to obtain confidential treatment of such Confidential Information.     -------------------------------------------------------------------------------- -5-   3.            ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS   3.1           Notice of Invention. You agree to promptly and fully inform Aspreva of all your Work Product, whether or not patentable, throughout the course of your involvement, in any capacity, with Aspreva, whether or not developed before or after your execution of this Agreement. On your ceasing to be employed by Aspreva for any reason whatsoever, you will immediately deliver up to Aspreva all of your- Work Product. You further agree that all of your Work Product shall at all times be the Confidential Information of Aspreva.   3.2            Assignment of Rights. Subject only to those exceptions set out in Exhibit A hereto, you will assign, and do hereby assign, to Aspreva or, at the option of Aspreva and upon notice from Aspreva, to Aspreva's designee, your entire right, title and interest in and to all of your Work Product during your involvement, in any capacity, with Aspreva and all other rights and interests of a proprietary nature in and associated with your Work Product, including all patents, patent applications filed and other registrations granted thereon. To the extent that you retain or acquire legal title to any such rights and interests, you hereby declare and confirm that such legal title is and will be held by you only as trustee and agent for Aspreva. You agree that Aspreva's rights hereunder shall attach to all of your Work Product, notwithstanding that it may be perfected or reduced to specific form after you have terminated your relationship with Aspreva. You further agree that Aspreva's rights hereunder are worldwide rights and are not limited to Canada, but shall extend to every country of the world.   3.3             Moral Rights. Without limiting the foregoing, you irrevocably waive any and all moral rights arising under the Copyright Act (Canada), as amended, or any successor legislation of similar force and effect or similar legislation in other applicable jurisdictions or at common law that you may have with respect to your Work Product, and agree never to assert any moral rights which you may have in your Work Product, including, without limitation, the right to the integrity of such Work Product, the right to be associated with the Work Product, the right to restrain or claim damages for any distortion, mutilation or other modification or enhancement of the Work Product and the right to restrain the use or reproduction of the Work Product in any context and in connection with any product, service, cause or institution, and you further confirm that Aspreva may use or alter any such Work Product as Aspreva sees fits in its absolute discretion.   3.4             Goodwill. You hereby agree that all goodwill you have established or may establish with . clients, customers, suppliers, principals, shareholders, investors, collaborators, strategic partners, licensees, contacts or prospects of Aspreva relating to the business or affairs of Aspreva (or of its partners, subsidiaries or affiliates), both before and after the Effective Date, shall, as between you and Aspreva, be and remain the property of Aspreva exclusively, for Aspreva to use, alter, vary, adapt and exploit as Aspreva shall determine in its discretion.   3.5             Assistance. You hereby agree to reasonably assist Aspreva, at Aspreva's request and expense, in:     (a) making patent applications for your Work Product, including instructions to lawyers and/or patent agents as to the characteristics of your Work Product in sufficient detail to enable the preparation of a suitable patent specification, to execute all formal documentation incidental to an application for letters patent and to execute assignment documents in favour of Aspreva for such applications;     (b) making applications for all other forms of intellectual property registration relating to your Work Product;     (c) prosecuting and maintaining the patent applications and other intellectual property relating to your Work Product; and     --------------------------------------------------------------------------------   -6-   (d)       registering, maintaining and enforcing the patents and other intellectual property registrations relating to your Work Product.   3.6             Assistance with Proceedings. You further agree to reasonably assist Aspreva, at Aspreva's request and expense, in connection with any defence to an allegation of infringement of another person's intellectual property rights, claim of invalidity of another person's' intellectual property rights, opposition to, or intervention regarding, an application for letters patent, copyright or trademark or other proceedings relating to intellectual property or applications for registration thereof.   4.             GENERAL   4.1            Term and Duration of Obligation. The term of this Agreement is from the Effective Date and terminates on the date that you are no longer working at or for Aspreva. Except as otherwise agreed in a written instrument signed by Aspreva, Article 2 shall survive the termination of this Agreement, including your obligations of confidentiality and to return Confidential Information, and shall endure, with respect to each item of Confidential Information, for so long as those items fall within the definition of Confidential Information. Sections 1.2, 3.2, 3.3, 3.4, 3.5, 3.6, 4.1, 4.2, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12 and 4.13 shall also survive the termination of this Agreement.   4.2            Binding Nature of Agreement. This Agreement is not assignable by you. You agree that this Agreement shall be binding upon your heirs and estate.   4.3            Non-Competition. While you are an employee of Aspreva, you will not provide services to or enter into a contract of employment or service in any capacity for any business which is in any way competitive with Aspreva's Business without the prior written consent of Aspreva.   4.4            No Conflicting Obligations. You represent and warrant that you will not use or disclose to other persons at Aspreva information that (i) constitutes a trade secret of persons other than Aspreva during your employment at Aspreva, or (ii) which is confidential information owned by another person. You represent and warrant that you have no agreements with or obligations to others with respect to the matters covered by this Agreement or concerning the Confidential Information that are in conflict with anything in this Agreement.   4.5            Equitable Remedies. You acknowledge and agree that a breach by you of any of your obligations under this Agreement would result in damages to Aspreva that could not be adequately compensated by monetary award. Accordingly, in the event of any such breach by you, in addition to all other remedies available to Aspreva at law or in equity, Aspreva shall be entitled as a matter of right to apply to a court of competent jurisdiction for such relief by way of restraining order, injunction, decree or otherwise, as may be appropriate to ensure compliance with the provisions of this Agreement, without having to prove damages to the court.   4.6            Publicity. You shall not, without the prior written consent of Aspreva, make or give any public announcements, press releases or statements to the public or the press regarding your Work Product or any Confidential Information.   4.7            Severability. If any covenant or provision of this Agreement or of a section of this Agreement is determined by a court of competent jurisdiction to be void or unenforceable in whole or in part, then such void or unenforceable covenant or provision shall not affect or impair the enforceability or validity of the balance of the section or any other covenant or provision.   4.8            Time of Essence/No Waiver. Time is of the essence hereof and no waiver, delay, indulgence, or failure to act by Aspreva regarding any particular default or omission by you shall affect or impair any of Aspreva's rights or remedies regarding that or any subsequent default or omission that is not expressly waived in writing, and in all events time shall continue to be of the essence without the necessity of specific reinstatement.     -------------------------------------------------------------------------------- - 7-   4.9            Further Assurances. The parties will execute and deliver to each other such further instruments and assurances and do such further acts as may be required to give effect to this Agreement.   4.10            Notices. All notices and other communications that are required or permitted by this Agreement must be in writing and shall be hand delivered or sent by express delivery service or certified or registered mail,, postage prepaid, or by facsimile transmission (with written confirmation copy by registered mail) to the parties at the addresses indicated below.   If to Aspreva:   Aspreva Pharmaceuticals Corporation Farris, Vaughan, Wills & Murphy 26th Floor, 700 West Georgia Street Vancouver, BC V7Y1B3   Attn: R. Hector MacKay-Dunn   If to Richard Jones: Richard Jones 19, Chlupfgasse Bassersdorf CH 8303   Any such notice shall be deemed to have been received on the earlier of the date actually received or the date.five (5) days after the same was posted or sent. Either party may change its address or its facsimile number by giving the other party written notice, delivered in accordance with this Section.   4.11            Amendment. No amendment, modification, supplement or other purported alteration of this Agreement shall be binding unless it is in writing and signed by you and by Aspreva.   4.12            Entire Agreement. This Agreement supersedes all previous dealings, understandings, . and expectations of' the parties and constitutes the whole agreement with respect to the matters contemplated hereby, and there are no representations, warranties, conditions or collateral agreements between the parties with respect to such transactions except as expressly set out herein.   4.13            Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the Province of British Columbia and applicable laws of Canada and the parties hereto attorn to the exclusive jurisdiction of the provincial and federal courts of such province.   4.14            Independent Legal Advice. You hereby acknowledge that you have obtained or have had an opportunity to obtain independent legal advice in connection with this Agreement, and further acknowledge that you have read, understand, and agree to be bound by all of the terms and conditions contained herein.   --------------------------------------------------------------------------------   - 8-   Acceptance   If the foregoing terms and conditions are acceptable to you, please indicate your acceptance of and agreement to the terms and conditions of this Agreement by signing below on this letter and on the enclosed copy of this letter in the space provided and by returning the enclosed copy so executed to us. Your execution and delivery to Aspreva of the enclosed copy of this letter will create a binding agreement between us.   Thank you for your cooperation in this matter. Yours truly,   ASPREVA PHARMACEUTICALS CORPORATION   By:/s/ Noel Hall                                                           Noel Hall   Accepted and agreed as of the 1st day of November 2005.       /s/ Richard Jones Witness Signature   Signature of Richard Jones   __________________________________________________________________________________ Witness Name   __________________________________________________________________________________ Occupation   __________________________________________________________________________________ Address     -------------------------------------------------------------------------------- SCHEDULE D BUSINESS OF THE COMPANY   The business of the Corporation shall mean the business actually carried on by the Corporation, directly or indirectly, whether under an agreement with or in collaboration with any other party including, but not limited to the development and commercialization of drugs for rare diseases and conditions and orphan drugs as defined by the U.S. Orphan Drug Act.     -------------------------------------------------------------------------------- SCHEDULE E   EXCEPTION TO RESTRICTIVE COVENANT   None     --------------------------------------------------------------------------------   EXHIBIT A   EXCLUSION FROM WORK PRODUCT   None

Exhibit 10.1 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT         FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) dated as of June 22, 2006, by and between A4S Security, Inc., a Colorado corporation f/k/a A4S Technologies, Inc. (“Employer”), and Michael Siemens, an individual who is a resident of Fort Collins, Colorado (“Executive”). W I T N E S S E T H         WHEREAS, Employer and Employee are parties to the Employment Agreement entered into as of April 1, 2005 (the “Employment Agreement”); and         WHEREAS, Employer and Employee desire to amend the Employment Agreement in accordance with the terms set forth herein in order to (i) change Employee’s title from President to Executive Vice President, Law Enforcement and (ii) extend the term of Employee’s employment with Employer.         NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:     1.        Definitions. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Employment Agreement.     2.        Amendments.     (a)               Effective July 1, 2006, Section 2.2 of the Employment Agreement is hereby amended to replace the date “May 31, 2007” with the date “June 30, 2008.”     (b)               Effective July 1, 2006, the first sentence of Section 2.3 of the Employment Agreement is hereby amended to replace the title “President” with the title “Executive Vice President, Law Enforcement.”     3.        Continued Effectiveness. Except as expressly amended hereby, the Employment Agreement shall continue in full force and effect. Any references to the “Agreement” in the Employment Agreement or to the words hereof, hereunder or words of similar affect in the Employment Agreement shall mean the Employment Agreement as amended hereby.     4.        Governing Law. This Amendment will be governed by the laws of the State of Colorado without regard to conflicts of laws principles.     5.        Jurisdiction. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Amendment may be brought against either of the parties in the courts of the State of Colorado, County of Larimer or, if it has or can acquire jurisdiction, in the United States District Court located in Denver, Colorado, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on either party anywhere in the world. --------------------------------------------------------------------------------     6.        Section Headings, Construction. The headings of Sections in this Amendment are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of the Employment Agreement unless otherwise specified. All words used in this Amendment will be construed to be of such gender or number, as the circumstances require.     7.        Severability. If any provision of this Amendment is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Amendment will remain in full force and effect. Any provision of this Amendment held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.     8.        Counterparts. This Amendment may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Amendment and all of which, when taken together, will be deemed to constitute one and the same agreement. *    *    * 2 --------------------------------------------------------------------------------         IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as of the date first written above. EMPLOYER: A4S SECURITY, INC. By: /s/ Thomas Marinelli           Thomas Marinelli           Chief Executive Officer EXECUTIVE: /s/ Michael Siemens Michael Siemens 3 --------------------------------------------------------------------------------

Exhibit 10.8   AMENDMENT TO THE AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT (GERALD H. LIPKIN)   This Amendment to the Amended and Restated Change in Control Agreement (dated as of November 30, 2004) (the “Agreement”), is made as of this 15th day of August, 2006, among Valley National Bank (“Bank”), Valley National Bancorp (“Valley”), and Gerald H. Lipkin (the “Executive”). WHEREAS, the Executive has been employed by Valley and the Bank for many years; and WHEREAS, the Bank, Valley, and the Executive previously entered into the Agreement; and WHEREAS, the Bank, Valley and the Executive wish to amend the Agreement in order to provide certain protection to the Executive in the event that the provisions of Section 409A of the Internal Revenue Code are not complied with and the Executive is subject to an excise tax as a result of such noncompliance; NOW, THEREFORE, for good and valuable consideration, the Bank, Valley and the Executive, each intending to be legally bound, hereby agree as follows:   1.            Subsection (ii) of Section 9 of the Agreement, relating to continuation of certain welfare benefit coverages following termination of employment, is amended by deleting the words “health, hospitalization and medical insurance, as well as.” 2.            Section 9 of the Agreement is amended by adding the following new subsection (iv) following the end of subsection (iii) thereof: “(iv)              the Company shall, within 20 business days of the termination of employment, pay the Executive a lump sum amount equal to one hundred twenty-five percent (125%) of (A) the aggregate COBRA premium amounts (based upon COBRA rates then in effect) for three (3) years of the health, hospitalization and medical insurance coverage that was being provided to the Executive (and his spouse) at the time of termination of employment, minus (B) the aggregate amount of any employee contribution that would have been required of the   --------------------------------------------------------------------------------   Executive (determined as of the termination of employment) for such three (3) year period. 3.            Section 12.a. of the Agreement, relating to Additional Payments to Gross Up for Taxes, is amended by adding “and/or Section 409A” immediately following “Section 4999”. 4.            The Agreement is amended by adding the following new Section 16A, immediately following the end of Section 16: “16A.           Delay in Payment. Notwithstanding anything else to the contrary in this Agreement, the BEP, or any other plan, contract, program or otherwise, the Company (and its affiliates) are expressly authorized to delay any scheduled payments under this Agreement, the BEP, and any other plan, contract, program or otherwise, as such payments relate to the Executive, if the Company (or its affiliate) determines that such delay is necessary in order to comply with the requirements of Section 409A of the Internal Revenue Code. No such payment may be delayed beyond the date that is six (6) months following the Executive’s separation from service (as defined in Section 409A). At the end of such period of delay, the Executive will be paid the delayed payment amounts, plus interest for the period of any such delay. For purposes of the preceding sentence, interest shall be calculated using the six (6) month Treasury Bill rate in effect on the date on which the payment is delayed, and shall be compounded daily.”   IN WITNESS WHEREOF, Valley National Bank and Valley National Bancorp each have caused this Amendment to the Agreement to be signed by their duly authorized representatives pursuant to the authority of their respective Boards of Directors, and the Executive has personally executed this Amendment to the Agreement, all as of the day and year first written above.     --------------------------------------------------------------------------------       ATTEST:   VALLEY NATIONAL BANCORP   /s/ Alan D. Eskow   By: /s/ Robert McEntee   Alan D. Eskow, Secretary           Robert McEntee, Chairman of the Compensation and Human Resources Committee                       ATTEST:   VALLEY NATIONAL BANK   /s/ Alan D. Eskow   By: /s/ Robert McEntee   Alan D. Eskow, Secretary   Robert McEntee, Chairman of the Compensation and Human Resources Committee                       WITNESS:       /s/ Carol B. Diesner   /s/ Gerald H. Lipkin   Carol B. Diesner   Gerald H. Lipkin, Executive                 --------------------------------------------------------------------------------    

Exhibit 10.3 EMPLOYMENT AGREEMENT FOR ANDREW W. BRASWELL This Agreement is entered into this 14th day of September, 2006, by and among Park National Corporation (hereinafter referred to as “Park”); Vision Bank, an Alabama banking corporation (hereinafter referred to either as the “Employer” or the “Bank”) and Andrew W. Braswell (hereinafter referred to as the “Executive”). WHEREAS, the Executive currently serves as the Executive Vice President and Senior Lending Officer of the Bank and has entered into a change in control and non-competition agreement with the Bank and Vision Bancshares, Inc. (“Vision Bancshares”) dated as of January 1, 2006 (the “Vision Agreement”); and WHEREAS, Vision Bancshares and Park propose to enter into a Merger Agreement dated as of the same date hereof (the “Merger Agreement”) providing for the merger of Vision Bancshares with and into Park (the “Merger”); and WHEREAS, the parties hereto desire to continue the Executive’s employment relationship with the Bank after the Effective Time (as defined in the Merger Agreement) of the Merger as further specified herein. NOW, THEREFORE, and in consideration of the mutual covenants herein contained and other valuable consideration, the receipt and adequacy of which is agreed to by the parties, Park, the Employer and the Executive hereby mutually agree as follows: 1. Employment and Duties. The Employer hereby employs the Executive and the Executive hereby accepts employment with the Employer upon the terms and conditions hereinafter set forth. The Executive will serve the Employer as its Executive Vice President and Senior Lending Officer. In such capacity, the Executive will report directly to the Employer’s Chief Executive Officer (the “CEO”) and have all powers, duties, and obligations as are normally associated with such position. Subject to the provisions of Section 5(f), the Executive will further perform such other duties and hold such other positions related to the business of the Employer as may from time to time be reasonably requested of him by the Board of Directors of the Employer (hereinafter referred to as the “Board”). The Executive will devote all of his skills, time, and attention solely and exclusively to said position and in furtherance of the business and interests of the Employer and will not directly or indirectly render any services of a business, commercial or professional nature to any person or organization without the prior written consent of the Board (which consent will not be unreasonably withheld or delayed); provided, however, that the Executive will not be precluded from spending a reasonable amount of time managing his personal investments or participating in community, civic, charitable or similar activities so long as such activities do not unreasonably interfere with his responsibilities hereunder.   1 -------------------------------------------------------------------------------- 2. Term of Employment. a. Original Term. This Agreement will be effective on the Effective Time and the term of employment will begin, or be deemed to have begun, on the Effective Time (the “Effective Date”). The Agreement will continue through the three-year period ending on the day before the third anniversary date of the Effective Date, subject, however, to prior termination or to extension, as herein provided. b. Extension of Term. The Employer and the Executive agree that the Board will review the Executive’s performance with the intent that, if the Executive’s performance so warrants, the Employer may extend the term of this Agreement for additional time periods to be determined in the discretion of the Board. By                                 , 20    , or, in the event that this Agreement is extended as provided for in this Section 2(b), within ninety (90) days preceding the end of any extension period, the Chairman of the Board (the “Chairman”) will notify the Executive of the Employer’s decision whether or not to grant an extension of this Agreement for an additional time period. In the event that the Chairman fails to notify the Executive, on or before the date described in the preceding sentence, of the decision regarding the extension of the term of this Agreement, the term of this Agreement will automatically be extended for an additional one-year period. 3. Compensation. a. Salary. The Executive will receive an initial annual base salary of One Hundred Forty Five Thousand Dollars ($145,000), which may be increased, but not decreased without the Executive’s written consent, by the Board, upon the recommendation of the Employer’s CEO, during the term of this Agreement. In the event that the Board increases the Executive’s initial base salary, the amount of the initial base salary, together with any increase(s) will be his base salary (hereinafter referred to as the “Base Salary”). The Base Salary will be payable in accordance with the Employer’s regular payroll payment practices. b. Bonus. Each year during the term of this Agreement, the Executive may earn and receive a cash bonus in an amount and based upon the satisfaction of performance criteria to be determined in the discretion of the Compensation Committee of the Board. All bonus payments to be made pursuant to this Section 3(b) will be made to the Executive in cash no later than the 15th day of the third calendar month following the fiscal year of the Employer for which such bonus is payable. c. Equity Compensation. The Executive shall receive equity awards in the amounts and on the terms as determined from time to time by the Compensation Committee of the Board of Directors of Park. d. Compensation for Special Services. In consideration of the Executive’s willingness to (i) enter into this Agreement, (ii) apply his experience, skills and knowledge in continued employment with the Employer, and (iii) terminate the Vision Agreement, Park will pay or cause to be paid to the Executive, on the Effective Time, an amount equal to his annual base salary in effect immediately prior to the Effective Time. The Executive, in consideration of the foregoing payment, hereby waives and releases all rights, benefits and payments specified in   2 -------------------------------------------------------------------------------- the Vision Agreement. The Executive acknowledges that he is entitled to no past, present or future benefit that may be contained in the Vision Agreement. As of the Effective Time, this Agreement shall supersede and replace the Vision Agreement and the Vision Agreement shall be null and void in all respects. e. Salary Continuation Agreements. The Employer shall continue the Salary Continuation Agreement entered into between the Bank and the Executive on July 14, 2004 and as amended on June 26, 2006. 4. Fringe Benefits and Expenses. a. Fringe Benefits. The Employer will provide the Executive with all health and life insurance coverages, disability programs, tax-qualified retirement plans, equity compensation programs, paid holidays, vacation, perquisites, and such other fringe benefits of employment as the Employer may provide from time to time to actively employed senior executives of the Employer. Notwithstanding any provision contained in this Agreement, the Employer may discontinue or terminate at any time any employee benefit plan, policy or program, now existing or hereafter adopted, to the extent permitted by the terms of such plan, policy or program and will not be required to compensate the Executive for such discontinuance or termination. In addition to the general fringe benefits to be provided hereunder, the Executive shall be entitled to the following specific fringe benefits: i. The Executive shall receive a monthly car allowance equal to Four Hundred Dollars ($400), plus mileage at the current Internal Revenue Service allowed reimbursement rate; ii. The Employer shall pay all fees for any country or social club which the Executive joins (or which he is currently a member on the Effective Date) at the request of the Employer; and iii. The Executive shall receive a monthly fringe benefit allowance equal to Four Hundred Dollars ($425); provided that the Executive may only use such monthly benefit allowance to pay the Executive’s portion of the premiums on any Employer sponsored welfare benefit plan. b. Expenses. The Employer shall reimburse the Executive for all reasonable travel, entertainment and miscellaneous expenses incurred by the Executive in connection with the performance of his business activities under this Agreement, in accordance with the existing policies and procedures of the Employer pertaining to reimbursement of such expenses to senior executives. 5. Termination of Employment. a. Death of Executive. The Executive’s employment hereunder will terminate upon his death and the Executive’s beneficiary (as designated by the Executive in writing with the Employer prior to his death) will be entitled to the following payments and benefits:   3 -------------------------------------------------------------------------------- i. any Base Salary that is accrued but unpaid, the value of any vacation that is accrued but unused (determined by dividing Base Salary by 365 and multiplying such amount by the number of unused vacation days), and any business expenses that are unreimbursed—all, as of the date of termination of employment; and ii. any rights and benefits (if any) provided under plans and programs of the Employer, determined in accordance with the applicable terms and provisions of such plans and programs. In the absence of a beneficiary designation by the Executive, or, if the Executive’s designated beneficiary does not survive him, payments and benefits described in this subparagraph will be paid to the Executive’s estate. b. Disability. The Executive’s employment hereunder may be terminated by the Employer in the event of his Disability. For purposes of this Agreement, “Disability” means the inability of the Executive 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. During any period that the Executive fails to perform his duties hereunder as a result of a Disability (“Disability Period”), the Executive will continue to receive his Base Salary at the rate then in effect for such period until his employment is terminated pursuant to this subparagraph; provided, however, that payments of Base Salary so made to the Executive will be reduced by the sum of the amounts, if any, that were payable to the Executive at or before the time of any such salary payment under any disability benefit plan or plans of the Employer and that were not previously applied to reduce any payment of Base Salary. In the event that the Employer elects to terminate the Executive’s employment pursuant to this subparagraph, the Executive will be entitled to the following payments and benefits: i. any Base Salary that is accrued but unpaid, the value of any vacation that is accrued but unused (determined by dividing Base Salary by 365 and multiplying such amount by the number of unused vacation days), and any business expenses that are unreimbursed—all, as of the date of termination of employment; and ii. any rights and benefits (if any) provided under plans and programs of the Employer, determined in accordance with the applicable terms and provisions of such plans and programs. c. Termination of Employment for Cause. The Employer may terminate the Executive’s employment at any time for “Cause” if such Cause is determined by the Board. For purposes of this Agreement, the term “Cause” shall mean: i. the Executive’s willful misconduct or gross malfeasance, or an act or acts of gross negligence in the course of employment or any material breach of the Executive’s obligations contained herein; ii. the Executive’s conviction, admission or confession of any felony or an unlawful act involving fraud or moral turpitude; or   4 -------------------------------------------------------------------------------- iii. the intentional violation by the Executive of applicable state and federal banking regulations, rules and other statutes. In the event that the Employer terminates the Executive’s employment for Cause, the Executive will be entitled to the following payments and benefits: A. any Base Salary that is accrued but unpaid, the value of any vacation that is accrued but unused (determined by dividing Base Salary by 365 and multiplying such amount by the number of unused vacation days), and any business expenses that are unreimbursed—all, as of the date of termination of employment; and B. any rights and benefits (if any) provided under plans and programs of the Employer, determined in accordance with the applicable terms and provisions of such plans and programs. d. Termination Without Cause. The Employer may terminate the Executive’s employment for any reason upon thirty (30) days prior written notice to the Executive. If the Executive’s employment is terminated by the Employer for any reason other than the reasons set forth in subparagraphs a, b or c of this Section 5, subject to the Executive’s compliance with Sections 8 and 9 of this Agreement, the Executive will be entitled to the following payments and benefits: i. any Base Salary that is accrued but unpaid, the value of any vacation that is accrued but unused (determined by dividing Base Salary by 365 and multiplying such amount by the number of unused vacation days), and any business expenses that are unreimbursed—all, as of the date of termination of employment; ii. any rights and benefits (if any) provided under plans and programs of the Employer, determined in accordance with the applicable terms and provisions of such plans and programs; iii. continuation of the Executive’s Base Salary as in effect immediately prior to the date of his termination of employment for a period equal to the lesser of two (2) years or the remainder of the term of this Agreement (such period shall hereinafter be referred to as the “Continuation Period”); provided, that these payments will be made in separate, equal payments no less frequently than monthly over the Continuation Period; and iv. the Employer shall continue to provide medical, dental, life insurance and other welfare benefits (the “Welfare Benefits”) to the Executive, his spouse and his eligible dependents for the Continuation Period on the same basis and at the same cost as such benefits were provided to the Executive immediately prior to his date of termination; provided that if the terms of the plans governing such Welfare Benefits do not permit such coverage, the Employer will provide such Welfare Benefits to the Executive with the same after tax effect. Notwithstanding the foregoing, the Welfare Benefits otherwise receivable by the Executive pursuant to this Section 5(d)(iv) shall be reduced or eliminated to the extent the Executive becomes eligible to receive comparable Welfare Benefits at substantially similar costs from another employer.   5 -------------------------------------------------------------------------------- e. Voluntary Termination by Executive. The Executive may resign and terminate his employment with the Employer for any reason whatsoever upon not less than thirty (30) days prior written notice to the Employer. In the event that the Executive terminates his employment voluntarily pursuant to this Section 5(e), the Executive will be entitled to the following payments and benefits: i. any Base Salary that is accrued but unpaid, the value of any vacation that is accrued but unused (determined by dividing Base Salary by 365 and multiplying such amount by the number of unused vacation days), and any business expenses that are unreimbursed—all, as of the date of termination of employment; and ii. any rights and benefits (if any) provided under plans and programs of the Employer, determined in accordance with the applicable terms and provisions of such plans and programs. f. Good Reason Termination. The Executive may resign and terminate his employment with the Employer for “Good Reason” upon not less than thirty (30) days’ prior written notice to the Employer. For purposes of this Agreement, the Executive will have “Good Reason” to terminate his employment with the Employer if any of the following events occurs (provided the Employer does not cure such event with ten (10) days following its receipt of notice of termination of employment from the Executive) and written notice is given by the Executive to the Employer within sixty (60) days of the occurrence of the event: (i) the reduction of the Executive’s Base Salary or levels of benefits or supplemental compensation without compensation therefore; (ii) a relocation of the Executive’s principal place of employment to a location outside a 25-mile radius from the Executive’s principal place of employment or a material increase in the amount of travel normally required of the Executive in connection with his employment without the Executive’s prior written consent; or (iii) a material and adverse change in the Executive’s position with the Employer or failure to provide authority, responsibilities and reporting relationships consistent with the Executive’s position; provided, however, that the parties agree that any change between the Executive’s position, authority, responsibilities and reporting relationships immediately prior to the Merger Date and his position, authority, responsibilities and reporting relationships as of the Effective Date shall not constitute Good Reason under this Section 5(f); and, provided further, that it will not be a material and adverse change in the Executive’s position if, in connection with a Change in Control (as defined in Section 6), the Executive’s position, responsibilities and reporting relationships are changed to account for the effect of the Change in Control but are otherwise consistent with the Executive’s position immediately before the Change in Control. In the event that the Executive terminates his employment for Good Reason pursuant to this Section 5(f), subject to the Executive’s compliance with Sections 8 and 9 of this Agreement, the Executive will be entitled to the following payments and benefits:   6 -------------------------------------------------------------------------------- A. any Base Salary that is accrued but unpaid, the value of any vacation that is accrued but unused (determined by dividing Base Salary by 365 and multiplying such amount by the number of unused vacation days), and any business expenses that are unreimbursed—all, as of the date of termination of employment; B. any rights and benefits (if any) provided under plans and programs of the Employer, determined in accordance with the applicable terms and provisions of such plans and programs; C. continuation of the Executive’s Base Salary as in effect immediately prior to the date of his termination (or the Base Salary as in effect immediately prior to the date of any reduction described in Section 5(f)(i), whichever is higher) of employment for the Continuation Period; provided, that these payments will be made in separate, equal payments no less frequently than monthly over the Continuation Period; and D. the Employer shall continue to provide the Welfare Benefits to the Executive, his spouse and his eligible dependents for the Continuation Period on the same basis and at the same cost as such benefits were provided to the Executive immediately prior to his date of termination; provided that if the terms of the plans governing such Welfare Benefits do not permit such coverage, the Employer will provide such Welfare Benefits to the Executive with the same after tax effect. Notwithstanding the foregoing, the Welfare Benefits otherwise receivable by the Executive pursuant to this Section 5(f)(D) shall be reduced or eliminated to the extent the Executive becomes eligible to receive comparable Welfare Benefits at substantially similar costs from another employer. g. Failure to Extend Term of Agreement. If the Employer notifies the Executive that the Employer will not extend the term of this Agreement under the provisions of Section 2(b) hereof, the Executive’s employment under this Agreement will terminate at the end of such term and the Executive will be entitled to the following payments and benefits: i. any Base Salary that is accrued but unpaid, the value of any vacation that is accrued but unused (determined by dividing Base Salary by 365 and multiplying such amount by the number of unused vacation days), and any business expenses that are unreimbursed – all as of the date of termination of employment; and ii. any rights and benefits (if any) provided under plans and programs of the Employer, determined in accordance with the applicable terms and provisions of such plans and programs. 6. Change In Control. a. Occurrence of Change in Control. In the event that during the term of this Agreement, a Change in Control [as defined under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder] occurs and, within thirty-six (36) months following such Change in Control, the Executive’s employment is terminated by the Employer or its successor for any reason other than the reasons set forth in subparagraphs a, b or c of Section 5 or is terminated by the Executive under subparagraph f of Section 5, then in lieu of any other provision of Section 5 of this Agreement, subject to the Executive’s compliance with   7 -------------------------------------------------------------------------------- Sections 8 and 9 of this Agreement, the Employer or its successor will pay to the Executive the following payments and benefits: i. any Base Salary that is accrued but unpaid, the value of any vacation that is accrued but unused, (determined by dividing Base Salary by 365 and multiplying such amount by the number of unused vacation days), and any business expenses that are unreimbursed – all, as of the date of termination of employment; ii. any rights and benefits (if any) provided under plans and programs of the Employer, determined in accordance with the applicable terms and provisions of such plans and programs; iii. a single lump sum payment, payable on the tenth (10th) business day following the date of termination of employment, equal to two (2) times the total Base Salary and cash bonus paid or payable to the Executive with respect to the most recently completed fiscal year of the Employer; and iv. the Employer or its successor shall continue to provide the Welfare Benefits to the Executive, his spouse and his eligible dependents for a period of two (2) years following the date of termination of the Executive’s employment on the same basis and at the same cost as such benefits were provided to the Executive immediately prior to his date of termination; provided that if the terms of the plans governing such Welfare Benefits do not permit such coverage, the Employer or its successor will provide such Welfare Benefits to the Executive with the same after tax effect. b. Treatment of Taxes. If payments provided under this Agreement, when combined with payments and benefits under all other plans and programs maintained by the Employer, constitute “excess parachute payments” as defined in Section 280G(b) of the Code, the Employer or its successor will reduce the Executive’s benefits under this Agreement and/or the other plans and programs maintained by the Employer (in a manner to be mutually agreed upon between the Employer or its successor and the Executive) so that the Executive’s total “parachute payment” as defined in Code §280G(b)(2)(A) under this Agreement and all other plans and programs will be One Dollar ($1) less than the amount that would be an “excess parachute payment.” Treatment of taxes under this Section 6(b) will be made at the time and in the manner mutually agreed to by the parties to this Agreement. In addition, in the event of any subsequent inquiries regarding the treatment of tax payments under this Section 6, the parties will agree to the procedures to be followed in order to deal with such inquiries. This Section 6(b) shall not apply to any payments or benefits provided to the Executive pursuant to Section 3(d) or to any other payment or benefit provided to the Executive as a result of the Merger. 7. Nonexclusivity of Rights. Nothing in this Agreement will prevent or limit the Executive’s continuing or future participation in any incentive, fringe benefit, deferred compensation, or other plan or program provided by the Employer and for which the Executive may qualify, nor will anything herein limit or otherwise affect such rights as the Executive may have under any other agreements with the Employer. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any plan or program of the Employer at or after the date of termination of employment, will be payable in accordance with such plan or program.   8 -------------------------------------------------------------------------------- 8. Noncompetition Covenant. The Executive agrees that, during the term of this Agreement and during the Continuation Period thereafter following his termination of employment [one (1) year in the event that the Executive’s employment is terminated pursuant to the provisions of Section 6 hereof], he shall not: a. own greater than a 5% equity interest in any class of stock of, or manage, operate, participate in, be employed by, perform consulting services for, or otherwise be connected in any manner with, any bank holding company or any depository institution located within a 50-mile radius of Gulf Shores, Alabama or Panama City, Florida which is competitive with the business of Park, the Bank or Vision Bank, a Florida banking corporation (hereinafter collectively referred to with the Bank as the “Banks”); b. solicit or induce any employee of the Banks or Park to terminate such employment or to become employees of any other person or entity; c. solicit any customer, supplier, contractual party of Park or the Banks or any other person with whom each of them has business relations to cease doing business with Park or the Banks; or d. in any way interfere with the relationship of the Banks or Park and any of their respective employees, customers, suppliers, contractual parties or any other person with whom each of them has business relations. In the event of a breach by the Executive of any covenant set forth in this Section 8, the term of such covenant will be extended by the period of the duration of such breach and such covenant will survive any termination of this Agreement but only for the limited period of such extension. The restrictions on competition provided herein shall supersede any restrictions on competition contained in any other agreement between the Employer and the Executive and may be enforced by Park, the Employer and/or any successor thereto, by an action to recover payments made under this Agreement, an action for injunction, and/or an action for damages. The provisions of this Section 8 constitute an essential element of this Agreement, without which neither Park nor the Employer would have entered into this Agreement. Notwithstanding any other remedy available to Park or the Employer at law or at equity, the parties hereto agree that Park, the Employer or any successor thereto, will have the right, at any and all times, to seek injunctive relief in order to enforce the terms and conditions of this Section 8. If the scope of any restriction contained in this Section 8 is too broad to permit enforcement of such restriction to its fullest extent, then such restriction will be enforced to the maximum extent permitted by law, and the Executive hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction. 9. Confidential Information. The Executive will hold in a fiduciary capacity, for the benefit of Park and the Banks, all secret or confidential information, knowledge, and data   9 -------------------------------------------------------------------------------- relating to Park and the Banks, that shall have been obtained by the Executive during his employment with the Employer and that is not public knowledge (other than by acts by the Executive or his representatives in violation of this Agreement). During and after termination of the Executive’s employment with the Employer, the Executive will not, without the prior written consent of the Board, communicate or divulge any such information, knowledge, or data to anyone other than Park or the Employer or those designated by them, unless the communication of such information, knowledge or data is required pursuant to a compulsory proceeding in which the Executive’s failure to provide such information, knowledge, or data would subject the Executive to criminal or civil sanctions and then only with prior notice to the Board. The restrictions imposed on the release of information described in this Section 9 may be enforced by Park or the Employer and/or any successor thereto, by an action to recover payments made under this Agreement, an action for injunction and/or an action for damages. The provisions of this Section 9 constitute an essential element of this Agreement, without which neither Park nor the Employer would have entered into this Agreement. Notwithstanding any other remedy available to Park or the Employer at law or at equity, the parties hereto agree that Park, the Employer or any successor thereto, will have the right, at any and all times, to seek injunctive relief in order to enforce the terms and conditions of this Section 9. If the scope of any restriction contained in this Section 9 is too broad to permit enforcement of such restriction to its fullest extent, then such restriction will be enforced to the maximum extent permitted by law, and the Executive hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction. 10. Intellectual Property. The Executive agrees to communicate to the Employer, promptly and fully, and to assign to the Employer all intellectual property developed or conceived solely by the Executive, or jointly with others, during the term of his employment, which are within the scope of either the Banks’ business or Park’s business, or which utilized Employer materials or information. For purposes of this Agreement, “intellectual property” means inventions, discoveries, business or technical innovations, creative or professional work product, or works of authorship. The Executive further agrees to execute all necessary papers and otherwise to assist the Employer, at the Employer ‘s sole expense, to obtain patents, copyrights or other legal protection as the Employer deems fit. Any such intellectual property is to be the property of the Employer whether or not patented, copyrighted or published. 11. Assignment and Survivorship of Benefits. The rights and obligations of Park and the Employer under this Agreement will inure to the benefit of, and will be binding upon, the successors and assigns of Park and the Employer. If the Employer shall at any time be merged or consolidated into, or with, any other company, or if substantially all of the assets of the Employer are transferred to another company, then the provisions of this Agreement will be binding upon and inure to the benefit of the company resulting from such merger or consolidation or to which such assets have been transferred, and this provision will apply in the event of any subsequent merger, consolidation, or transfer. 12. Notices. Any notice given to either party to this Agreement will be in writing, and will be deemed to have been given when delivered personally or sent by certified mail,   10 -------------------------------------------------------------------------------- postage prepaid, return receipt requested, duly addressed to the party concerned, at the address indicated below or to such changed address as such party may subsequently give notice of:   If to Park:      Park National Corporation      50 North Third Street      P. O. Box 3500      Newark, Ohio 43058      Attention:                                  If to the Employer:      2200 Stanford Road      Panama City, Florida 36542      Attention:                                  If to the Executive:      At the last address on file      with the Employer 13. Indemnification. The Executive shall be indemnified by the Employer to the extent provided in the case of officers under the Employer’s Articles of Incorporation or Regulations, to the maximum extent permitted under applicable law. 14. Taxes. Anything in this Agreement to the contrary notwithstanding, all payments required to be made hereunder by the Employer to the Executive will be subject to withholding of such amounts relating to taxes as the Employer may reasonably determine that it should withhold pursuant to any applicable law or regulations. In lieu of withholding such amounts, in whole or in part, however, the Employer may, in its sole discretion, accept other provision for payment of taxes, provided that it is satisfied that all requirements of the law affecting its responsibilities to withhold such taxes have been satisfied. 15. Arbitration; Enforcement of Rights. Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, except with respect to Sections 8, 9 and 10, will be settled by arbitration in the city of Columbus, Ohio, in accordance with the Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof. All legal and other fees and expenses, including, without limitation, any arbitration expenses, incurred by the Executive in connection with seeking in good faith to obtain or enforce any right or benefit provided for in this Agreement, or in otherwise pursuing any right or claim, will be paid by the Employer, to the extent permitted by law, provided that the Executive is successful in whole or in part as to such claims as the result of litigation, arbitration, or settlement. In the event that the Employer refuses or otherwise fails to make a payment when due and it is ultimately decided that the Executive is entitled to such payment, such payment will be increased to reflect an interest equivalent for the period of delay, compounded annually, equal to the prime or base lending rate used by Park National Bank, and in effect as of the date the payment was first due.   11 -------------------------------------------------------------------------------- 16. Section 409A Application. This Agreement is intended to comply with the requirements of Section 409A of the Code (to the extent applicable) and the Employer agrees to interpret, apply and administer this Agreement in the least restrictive manner necessary to comply with such requirements and without resulting in any diminution in the value of payments or benefits to the Executive. To the extent that any payments to be provided to the Executive under this Agreement result in the deferral of compensation under Section 409A of the Code, and if the Executive is a “Specified Employee” as defined in Section 409A(a)(2)(B)(i) of the Code, then any such payments shall instead be transferred to a rabbi trust (which shall be created by the Employer or its successor, on terms reasonably acceptable to the Executive, as soon as administratively feasible following the occurrence of an event giving rise to the Executive’s right to such payment) and such amounts (together with earnings thereon in accordance with the terms of the trust agreement) shall be transferred from the trust to the Executive upon the earlier of (i) six months and one day after the Executive’s separation from service, or (ii) any other date permitted under Section 409A of the Code. To the extent that any of the non-cash benefits provided to the Executive under this Agreement, including but not limited to the Welfare Benefits, result in the deferral of compensation under Section 409A of the Code and if the Executive is a “Specified Employee” as defined in Section 409A(a)(2)(B)(i) of the Code, then the Employer or its successor shall, instead of providing such benefits to the Executive as set forth hereinabove, delay the proviso of such benefits until the earlier of (i) six months and one day after the Executive’s separation from service, or (ii) such other date permitted under Section 409A of the Code; provided, however, on such date the Employer shall be required to pay to the Executive in one lump sum an amount equal to the after-tax costs of the benefits for the period during which the provision of the benefits was delayed as a result of the application of Code Section 409A. 17. Governing Law/Captions/Severance. This Agreement will be construed in accordance with, and pursuant to, the laws of the State of Ohio. The captions of this Agreement will not be part of the provisions hereof, and will have no force or effect. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement. Except as otherwise specifically provided in this Section 17, the failure of any party to insist in any instance on the strict performance of any provision of this Agreement or to exercise any right hereunder will not constitute a waiver of such provision or right in any other instance. 18. Entire Agreement/Amendment. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and the parties have made no agreement, representations, or warranties relating to the subject matter of this Agreement that are not set forth herein. This Agreement may be amended only by mutual written agreement of the parties. However, by signing this Agreement, the Executive agrees without any further consideration, to consent to any amendment necessary to avoid penalties under Section 409A of the Code; provided that such amendment does not have a material adverse economic impact on the Executive. 19. Make Whole Payments. If the payments provided to the Executive pursuant to Section 3(d) of this Agreement, when combined with payments and benefits under all other plans and programs maintained by the Banks or Vision Bancshares whether under this Agreement or otherwise and combined with any other payment or benefit provided to Executive as a result of   12 -------------------------------------------------------------------------------- the Merger (the “Payments”), are subject to any tax under Section 4999 of the Code, or any similar federal or state law (an “Excise Tax”), then the Employer shall pay to the Executive an additional amount (the “Make Whole Amount”). The Make Whole Amount shall be equal to (a) the amount of the Excise Tax, plus (b) the aggregate amount of any interest, penalties, fines or additions to any tax which are imposed in connection with the imposition of such Excise Tax, plus (c) all income, excise and other applicable taxes imposed on the Executive under the laws of any Federal, state or local government or taxing authority by reason of the payments required under clause (a) and clause (b) and this clause (c). The time and manner of calculating any Make Whole Amount, as well as, the procedure for making any tax payments or the treatment of any inquiries by taxing authorities will be determined by mutual agreement of the parties. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. (Signature Page Follows)   13 -------------------------------------------------------------------------------- PARK NATIONAL CORPORATION By:   /s/ C. Daniel DeLawder Its:   Chairman and Chief Executive Officer VISION BANK, an Alabama banking corporation By:   /s/ J. Daniel Sizemore Its:   Chief Executive Officer EXECUTIVE /s/ Andrew W. Brasswell Andrew W. Braswell   14

Exhibit 10.10 Zentraleuropa LPG Holding GmbH Flaga Straße 1 2100 Leobendorf Austria   Raiffeisen Zentralbank Österreich    Aktiengesellschaft    Am Stadtpark 9    1030 Vienna    Austria    Bratislava, 26 July 2006 Re: Multi Currency Facility Offer Dear Sirs, We, Zentraleuropa LPG Holding GmbH, an Austrian company registered under FN 276576 f in the companies book (Firmenbuch) of the Landesgericht Korneuburg with its seat at Leobendorf and its business address at Flaga Straße 1, 2100 Leobendorf, herewith offer Raiffeisen Zentralbank Österreich Aktiengesellschaft to enter with us into the following Multi Currency Facility agreement (for the sake of clarification it is hereby stated that up to now such Multi Currency Facility agreement has not been entered into in whatever form): Quote Facility Agreement entered into by and between Zentraleuropa LPG Holding GmbH, Flaga Straße 1, 2100 Leobendorf, Austria (attention: Managing Director (Josef F. Weinzierl); email: [email protected]) (the “Borrower”), and   Loan Offer    page 1 -------------------------------------------------------------------------------- Raiffeisen Zentralbank Österreich Aktiengesellschaft, Am Stadtpark 9, 1030 Vienna, Austria (attention: Peter Straubinger; email: [email protected]) (the “Lender”).   1. FACILITY   1.1 Subject to the terms of this working capital facility agreement (the “Agreement”), the Lender makes available to the Borrower a revolving Multi Currency Facility (the “Facility”) in the aggregate maximum amount of EURO 8,000,000.00 (eight million), which amount may be, at the Borrower’s option, reduced to EURO 7,000,000 (seven million) upon five Business Days advanced written notice delivered by the Borrower to the Lender (the “Maximum Facility Amount”).   1.2 The Facility can be utilized in the form of fixed term advances as multi-currency credit facility in EURO (EUR), Polish Zloty (PLN), Czech Koruna (CZK), Slovak Koruna (SKK), Hungarian Forint (HUF) and Romanian Lei (RON) (each a “Permitted Currency”), provided that the aggregate amount outstanding shall never exceed the Maximum Facility Amount.   2. PURPOSE   2.1 The Borrower shall use all amounts borrowed under this Agreement for providing working capital to its subsidiaries.   2.2 Except for its undertakings in clause 4.2, the Lender is not bound to monitor or verify the application of any amount borrowed under this Agreement.   3. CONDITIONS OF UTILIZATION   3.1 The Borrower may not utilize the Facility unless the following conditions precedent have been fulfilled:     (i) This Agreement has been duly executed and come into full force and effect; and     (ii) the guarantee agreement referred to in clause 11.1(i) (the “Guarantee Agreement”) has been duly signed and come into full force and effect; and     (iii) the rights and interest of the Lender under the Guarantee Agreement (together with this Agreement the “Finance Documents”) have been created in a valid, binding and enforceable manner; and   Loan Offer    page 2 --------------------------------------------------------------------------------   (iv) the representations and warranties set forth in clause 9.1 are true and correct; and     (v) no event or circumstance as specified in clause 12.1 (a “Default”), which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an event of default as defined in clause 12.1 (an “Event of Default”), has occurred or threatens to occur; and     (vi) the Lender has received the documents and other evidence listed in schedule 1, and it has found such documents in form and substance acceptable and satisfactory to it.   4. UTILIZATION   4.1 The Borrower may utilize the Facility on a revolving basis by delivery to the Lender of a duly completed utilization request in the form of schedule 2 (a “Utilization Request”) to be received by the Lender no later than 11 a.m. (Vienna time) on the day falling three (3) Business Days (as defined below in this clause 4.1) before the proposed disbursement date, provided always that:     (i) the Utilization Request shall specify the requested Permitted Currency of the Advance; and .     (ii) the number of Advances outstanding in a Permitted Currency does not exceed one; and     (iii) the amount of the requested Advance shall be at least EURO 100,000 or its equivalent in a Permitted Currency; and     (iv) the term of the requested Advance (the “Term”) shall be one (1), two (2) or six (6) months; and     (v) the terms of the requested Advance shall not extend beyond 364 days after the acceptance of this offer (the “Final Maturity Date”); and     (vi) the amount of the requested Advance, together with all amounts then outstanding shall not exceed the Maximum Facility Amount. Each Utilization Request shall be irrevocable. Under this Agreement, a Business Day means a day on which banks in Vienna, or (for the purpose of payments in currencies other than EUR) at the principal financial centre of the relevant currency, are open for the transaction of general business, or (for the purpose of payments in EUR) which is a TARGET Day. TARGET Day means a day on which TARGET is open for the settlement of   Loan Offer    page 3 -------------------------------------------------------------------------------- payments in EUR (“TARGET” meaning Trans-European Automated Real-time Gross Settlement Express Transfer payment system).   4.2 Subject to the terms of this Agreement, the Lender shall disburse to the Borrower the amount of the requested Advance on the disbursement date as proposed by the Borrower in its Utilization Request by transfer to the following current accounts held by the Borrower with the Lender depending on the currency in which the Advance is utilized:     - EUR     1-04.065.108     - PLN     36-54.065.107     - SKK     38-54.065.107     - CZK     88-54.065.107     - RON     95-54.065.107     - HUF     98-54.065.107   5. REPAYMENT   5.1 The Borrower shall repay each Advance on the last day of its Term together with accrued interest. All amounts outstanding shall be repaid on the day falling 364 days after the acceptance of this offer.   5.2 The Borrower may at any time, if it gives the Lender not less than 5 Business Days prior notice, prepay the whole or any part of an Advance plus Break Costs. For the purpose of this Agreement “Break Costs” means the amount (if any) by which the interest which the Lender should have received for the period from the date of receipt of an Advance to the last day of the Term of the relevant Advance had the Advance received been paid on the last day of that Term exceeds the amount which the Lender would be able to obtain by placing an amount equal to that Advance received by it on deposit with a leading bank in the relevant interbank market for a period starting on the Business Day following receipt or recovery of the prepayment and ending on the last day of the current Term.   5.3 Subject to clause 4.1., the Borrower may re-borrow any amount re–paid or pre paid under this Agreement.   6. INTEREST   6.1 The interest period for an Advance shall be the period from the date of its utilization until the last day of its Term or, as the case may be, the effective date of the prepayment of the entire amount of such Advance pursuant to clause 5.2.   Loan Offer    page 4 -------------------------------------------------------------------------------- 6.2 The rate of interest on an Advance outstanding shall be the percentage rate per annum which is the aggregate of:     (i) The applicable Indicator (as defined in clause 6.3); and     (ii) a margin of 50.00 (fifty point zero) basis points; and     (iii) the applicable Mandatory Cost, if any, being the percentage rate per annum calculated by the Lender in accordance with schedule 2.   6.3 “Indicator” means     a) In case of an Advance in EURO the applicable EURIBOR:     (i) the rate per annum (rounded up to three decimal places) for deposits in EURO for a term comparable to the relevant interest period which appears on the Reuters page “EURIBOR 01” (or any successor to such page) published or reported by REUTERS or such other electronic information service as selected by the Lender; or     (ii) if no such rate is then available, the rate which is determined by the Lender to be the arithmetic mean (rounded up to three decimal places) of the rates per annum for such deposits in EURO offered by three major banks on the European interbank market selected by the Lender, at or about 11 a.m. (Vienna time) on the second TARGET Day before the commencement of the respective interest period.     b) in case of an Advance in Polish Zloty the applicable WIBOR:     (i) the rate per annum (rounded up to three decimal places) for deposits in Polish Zloty for a term comparable to the relevant interest period which appears on the Reuters Screen Page (or any successor to such page) published or reported by REUTERS or such other electronic information service as selected by the Lender; or.     (ii) if no such rate is then available, the rate which is determined by the Lender to be the arithmetic mean (rounded up to three decimal places) of the rates per annum for such deposits in Polish Zloty offered by three major banks on the Warsaw interbank market selected by the Lender, at or about 11 a.m. (Warsaw time) on the second Business Day before the commencement of the respective interest period.     c) In case of an Advance made in Czech Koruna the applicable PRIBOR:     (i) the rate per annum (rounded up to three decimal places) for deposits in Czech Koruna for a term comparable to the relevant interest period which appears on the Reuters Screen PRBO Page (or any successor to such page) published or reported by REUTERS or such other electronic information service as selected by the Lender; or   Loan Offer    page 5 --------------------------------------------------------------------------------   (ii) if no such rate is then available, the rate which is determined by the Lender to be the arithmetic mean (rounded up to three decimal places) of the rates per annum for such deposits in Czech Koruna offered by three major banks on the Prague interbank market selected by the Lender, at or about 11 a.m. (Prague time) on the second Business Day before the commencement of the respective interest period.     d) In case of an Advance made in Slovak Koruna the applicable BRIBOR:     (i) the rate per annum (rounded up to three decimal places) for deposits in Slovak Koruna for a term comparable to the relevant interest period which appears on the Reuters Screen BRBO Page (or any successor to such page) published or reported by REUTERS or such other electronic information service as selected by the Lender; or     (ii) if no such rate is then available, the rate which is determined by the Lender to be the arithmetic mean (rounded up to three decimal places) of the rates per annum for such deposits in Slovak Koruna offered by three major banks on the Bratislava interbank market selected by the Lender, at or about 11 a.m. (Bratislava time) on the second Business Day before the commencement of the respective interest period.     e) In case of an Advance made in Hungarian Forint the applicable BUBOR:     (i) the rate per annum (rounded up to three decimal places) for deposits in Hungarian Forint for a term comparable to the relevant interest period which appears on the Reuters Screen BUBOR Page (or any successor to such page) published or reported by REUTERS or such other electronic information service as selected by the Lender; or     (ii) if no such rate is then available, the rate which is determined by the Lender to be the arithmetic mean (rounded up to three decimal places) of the rates per annum for such deposits in Hungarian Forint offered by three major banks on the Budapest interbank market selected by the Lender, at or about 11 a.m. (Budapest time) on the second Business Day before the commencement of the respective interest period.     f) In case of an Advance made in Romanian Lei the applicable RONIBOR:     (i) the rate per annum (rounded up to three decimal places) for deposits in Romanian Lei for a term comparable to the relevant interest period which appears on the Reuters Screen ROBOR Page (or any successor to such page) published or reported by REUTERS or such other electronic information service as selected by the Lender; or     (ii) if no such rate is then available, the rate which is determined by the Lender to be the arithmetic mean (rounded up to three decimal places) of the rates per annum for such deposits in Romanian Lei offered by three   Loan Offer    page 6 --------------------------------------------------------------------------------   major banks on the Bucharest interbank market selected by the Lender, at or about 11 a.m, (Bucharest time) on the second Business Day before the commencement of the respective interest period.   6.4 Interests shall be calculated for each interest period of an Advance on the basis of actual number of days elapsed in a year of 360 days.   6.5 Interest for each Advance shall be paid by the Borrower to the Lender on the last day of its Term.   7. FEES, COSTS AND EXPENSES, INDEMNITIES   7.1 The Borrower shall pay the Lender a commitment fee of 12.50 (twelve point fifty) basis points per annum on the balance from time to time between the Maximum Facility Amount on the one hand and the aggregate amount of the Advances utilized hereunder on the other hand. The commitment fee shall be calculated for each calendar quarter on the basis of the actual number of days elapsed in a year of 360 days, and it shall be paid in arrears on the last day of the calendar quarter for which it is calculated.   7.2 The Borrower shall bear and pay all costs of the legal opinions mentioned in schedule 1. Furthermore, the Borrower shall bear, and it shall pay the Lender within seven (7) Business Days of demand by the Lender, all reasonable out of pocket costs and expenses of whatever nature incurred by the Lender, after the acceptance by the Lender of the present offer to enter into this Agreement, in connection with the implementation of this Agreement including, without limitation, costs and expenses arising in connection with the preservation, protection or enforcement of the Lender’s rights under this Agreement. Moreover, the Borrower shall bear, and it shall pay the Lender within seven (7) Business Days of demand by the Lender, any taxes or duties of whatever nature incurred by the Lender in connection with any of the Finance Documents including, without limitation, taxes or duties arising under the Austrian Duties Act (österreichisches Gebührengesetz).   7.3 The Borrower shall, within seven (7) days of demand by the Lender, reimburse the Lender for any incremental costs incurred by the Lender, after the acceptance by the Lender of the present offer to enter into this Agreement, in connection with the making or maintaining of, or the commitment to make, the Advance which result from the introduction of, or any change in, any applicable law or other legal regulation, or any change in the interpretation or application thereof by any governmental or regulatory authority charged with the administration thereof. The Borrower shall not be required to reimburse the Lender for increased costs attributable to any change in the rate of tax on the general income of Lender, or amounts the Lender has been compensated for pursuant to clause 8.2.   7.4 Notwithstanding, and without prejudice to, any other rights and claims of the Lender, the Borrower shall, within seven (7) Business Days of demand by the   Loan Offer    page 7 --------------------------------------------------------------------------------   Lender, indemnify the Lender against any cost, loss or liability reasonably incurred by the Lender as a result of:     (i) the occurrence of any Event of Default; and/or     (ii) a failure by the Borrower to comply with any of its obligations under or in connection with this Agreement; and/or     (iii) funding, or making arrangements to fund, any Advance requested by the Borrower but not made by reason of the operation of any provisions of this Agreement (other than by reason of default or negligence by that Lender alone); and/or     (iv) the Advance (or part of the Advance) not being prepaid in accordance with a notice of Prepayment given by the Borrower.   8. PAYMENTS   8.1 All payments due from the Borrower under this Agreement shall be     (i) debited by the Lender with value of the relevant due date to the following current accounts, held by the Borrower with the Lender depending on the currency in which the payments are due:     - EUR     1-04.065.108     - PLN   36-54.065.107     - SKK   38-54.065.107     - CZK   88-54.065.107     - RON   95-54.065.107     - HUF   98-54.065.107     (ii) and, made by the Borrower no later than 11:00 a.m. (Vienna time) on the relevant due date by transfer to the same account. Payment shall be made in the relevant Permitted Currency for value on the relevant due date, and it shall be made in full without any withholding or other deduction of any kind or nature (whether in respect of set-off, counterclaim, taxes, duties, charges or otherwise whatsoever).   8.2 If the Borrower is required by law or otherwise to make any withholding or other deduction whatsoever in respect of any amount due under this Agreement, and the Borrower makes such deduction, the Borrower shall increase the sum payable to the Lender in respect of which such deduction was made to the extent necessary to ensure that, after making such deduction, the Lender receives and retains (free from any liability in respect of any such deduction) a net sum equal to the sum which it would have received and so retained had no such deduction been made by the Borrower.   Loan Offer    page 8 -------------------------------------------------------------------------------- 8.3 If, as a result of a payment made by the Borrower under clause 8.2, the Lender has received or been granted a credit against or remission for or deduction or relief from or in respect of any tax payable by it, which is both identifiable and quantifiable by the Lender without requiring it to expend a material amount of time or incur a material cost in so identifying or quantifying (any of the foregoing, to the extent so identifiable and quantifiable, a “Saving”), the Lender shall, to the extent it can do so without prejudice to the retention of the relevant Saving and subject to the Borrower’s obligation to repay promptly on demand by the Lender the amount to the Lender if the relevant Saving is subsequently disallowed or cancelled, reimburse the Borrower promptly after receipt of such Saving by the Lender with such amount.   8.4 Any sum due to be paid under this Agreement on a day which is not a Business Day shall be paid on the last preceding Business Day.   8.5 If the Borrower fails to pay any amount payable by it under this Agreement on its due date, the Borrower shall pay default interest on such overdue amount from (and including) the due date up to (and including) the date of actual payment at a rate of three (3) per cent per annum. Default interest shall be paid in addition to interest payable under clause 6. Default interest shall be immediately payable by the Borrower on demand by the Lender. Default interest (if unpaid) arising on an overdue amount will be compounded with such overdue amount at the end of each interest period applicable to that overdue amount but will remain immediately due and payable. Default interest shall be calculated on the basis of the actual number of days elapsed in a year of 360 days.   9. REPRESENTATIONS AND WARRANTIES   9.1 The Borrower represents and warrants to the Lender that:     (i) The Borrower is a company duly established and validly existing under the laws of Austria having its corporate seat and head office in Austria;     (ii) The Borrower has the corporate power to own its assets and to carry on its business as it is being conducted;     (iii) the Borrower has the corporate power to enter into this Agreement and to perform its obligations hereunder, and all necessary action to authorize its entry into this Agreement and its performance hereof has been duly taken;     (iv) each of the Finance Documents is a legal, valid and binding agreement enforceable in accordance with its terms;     (v) the Borrower has taken no corporate action, and no other steps or legal proceedings have been started or, to the best of the Borrower’s knowledge, threatened against it, for its winding-up, dissolution, administration or re-organization or for the appointment of a receiver,   Loan Offer    page 9 --------------------------------------------------------------------------------   administrator, administrative receiver, trustee or similar officer of it or of all or any material part of its assets or revenues;     (vi) no Default has occurred or will occur as a result of making an Advance, and the Borrower is not in breach or in default under any agreement or other instrument to which it is a party or which is binding on it (or any of its assets) to an extent or in a manner which would be reasonably likely to have a material adverse effect on it;     (vii) no litigation, arbitration or administrative proceeding of or before any court, arbitral body or agency has been started or, to the best of the Borrower’s, knowledge, threatened against the Borrower which, if adversely determined, would be reasonably likely to have a material adverse effect on the Borrower;     (viii) to the best of the Borrower’s knowledge, all information supplied by the Borrower to the Lender in connection with this Agreement is true, complete and accurate in all material respects;     (ix) the Borrower’s entering into this Agreement and its exercise of its rights and performance of its obligations hereunder do not and will not conflict with any material agreement or material obligation to which the Borrower is a party or which is binding upon it or any of its assets, or conflict with its constitutive documents and internal rules and regulations;     (x) the Borrower is not and will not be insolvent in terms of the Austrian Insolvency Codes (Ausgleichs- und Konkursordnung);     (xi) the Borrower is and will remain a company owned and controlled, either directly or indirectly, 50% by UGI Corporation, 460 North Gulph Road, King of Prussia, PA 19406, USA (“UGI Corporation”) and 50% by Progas-Lager- und Abfüllanlagengesellschaft m.b.H. BuschgrundstraBe 6, D-45894 Gelsenkirchen, Germany; and     (xii) the payment obligations of the Borrower under this Agreement rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors.   9.2 The representations and warranties set out in clause 9.1 are deemed to be repeated by the Borrower (by reference to the facts and circumstances then existing) on each day from the entry into this Agreement to and including the day on which the Finance Documents are terminated and all rights and claims of the Lender under or in connection with the Finance Documents are duly fulfilled.   Loan Offer    page 10 -------------------------------------------------------------------------------- 10. COVENANTS AND UNDERTAKINGS   10.1 The Borrower covenants and undertakes, from the entry into this Agreement to and including the day on which the Finance Documents are terminated and all rights and claims of the Lender under or in connection with the Finance Documents are duly fulfilled, that:     (i) the Borrower shall provide to the Lender such information in relation to its business, operations and financial position as the Lender may reasonably require;     (ii) the Borrower shall provide, or cause UGI Corporation to provide, the Lender with copies of the audited consolidated financial statements of UGI Corporation within ninety (90) days after the end of the period for which they have been prepared, and copies of the unaudited quarterly consolidated financial statements of UGI Corporation within forty-five (45) days after the end of the period for which they have been prepared;     (iii) the Borrower shall notify the Lender of the occurrence of any Default and/or Event of Default;     (iv) the Borrower shall take out and maintain, or ensure that any of its affiliates takes out and maintains, insurance cover over the Borrower’s assets and other appropriate insurance cover including, but not limited to insurance cover for interruption of business and general liability, of a type and in an amount which is consistent with good business practice;     (v) the Borrower shall ensure that its obligations under this Agreement do and will always rank at least pari passu with its other secured and unsecured obligations, other than obligations to creditors having preference as a matter of mandatory law and other than obligations which already exist and have preference when this Agreement is concluded; as regards the latter obligations, the Borrower shall use reasonable best efforts to provide promptly that such obligations having a material adverse impact on its ability to comply with the terms of this Agreement will have no preference in respect of its obligations under this Agreement;     (vi) the Borrower shall not create or permit to exist any collateral or security interest in favor of one or more third parties on the whole or any part of its present or future property, assets or revenues, without the prior written consent of the Lender which shall not be unreasonably withheld. The provision in the first sentence of this clause 10.1 (vi) shall not apply in respect of collateral or security interest created in the ordinary course of business, provided that such collateral or security interest has no material negative impact on the Borrower’s ability to perform under this Agreement;   Loan Offer    page 11 --------------------------------------------------------------------------------   (vii) the Borrower shall not, without the prior written consent of the Lender which shall not be unreasonably withheld, either in a single transaction or in a series of transactions whether related or not and whether voluntarily or involuntarily, sell, transfer, lease or otherwise dispose of all or a substantial part of its property or assets. The provision in the first sentence of this clause 10.1(vii) shall not apply in respect of dispositions in the ordinary course of business, provided that such dispositions have no negative impact on the Borrower’s ability to perform under this Agreement; and     (viii) other than intercompany loans in favor of the Borrower’s subsidiaries the Borrower shall not make any loans or grant any credit or other financing of any kind to or for the benefit of any person or otherwise voluntarily assume any liability, whether actual or contingent, in respect of the obligations of any other person, except within the ordinary course of business, or with the prior written consent of the Lender not to be unreasonably withheld, provided always that such loans, credits, other financings or liabilities have no material negative impact on the Borrower’s ability to perform under this Agreement.   11. SECURITY   11.1 As security for all present and future rights and claims of the Lender under or in connection with this Agreement the following shall apply:     (i) Under a separate guarantee agreement in form and substance satisfactory to the Lender (the “Guarantee Agreement”), UGI Corporation issues a guarantee in favor of the Lender according to Section 1357 of the Austrian Civil Code (§ 1357 ABGB).   12. DEFAULT   12.1 In the event that:     (i) the Borrower defaults in the payment on the due date of any amount due and payable to the; Lender under this Agreement and/or under any other present or future agreement for more than five days; or     (ii) the Borrower is in material breach of any of the terms and conditions of this Agreement and/or any other present or future agreement with the Lender (other than those referred to in clause 12.1(i)) and, in the case of a breach that is capable of remedy, such breach is not remedied within thirty days after the occurrence of such breach; or     (iii) any of the representations or warranties of the Borrower under this Agreement, or any of the opinions expressed in the legal opinion   Loan Offer    page 12 --------------------------------------------------------------------------------   mentioned in schedule 1, proves to be or becomes incorrect, or any certificate, statement or notice issued to the Lender in connection with this Agreement proves to be or becomes incorrect in a material respect; or     (iv) a material adverse change in the economic situation of the Borrower occurs or threatens to occur; or     (v) any of the following Ratios (as defined in and calculated according to Schedule 4) is achieved:     (a) the Return on Assets is lower than 6,50% (six point five percent), or     (b) the Debt Amortization Period is equal to or longer than 6,75 (six point seventy five) years, or     (c) the Equity Ratio is lower than 15,00% (fifteen percent). (each an Event of Default), the Lender shall at any time be entitled to terminate this Agreement (whereupon this Agreement shall be terminated with immediate effect), and/or to declare, in whole or in part, any amount(s) outstanding to it under or in connection with this Agreement due and payable (whereupon the respective amounts shall become due and payable with immediate effect).   12.2 If, as a result of any change in GAAP (as defined in the last paragraph of this clause 12.2) after the entry into this Agreement, any deterioration of any of the Ratios (as defined in Schedule 4) shall have occurred or in the opinion of UGI Corporation would be likely to occur, which change would not have occurred or would not have been likely to occur had no change in GAAP taken place:     (i) such a change in any of the Ratios shall not be considered to constitute an Event of Default or potential Event of Default, and     (ii) in the event of such a change in any of the Ratios, the Borrower shall provide the Lender with a detailed calculation based upon (a) GAAP prior to the change and (b) GAAP after the change, with a reasonable explanation for the differences, and     (iii) the parties to the Finance Documents shall negotiate in good faith an amendment to this Agreement which shall approximate to the extent possible the economic effect of the original Ratios taking into account such a change in GAAP. If said parties do not agree on such amendment within sixty (60) days from the date on which the Borrower first notifies the Lender of such a change in GAAP, the Borrower shall have the option of (i) prepaying in full all amounts outstanding under the Overdraft Facility and all other amounts outstanding under or in connection with this Agreement, or (ii) for purposes of this Agreement, continuing to apply GAAP as in effect prior to such change in GAAP.   Loan Offer    page 13 -------------------------------------------------------------------------------- “GAAP” means generally accepted accounting principles in the United States of America as in effect at the time of any particular computation or determination or as of the date of the relevant financial statements, as the case may be.   12.3 The Ordinary Income (as defined in Schedule 4) for any period shall be adjusted by the addition of the Ordinary Income of any acquisition made during that period as if such acquisition had occurred on the first day of the period. At the request of the Lender, the Borrower shall provide supporting documents reasonably satisfactory to the Lender relating to the Ordinary Income of the acquisition.   12.4 Should the Equity Ratio fall below 15.00% as a result of an acquisition financed with debt,     (i) the Borrower shall have sixty (60) days from the date of the acquisition to cure the cause (or have UGI Corporation cure the cause) of such a change, and     (ii) the Borrower shall immediately provide (or have UGI Corporation provide) reasonable evidence that a cure is possible within the 60 day period, and     (iii) within 30 days of completing an acquisition that would, in its opinion, cause such a change in the Equity Ratio, the Borrower shall provide (or have UGI Corporation provide) a reasonable explanation of the acquisition and a detailed calculation of the Equity Ratio as of the date of the acquisition, and,     (iv) upon curing the cause of such a change of the Equity Ratio, the Borrower shall provide (or have UGI Corporation provide) a reasonable explanation of the cure and a detailed calculation of the Equity Ratio that reflects the cure.   13. MISCELLANEOUS   13.1 If any of the provisions of this Agreement are or become invalid or unenforceable in any respect, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired.   13.2 Any notice or communication under or in connection with this Agreement shall be in writing and shall be delivered by mail, fax, courier or email to the addresses given in this Agreement or at such other address as the recipient may have notified to the other party in writing.   13.3 The Borrower may not assign, pledge or dispose otherwise of any of its rights or claims under or in connection with this Agreement without the prior written consent of the Lender.   Loan Offer    page 14 -------------------------------------------------------------------------------- 13.4 The Lender may grant participations, and/or assign or transfer any or all of its rights or claims under or in connection with this Agreement to other financial institutions with the prior written consent of the Borrower only, which consent shall not be unreasonably withheld. Such consent, however, shall not be required for the granting of participations, nor for any assignment or transfer, to any members of the Raiffeisen Banking Group.   13.5 No failure by the Lender to exercise, nor any delay by the Lender in exercising, any right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies provided by law.   13.6 The Borrower hereby irrevocably agrees to the electronic processing of all information and data concerning the Borrower and/or any of its affiliated companies which become known to the Lender in the course of the business relationship with the Borrower or any of its affiliated companies, and to the disclosure and forwarding of such information and data (except information and data regarding confidential know-how of the Borrower or any of its affiliates as well as confidential business or financial information explicitly identified by the Borrower in writing as being confidential as required by any law or legal regulation applicable to the Borrower or to any of its affiliates) within the internal organization of the Lender as well as to any domestic or foreign member companies of the Raiffeisen Banking Group and any (potential) parties of syndication or risk participation or security agreements. Prior to releasing any information or data to other parties (including companies of the Raiffeisen Banking Group) provided by the Borrower, the Lender shall enter into a written confidentiality agreement with the recipient of such information or data requiring it to maintain the confidentiality of the information or data, whereby such recipient shall be entitled to electronically process the information or data for internal use.   13.7 All present and future obligations under or in connection with this Agreement have to be fulfilled at the Lender’s premises at Am Stadtpark 9, 1030 Vienna.   13.8 In addition to the terms of this Agreement, the General Terms and Conditions (Version 2001) of the Lender shall apply subsidiarily.   13.9 This Agreement shall be governed by and construed in accordance with the Austrian law.   13.10  Any dispute, controversy or claim arising out of or in connection with this Agreement shall non exclusively be settled by the competent commercial court of Vienna.   Loan Offer    page 15 -------------------------------------------------------------------------------- UNQUOTE The present offer shall be irrevocably valid and binding until 30 September 2006. If you accept this offer, we shall pay you an up-front fee of EURO 100 flat. You can accept this offer by debiting our account no. 1-04.065.108 with such up-front fee. You are hereby irrevocably authorized to make such debit entry. Upon such debit entry only, the present offer shall be validly accepted irrespective of whether and when we will be informed of your acceptance. Kind regards, Zentraleuropa LPG Holding GmbH LOGO [g54105img_001.jpg]   Schedule 1    List of Condition Precedent Documents Schedule 2    Form of Utilization Request Schedule 3    Mandatory Cost Formulae Schedule 4    Ratios; Manner of Calculation   Loan Offer    page 16 -------------------------------------------------------------------------------- SCHEDULE 1 Condition Precedent Documents   1. A duly executed original of each Finance Document.   2. A copy of the constitutional documents of the Borrower and the Guarantor (individually also an “Obligor”).   3. An extract of the commercial (or equivalent) register of each Obligor.   4. A copy of a resolution of the directors, the board of directors or any other relevant board, body or person of each Obligor:     (i) approving the terms of, and the transactions contemplated by, the Finance Documents to which an Obligor is a party and resolving to execute the Finance Documents to which it is a party;     (ii) authorizing a specified person or persons to execute the Finance Documents to which it is a party on its behalf; and     (iii) authorizing a specified person or persons, on its behalf, to sign and/or dispatch all documents, notices and other communication (including, without limitation, any Utilization Request) to be signed and/or dispatched by it under or in connection with the Finance Documents to which it is a party.   5. A specimen of the signature of each person authorized by the resolution referred to in point 4 (iii) above.   6. A certificate provided by an authorized signatory of the relevant Obligor certifying that each copy document relating to it specified in this schedule 1 is true and correct, complete and in full force and effect as at a date no earlier than the entry into this Agreement.   7. A duly executed original of a letter from the process agent referred to in clause 13 of the Guarantee Agreement confirming that it has been appointed by the relevant Obligor and that it has accepted such appointment.   Loan Offer    page 17 -------------------------------------------------------------------------------- 8. A duly executed original of a legal opinion by Morgan Lewis & Bockius LLP, Philadelphia, USA, in respect of the Guarantee Agreement   9. Any other document or evidence the Lender may reasonably require.   Loan Offer    page 18 -------------------------------------------------------------------------------- SCHEDULE 2 Form of Utilization Request From: [Borrower] To [Lender] Date: Ladies and Gentlemen,   1. We hereby request you to make the following transfer: From our account No.: [    ] To our account No: [    ] Amount: On (value date): [    ] Interest period : [1/2/6] months   2. We hereby confirm all conditions precedent in connection with such transfer are satisfied as of the date of this request.   3. This request is irrevocable. Best regards Zentraleuropa LPG Holding GmbH   Loan Offer    page 19 -------------------------------------------------------------------------------- Schedule 3 Mandatory Cost Formulae   1. The Mandatory Cost is an addition to the interest rate to compensate the Lender for the cost of compliance with (a) the new requirements of any national bank (b) in either case, new requirements of any other authority which replaces all or any of its functions, (c) the new requirements of the European Central Bank (in this Clause 1, “new requirements” means requirements introduced and coming into force after the Date of this Agreement).   2. On the first day of each Interest Period (or as soon as possible thereafter) the Lender shall calculate, as a percentage rate, a rate (hereinafter referred to as the “Additional Cost Rate”) in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Lender as a weighted average of the Lender’s Additional Cost Rates and will be expressed as a percentage rate per annum.   3. The Additional Cost Rate for the Lender will be the percentage notified by the Lender as the cost of complying with the minimum reserve requirements of the Austrian National Bank and/or any other authorities referred to in Clause 1 above.   4. Any determination by the Lender pursuant to this schedule 3 in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to the Lender shall, in the absence of manifest error, be conclusive and binding on all parties to this Agreement.   5. The Lender may from time to time, after consultation with the Borrower, determine and notify to the Borrower any amendments which are required to be made to this schedule 3 in order to comply with any change in law, regulation or any requirements from time to time imposed by the Austrian National Bank and/or any other authorities referred to in Clause 1 above, and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties to this Agreement.   Loan Offer    page 20 -------------------------------------------------------------------------------- Schedule 4 Ratios; Manner of Calculation     I.) Ratios. Certain financial ratios of UGI Corporation (on a consolidated basis) (individually a “Ratio” and collectively the “Ratios”) are defined as follows: Equity Ratio as % of total assets means Total Equity divided by Average Adjusted Total Assets. Return on Assets means Ordinary Income divided by Average Adjusted Total Assets. Debt Amortization Period means Net Debt divided by EBTDA. whereas the meaning of capitalized terms shall be as follows: TOTAL EQUITY means Total Stockholders’ Equity according to quarterly/annual report plus Minority Interests. AVERAGE ADJUSTED TOTAL ASSETS means the sum of Total Assets according to quarterly/annual report for each of the past four (4) financial quarters divided by four (4). ORDINARY INCOME means operating income according to quarterly/annual reports. EBTDA means Ordinary Income plus Depreciation and Amortization minus Interest Expense. NET DEBT means Current Maturities of Long Term Debt plus Bank Loans plus Long Term Debt (altogether “INTEREST-BEARING LIABILITIES”) minus Cash and cash equivalents minus Short-term investments.     II.) Manner of Calculating Ratios: The Ratios shall be calculated by the Lender in accordance with the terms set forth in this schedule 4 on the basis of the consolidated financial statements of UGI Corporation to be provided pursuant to clause 10.1(ii), beginning with the consolidated quarterly financial statements of UGI Corporation for the first calendar quarter of 2006. UGI Corporation may, at its discretion, provide its calculation of such Ratios together with the submission of the financial statements that are required to be submitted pursuant to clause 10.1(ii). For the sake of clarification, however, it is hereby stated that only the calculation by the Lender is relevant for the purpose of this Agreement.   Loan Offer    page 21

  Exhibit 10.1   --------------------------------------------------------------------------------   UST INC. DIRECTOR DEFERRAL PROGRAM Effective as of April 7, 2005   --------------------------------------------------------------------------------   TABLE OF CONTENTS                 Page   ARTICLE I — INTRODUCTION     1             ARTICLE II — DEFINITIONS     2             2.01 Account:     2   2.02 Act:     2   2.03 Adjusted Holdings:     2   2.04 Annual Award:     2   2.05 Beneficiary:     2   2.06 Board Year:     3   2.07 Change in Control:     3   2.08 Code:     4   2.09 Common Stock Holding Determination Date:     4   2.10 Common Stock Holding Requirement:     4   2.11 Company:     4   2.12 Deferral Subaccount:     4   2.13 Director:     4   2.14 Director Compensation:     5   2.15 Disability:     5   2.16 Distribution Valuation Date:     5   2.17 Election Form:     6   2.18 Eligible Director:     6   2.19 ERISA:     6   2.20 Fair Market Value:     6   2.21 Key Employee:     7   2.22 Participant:     8   2.23 Plan:     8   2.24 Plan Administrator:     8   2.25 Plan Year:     8   2.26 Section 409A:     9   2.27 Separation from Service:     9   2.28 UST Organization:     9   2.29 Unforeseeable Emergency:     9   2.30 Valuation Date:     9             ARTICLE III — ELIGIBILITY AND PARTICIPATION     10             3.01 Eligibility to Participate:     10   3.02 Termination of Eligibility to Defer:     10   3.03 Termination of Participation:     10             ARTICLE IV — DEFERRAL OF COMPENSATION     11             4.01 Automatic Deferral:     11   4.02 Voluntary Deferrals and Elections:     11   -i- --------------------------------------------------------------------------------   TABLE OF CONTENTS                 Page   4.03 Time and Manner of Voluntary Deferral Election:     12   4.04 Beneficiaries:     12   4.05 Period of Deferral:     13   4.06 No Subsequent Elections:     13             ARTICLE V — INTERESTS OF PARTICIPANTS     14             5.01 Accounting for Participants’ Interests:     14   5.02 Phantom Investment of Account:     14   5.03 Vesting of a Participant’s Account:     15             ARTICLE VI — DISTRIBUTIONS     16             6.01 General:     16   6.02 Distributions on Account of a Separation from Service:     17   6.03 Distributions on Account of Death:     17   6.04 Distributions on Account of Disability:     17   6.05 Distributions on Account of Change in Control:     18   6.06 Distributions on Account of Unforeseeable Emergency:     18   6.07 Valuation:     18   6.08 Impact of Section 16 of the Act on Distributions:     19             ARTICLE VII — PLAN ADMINISTRATION     20             7.01 Plan Administrator:     20   7.02 Action:     20   7.03 Powers of the Plan Administrator:     20   7.04 Compensation, Indemnity and Liability:     21   7.05 Taxes:     22   7.06 Section 16 Compliance:     22   7.07 Conformance with Section 409A:     22             ARTICLE VIII — CLAIMS PROCEDURE     23             8.01 Claims for Benefits:     23   8.02 Appeals of Denied Claims:     23   8.03 Special Claims Procedures for Disability Determinations:     23             ARTICLE IX — AMENDMENT AND TERMINATION     24             9.01 Amendment of Plan:     24   9.02 Termination of Plan:     24             ARTICLE X — MISCELLANEOUS     25             10.01 Limitation on Participant’s Rights:     25   10.02 Unfunded Obligation of the Company:     25   10.03 Other Plans:     25   10.04 Receipt or Release:     25   10.05 Governing Law:     25   -ii- --------------------------------------------------------------------------------   TABLE OF CONTENTS                 Page   10.06 Gender, Tense and Examples:     26   10.07 Successors and Assigns; Nonalienation of Benefits:     26   10.08 Facility of Payment:     26             ARTICLE XI — SIGNATURE     27   -iii- --------------------------------------------------------------------------------   ARTICLE I — INTRODUCTION      UST Inc. (the “Company”) established the UST Inc. Director Deferral Program (the “Plan”) to permit Eligible Directors to defer certain compensation paid to them as Directors.      This document is effective as of April 7, 2005, which shall be the effective date of the Plan (the “Effective Date”). It sets forth the terms of the Plan, deferrals under which are subject to Section 409A.      This document specifies the group of Directors of the Company that are eligible to make deferrals, the procedures for electing to defer compensation and the Plan’s provisions for maintaining and paying out amounts that have been deferred.      The Plan is unfunded and unsecured. Amounts deferred by a Director are a liability and an obligation of the Company, and Directors have the rights of a general creditor. As of the Effective Date, this Plan is not currently subject to ERISA. 1 --------------------------------------------------------------------------------   ARTICLE II — DEFINITIONS      When used in this Plan, the following underlined terms shall have the meanings set forth below unless a different meaning is plainly required by the context: 2.01 Account:      The account maintained for a Participant on the books of the Company to determine, from time to time, the Participant’s interest under this Plan. The balance in such Account shall be determined by the Plan Administrator. Each Participant’s Account shall consist of at least one Deferral Subaccount for each separate deferral under Section 4.01 or 4.02. The Plan Administrator may also establish such additional Deferral Subaccounts as it deems necessary for the proper administration of the Plan. The Plan Administrator may also combine Deferral Subaccounts to the extent it deems separate accounts are not needed for sound recordkeeping. Where appropriate, a reference to a Participant’s Account shall include a reference to each applicable Deferral Subaccount that has been established thereunder. 2.02 Act:      The Securities Exchange Act of 1934, as amended. 2.03 Adjusted Holdings:      The sum of (a) the Director’s holdings of UST Inc. Common Stock that may be taken into account in satisfying the Common Stock Holding Requirement from time to time, plus (b) the amount of the Annual Award for the upcoming Board Year. 2.04 Annual Award:      The grant of UST Inc. Common Stock that is awarded to Directors on an annual basis for each Board Year. 2.05 Beneficiary:      The person or persons (including a trust or trusts) properly designated by a Participant, as determined by the Plan Administrator, to receive the amounts in one or more of the Participant’s Deferral Subaccounts in the event of the Participant’s death, provided such person or persons are living (or in existence, in the case of a trust) at the Participant’s death. To be effective, any Beneficiary designation must be in writing, signed by the Participant, and must meet such other standards (including any requirement for spousal consent) as the Plan Administrator shall require from time to time. The Beneficiary designation must also be filed with the Plan Administrator prior to the Participant’s death. An incomplete Beneficiary designation, as determined by the Plan Administrator, shall be void and of no effect. If some but not all of the persons designated by a Participant to receive 2 --------------------------------------------------------------------------------   his or her Account at death predecease the Participant, the Participant’s surviving Beneficiaries shall be entitled to the portion of the Participant’s Account intended for such pre-deceased persons in proportion to the surviving Beneficiaries’ respective shares. If no designation is in effect at the time of a Participant’s death (as determined by the Plan Administrator) or if all persons designated as Beneficiaries have predeceased the Participant, then the Participant’s Beneficiary shall be his or her estate. A Beneficiary designation of an individual by name remains in effect regardless of any change in the designated individual’s relationship to the Participant. A Beneficiary designation of an individual by name and relationship ceases to be effective when the designated individuals is no longer in the specified relationship to the Participant. Any Beneficiary designation submitted to the Plan Administrator that only specifies a Beneficiary by relationship shall not be considered an effective Beneficiary designation and shall be void and of no effect. An individual who is otherwise a Beneficiary with respect to a Participant’s Account ceases to be a Beneficiary when all payments have been made from the Account. 2.06 Board Year:      The 12-month period of time that begins on the date of each annual meeting of the Company and that ends on the day before the next annual meeting. As of the Effective Date, this is the period of time from the first Tuesday in May to the day before the first Tuesday in May in the following year. 2.07 Change in Control:      A Change in Control shall have the meaning given to it by Section 409A(a)(2)(A)(v). In general, such meaning shall include the following, as interpreted by Section 409A(a)(2)(A)(v) –           (a) A change in the ownership of the Company that occurs on the date that any one person, or more than one person 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% of the total fair market value or total voting power of the stock of the Company;           (b) A change in the effective control of the Company that occurs on the date that either (1) any one person, or more than one person 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) ownership of stock of the Company possessing 35% or more of the total voting power of the stock of the Company, or (2) 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; or           (c) A change in the ownership of a substantial portion of the Company’s assets occurring on the date that any one person, or more than one person acting as a group, 3 --------------------------------------------------------------------------------   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) equal to or more than 40% of the total gross fair market value (determined without regard to any liabilities associated with such assets) of all of the assets of the Company immediately prior to such acquisition(s). 2.08 Code:      The Internal Revenue Code of 1986, as amended from time to time. 2.09 Common Stock Holding Determination Date:      The date as of which the Plan Administrator determines if the Common Stock Holding Requirement has been satisfied. In determining Director deferrals for a particular Board Year, the Common Stock Holding Determination Date shall be November 15 of the preceding Board Year (or if such day is not a business day, the day immediately following November 15 that is a business day). 2.10 Common Stock Holding Requirement:      The term, Common Stock Holding Requirement, shall have the meaning given to it in Section 4.01. 2.11 Company:      UST Inc., a corporation organized and existing under the laws of the State of Delaware, or its successor or successors. 2.12 Deferral Subaccount:      A subaccount of a Participant’s Account maintained to reflect his or her interest in the Plan attributable to each deferral (or separately tracked portion of a deferral) of Director Compensation, and any adjustments to such subaccount in accordance with Section 5.01(b). 2.13 Director:      Any person who is –   (a)   A member of the Board of Directors of the Company,     (b)   Currently a citizen or resident of the United States, and     (c)   Not currently an employee of the UST Organization. 4 --------------------------------------------------------------------------------   2.14 Director Compensation:      Only the Annual Award paid to an Eligible Director by the Company. In operating the Plan, Director Compensation shall not include any other compensation, remuneration or payment received by an Eligible Director from the Company. Subject to the next sentence, Director Compensation shall be reduced for any applicable tax levies, garnishments and other legally required deductions. Notwithstanding the preceding sentence, an Eligible Director’s Director Compensation may be reduced by an item described in the preceding sentence only to the extent such reduction does not violate Section 409A. 2.15 Disability:      A Participant shall be considered to suffer from a Disability, if, in the judgment of the Plan Administrator (based on the provisions of Section 409A), the Participant –           (a) 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           (b) 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, is receiving income replacement benefits for a period of not less than 3 months under an accident and health plan of the Company.      Solely for those Participants who are otherwise eligible for Social Security, a Participant who has received a Social Security disability award will be deemed to satisfy the requirements of Subsection (a) and a Participant who has not received a Social Security disability award will be deemed to not meet the requirements of Subsection (a). 2.16 Distribution Valuation Date:      Each date as specified by the Plan Administrator from time to time as of which Participant Accounts are valued for purposes of a distribution from a Participant’s Account. With respect to any distribution, the Distribution Valuation Date shall be the business day when the Plan Administrator begins to process a Participant’s distribution based upon the payment events of Article VI; provided, however, the Distribution Valuation Date for purposes of valuing any payment of a fractional share shall be the date of the payment event in Article VI or if such date is not a business day, the immediately following business day. Any current Distribution Valuation Date may be changed by the Plan Administrator, provided that such change does not result in a change in when deferrals are paid out that is impermissible under Section 409A. 5 --------------------------------------------------------------------------------   2.17 Election Form:      The form prescribed by the Plan Administrator on which a Participant specifies the amount of his or her Director Compensation to be deferred, pursuant to the provisions of Article IV. An Election Form need not exist in a paper format, and it is expressly contemplated that the Plan Administrator may make available for use such technologies, including voice response systems and electronic forms, as it deems appropriate from time to time. 2.18 Eligible Director:      The term, Eligible Director, shall have the meaning given to it in Section 3.01(b). 2.19 ERISA:      Public Law 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.20 Fair Market Value:      The term, Fair Market Value, shall have the following meanings depending upon for what purpose Fair Market Value is being determined –           (a) Converting Deferrals. For purposes of converting a Participant’s deferrals to phantom UST Inc. Common Stock as of any date, the Fair Market Value of such stock is the average of the high and low prices on such date (or if such date is not a trading date, the date immediately following such date that is a trading date) for UST Inc. Common Stock as reported on the composite tape for securities listed on the New York Stock Exchange, Inc., rounded (if necessary) to two decimal places.           (b) Plan Distributions. For purposes of determining the value of a Plan distribution, the Fair Market Value of phantom UST Inc. Common Stock is determined as the average of the high and low prices for UST Inc. Common Stock on the applicable Distribution Valuation Date, as reported on the composite tape for securities listed on the New York Stock Exchange, Inc., rounded (if necessary) to two decimal places.           (c) Converting Dividend Equivalents. For purposes of converting a Participant’s dividend equivalents under Section 5.02 to phantom UST Inc. Common Stock as of any date, the Fair Market Value of such stock shall be the value that is determined by the transfer agent for purposes of crediting shares of UST Inc. Common Stock under the UST Inc. Dividend Reinvestment Plan.           (d) Common Stock Holding Requirement. For purposes of determining whether a Director has satisfied the Common Stock Holding Requirement, the Fair Market 6 --------------------------------------------------------------------------------   Value of UST Inc. Common Stock shall be the average of the high and low prices for UST Inc. Common Stock on the Common Stock Holding Determination Date, as reported on the composite tape for securities listed on the New York Stock Exchange, Inc., rounded (if necessary) to two decimal places. 2.21 Key Employee:      The individuals identified in accordance with the principles set forth in Subsection (a), as modified by the following provisions of this Section.           (a) General. Any Eligible Director or former Eligible Director who at any time during the applicable year is –           (1) An officer of the Company having annual compensation greater than $130,000 (as adjusted under Code Section 416(i)(1));           (2) A 5-percent owner of the Company; or           (3) A 1-percent owner of the Company having annual compensation of more than $150,000.      For purposes of (1) above, no more than 50 employees identified in the order of their annual compensation (or, if lesser, the greater of 3 employees or 10 percent of the employees) shall be treated as officers. For purposes of this Section, annual compensation means compensation as defined in Code Section 415(c)(3). The Plan Administrator shall determine who is a Key Employee in accordance with Code Section 416(i) and the applicable regulations and other guidance of general applicability issued thereunder or in connection therewith (including the provisions of Code Section 416(i)(3) that treat self employed individuals as employees for purposes of this definition); provided, that Code Section 416(i)(5) shall not apply in making such determination, and provided further that the applicable year shall be determined in accordance with Section 409A and that any modification of the foregoing definition that applies under Section 409A shall be taken into account.           (b) Operating Rules. In the case of Separation from Service distributions, the Company shall treat as Key Employees for the Plan Year of their Separation from Service those individuals who meet the provisions of the following paragraphs.           (1) If the determination of a Key Employee is being made in the first calendar quarter of a Plan Year, the determination shall be made using data for the calendar year that is two years prior to the current calendar year (e.g., for a determination made in the first quarter of the 2005 calendar year, data for the 2003 calendar year shall be used); and 7 --------------------------------------------------------------------------------             (2) If the determination of a Key Employee is being made in the second, third or fourth calendar quarter of a calendar year, the determination shall be made using data for the prior calendar year (e.g., for a determination made in the second quarter of the 2005 calendar year, data for the 2004 calendar year shall be used).      In addition, a Participant shall be considered an officer for purposes of Subsection (a)(1), a 5-percent owner for purposes of Subsection (a)(2) or a 1-percent owner for purposes of Subsection (a)(3) with respect to a Separation from Service distribution, if the Participant was an officer, a 5-percent owner or a 1-percent owner at some point during the calendar year that applies, in accordance with Paragraphs (1) and (2) above. 2.22 Participant:      Any Director who is qualified to participate in this Plan in accordance with Section 3.01 and who has an Account, plus any individual who has an Account balance. An active Participant is one who is currently deferring under Section 4.01. 2.23 Plan:      The UST Inc. Director Deferral Program, the plan set forth herein, as it may be amended and restated from time to time (subject to the limitations on amendment that are applicable hereunder). 2.24 Plan Administrator:      The Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) or its delegate or delegates, which shall have the authority to administer the Plan as provided in Article VII. The Compensation Committee has the authority to delegate operational responsibilities to other persons or parties. As of the Effective Date, the Compensation Committee has re-delegated certain operational responsibilities to the compensation function of the Company’s Human Resources Department (the “Compensation Department”). However, references in this document to the Plan Administrator shall be understood as referring to the Compensation Committee, the Compensation Department and those delegated by the Compensation Department. All delegations made under the authority granted by this Section are subject to Section 7.06. 2.25 Plan Year:      The 12-consecutive month period beginning on January 1 and ending on December 31; provided that the first Plan Year shall be a short Plan Year beginning on April 7, 2005 and ending on December 31, 2005. 8 --------------------------------------------------------------------------------   2.26 Section 409A:      Section 409A of the Code and the applicable regulations and other guidance of general applicability that is issued thereunder. 2.27 Separation from Service:      A Participant’s separation from service with the UST Organization, within the meaning of Section 409A(a)(2)(A)(i). The term may also be used as a verb (i.e., “Separates from Service”) with no change in underlying meaning. 2.28 UST Organization:      The controlled group of organizations of which the Company is a part, as defined in Code section 414(b) and (c) and the regulations issued thereunder. An entity shall be considered a member of the UST Organization only during the period it is one of the group of organizations described in the preceding sentence. 2.29 Unforeseeable Emergency:      A severe financial hardship to the Participant resulting from –           (a) An illness or accident of the Participant, the Participant’s spouse or a dependent (as defined in Code Section 152(a)) of the Participant;           (b) Loss of the Participant’s property due to casualty; or           (c) Any other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.      The Plan Administrator shall determine the occurrence of an Unforeseeable Emergency in accordance with Section 409A(a)(2)(B)(ii). 2.30 Valuation Date:      Each date, as determined by the Plan Administrator, as of which Participant Accounts are valued in accordance with Plan procedures that are currently in effect. In accordance with procedures that may be adopted by the Plan Administrator, any current Valuation Date may be changed. 9 --------------------------------------------------------------------------------   ARTICLE III — ELIGIBILITY AND PARTICIPATION 3.01 Eligibility to Participate:           (a) An individual shall be eligible to defer compensation under the Plan during the period that he or she is a Director hereunder.           (b) During the period an individual satisfies the eligibility requirements of this Section, he or she shall be referred to as an Eligible Director.           (c) Each Eligible Director becomes an active Participant on the date an amount is first withheld from his or her Director Compensation, either automatically under Section 4.01 or pursuant to an Election Form submitted by the Director to the Plan Administrator under Section 4.02. 3.02 Termination of Eligibility to Defer:      An individual’s eligibility to participate actively by deferring under Sections 4.01 and 4.02 shall cease on the date he or she ceases to be a Director. 3.03 Termination of Participation:      An individual, who has been an active Participant under the Plan, ceases to be a Participant on the date his or her Account is fully paid out. 10 --------------------------------------------------------------------------------   ARTICLE IV — DEFERRAL OF COMPENSATION 4.01 Automatic Deferral:      If an Eligible Director’s Adjusted Holdings of UST Inc. Common Stock has a Fair Market Value as of the Common Stock Holding Determination Date of less than or equal to five times the annual cash retainer paid by the Company to its Directors in effect as of the Common Stock Holding Determination Date (the “Common Stock Holding Requirement”), then such Eligible Director shall be deemed to have made an election to automatically defer that portion of his or her Director Compensation with respect to the following Board Year that allows the Eligible Director to meet the Common Stock Holding Requirement. The Eligible Director may elect to defer voluntarily the remaining portion of Director Compensation pursuant to Section 4.02. Any Director Compensation deferred under this Section 4.01 shall be credited to the Participant’s Account on the date (or dates) it otherwise would be paid to the Director, provided the Director remains an Eligible Director as of such time. 4.02 Voluntary Deferrals and Elections:           (a) An Eligible Director, whose Adjusted Holdings of UST Inc. Common Stock have a Fair Market Value that exceeds the Common Stock Holding Requirement as of the Common Stock Holding Determination Date, may make an election to defer under the Plan in 20 percent increments up to 100 percent of the portion of his or her Director Compensation that remains after the application of Section 4.01 above. Such election to defer shall apply to Director Compensation that is earned for services performed in the Board Year.           (b) If a newly Eligible Director satisfies the Common Stock Holding Requirement, such newly Eligible Director may only elect to defer the portion of his or her eligible Director Compensation for a Board Year that is earned for services performed after the date of his or her appointment. For this purpose, if a valid Election Form is received prior to becoming a Director and the Election Form is effective immediately as of becoming a Director under Section 4.03(a), then the Director shall be deemed to receive all of his or her Director Compensation for the year after the date of the appointment.           (c) Any Director Compensation deferred under this Section 4.02 shall be credited to the Participant’s Account on the date (or dates) it otherwise would be paid to the Director, provided the Director remains an Eligible Director as of such time. To be effective, an Eligible Director’s Election Form must set forth the percentage of Director Compensation to be deferred and any other information that may be required by the Plan Administrator from time to time. In addition, the Election Form must meet the requirements of Section 4.03. 11 --------------------------------------------------------------------------------   4.03 Time and Manner of Voluntary Deferral Election:           (a) Deferral Election Deadlines. An election to defer Director Compensation under Section 4.02 must be made by the following deadlines:          (1) Ordinarily an Eligible Director must make a deferral election with respect to Director Compensation payable for a Board Year no later than the December 31 that precedes such Board Year (although the Plan Administrator may adopt policies that encourage earlier submission of election forms). If such December 31 is not a business day, then the deadline for deferral elections will be the first business day preceding such December 31.          (2) An individual, who has been nominated for Director status, must submit an Election Form prior to becoming an Eligible Director, and such Election Form will be effective immediately upon commencement of the individual’s status as an Eligible Director.          (3) Notwithstanding paragraph (1) above, an Eligible Director may elect to defer Director Compensation with respect to the Board Year that begins on May 1, 2005 by filing an Election Form during the period beginning on April 7, 2005 and ending on April 25, 2005.           (b) General Provisions. A separate deferral election under subsection (a) above must be made by an Eligible Director for each Board Year’s compensation that is eligible for deferral. If a properly completed and executed Election Form is not actually received by the Plan Administrator by the prescribed time in subsection (a) above, the Eligible Director will be deemed to have elected not to defer any Director Compensation for the applicable Board Year. An election is irrevocable once received and determined by the Plan Administrator to be properly completed. Increases or decreases in the amount or percentage a Participant elects to defer shall not be permitted as of the beginning of the calendar year during which the applicable Board Year begins. 4.04 Beneficiaries:      A Participant who has Director Compensation automatically deferred under Section 4.01 or who makes a deferral election under Section 4.02 may designate on a form (authorized by the Plan Administrator for this purpose) one or more Beneficiaries to receive payment, in the event of his or her death, of the amounts credited to his or her Account. If more than one Beneficiary is specified and the Participant fails to indicate the respective percentage applicable to two or more Beneficiaries, then each Beneficiary for whom a percentage is not designated will be entitled to an equal share of the portion of the Account (if any) for which percentages have not been designated. At any time, a Participant may change a Beneficiary designation for his or her Account in a writing that is signed by the 12 --------------------------------------------------------------------------------   Participant and filed with the Plan Administrator prior to the Participant’s death, and that meets such other standards as the Plan Administrator shall require from time to time. 4.05 Period of Deferral:      An Eligible Director who either has an automatic deferral under Section 4.01 or who makes a deferral election under Section 4.02 shall defer his or her Director Compensation until the date it becomes distributable under the provisions of Article VI. 4.06 No Subsequent Elections:      No Participant shall be permitted to make a subsequent election that extends the time of payment or changes the form of payment under Article VI. 13 --------------------------------------------------------------------------------   ARTICLE V — INTERESTS OF PARTICIPANTS 5.01 Accounting for Participants’ Interests:           (a) Deferral Subaccounts. Each Participant generally shall have at least one separate Deferral Subaccount for each separate deferral of Director Compensation made by the Participant under this Plan. A Participant’s deferral shall be credited to his or her Account as soon as practicable following the date the compensation would be paid in the absence of a deferral. A Participant’s Account is a bookkeeping device to track the value of the Participant’s deferrals and the Company’s liability therefor. No assets shall be reserved or segregated in connection with any Account, and no Account shall be insured or otherwise secured.           (b) Adjustments. The Plan provides only for “phantom investments,” and therefore any adjustments to a Participant’s Account as provided by Section 5.02(b) are hypothetical and not actual. However, they shall be applied to measure the value of a Participant’s Account and the amount of the Company’s liability to make deferred payments to or on behalf of the Participant. 5.02 Phantom Investment of Account:           (a) General. Each of a Participant’s Deferral Subaccounts shall be invested on a phantom basis in phantom UST Inc. Common Stock as provided in Subsection (b) below.           (b) Phantom UST Inc. Common Stock. Participant Accounts invested in phantom UST Inc. Common Stock are adjusted to reflect an investment in UST Inc. Common Stock. An amount deferred is converted to phantom shares of UST Inc. Common Stock of equivalent value by dividing such amount by the Fair Market Value of a share of UST Inc. Common Stock on the date (or dates) applicable under Sections 4.01 and 4.02 above. The Plan Administrator shall adopt a fair valuation methodology for valuing an investment in phantom UST Inc. Common Stock, such that the value shall reflect the complete value of an investment in UST Inc. Common Stock in accordance with the following Paragraphs below.           (1) The Plan Administrator shall value a phantom investment in UST Inc. Common Stock pursuant to an accounting methodology which credits partial phantom shares (as necessary).           (2) A Participant’s interest in the phantom UST Inc. Common Stock is valued as of a Valuation Date by multiplying the number of phantom shares (whole and fractional) credited to the Participant’s Account on such date by the Fair Market Value of a share of UST Inc. Common Stock on such date. 14 --------------------------------------------------------------------------------             (3) If shares of UST Inc. Common Stock change by reason of any stock split, stock dividend, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or any other corporate change treated as subject to this provision by the Plan Administrator, such equitable adjustment shall be made in the number and kind of phantom shares credited to an Account or Deferral Subaccount as the Plan Administrator may determine to be necessary or appropriate.           (4) In no event will shares of UST Inc. Common Stock actually be purchased or held under this Plan, and no Participant shall have any rights as a stockholder of UST Inc. Common Stock on account of an interest in phantom UST Inc. Common Stock.           (5) Any amounts that would be received by the Account as dividends, if dividends were paid on phantom shares of UST Inc. Common Stock as they are on actual shares of equivalent value, shall be converted to phantom shares of UST Inc. Common Stock of equivalent value by dividing the dollar amount of the dividend by the Fair Market Value of a share of UST Inc. Common Stock and credited to the Participant’s Account. For this purpose, the date that the Fair Market Value is determined and the date that the dividend equivalent is credited to the Participant’s Account shall be the dates established by the transfer agent for the UST Inc. Dividend Reinvestment Plan for reinvestment of dividends under such plan. 5.03 Vesting of a Participant’s Account:      A Participant’s interest in the value of his or her Account shall at all times be 100% vested, which means that it will not forfeit as a result of his or her Separation from Service. 15 --------------------------------------------------------------------------------   ARTICLE VI — DISTRIBUTIONS 6.01 General:      A Participant’s Deferral Subaccount(s) shall be distributed as provided in this Article, subject in all cases to Section 7.03(j) (relating to safeguards against insider trading) and Section 7.06 (relating to compliance with Section 16 of the Act). All Deferral Subaccount balances shall be distributed in a single lump sum of shares of UST Inc. Common Stock (or such other stock that applies after application of Section 5.02(b)(3)) with one share of such actual stock payable for each phantom share, and with the value of any fractional phantom share paid in cash. In no event shall any portion of a Participant’s Account be distributed earlier or later than is allowed under Section 409A.      The following general rules shall apply for purposes of interpreting the provisions of this Article VI.           (a) Section 6.02 (Distributions on Account of a Separation from Service) applies when a Participant Separates from Service, but not including death or Disability.           (b) Section 6.03 (Distributions on Account of Death) applies when the Participant dies. If a Participant is entitled to receive, but has not received, a distribution under Section 6.02, 6.04, 6.05 or 6.06 (see below) at the time of his or her death, Section 6.03 shall take precedence over those sections.           (c) Section 6.04 (Distributions on Account of Disability) applies when the Participant becomes Disabled. If a Participant who becomes Disabled dies, Section 6.03 shall take precedence over Section 6.04 to the extent it would result in an earlier distribution of a Participant’s Account. Further, distributions under Section 6.04 take precedence over a distribution under Section 6.02, 6.03, 6.05 and 6.06 to the extent Section 6.04 would result in an earlier distribution.           (d) Section 6.05 (Distributions on Account of Change in Control) applies when a Change in Control occurs. If a Change in Control occurs and a Participant dies before a distribution can be made under Section 6.05, Section 6.03 shall take precedence over Section 6.05 to the extent it would result in an earlier distribution of a Participant’s Account.           (e) Section 6.06 (Distributions on Account of an Unforeseeable Emergency) applies when an Unforeseeable Emergency occurs. If an Unforeseeable Emergency occurs and a Participant dies before a distribution can be made under Section 6.06, Section 6.03 shall take precedence over Section 6.06 to the extent it would result in an earlier distribution of a Participant’s Account. Further, a distribution under Section 6.06 takes precedence over a distribution under Sections 6.02, 6.03, 6.04 and 6.05 to the extent that Section 6.06 would result in an earlier distribution. 16 --------------------------------------------------------------------------------   6.02 Distributions on Account of a Separation from Service:      A Participant’s total Account balance shall be distributed upon the occurrence of a Participant’s Separation from Service (other than Disability or death) in accordance with the terms and conditions of this Section. When used in this Section, the phrase “Separation from Service” shall not include a Participant’s Disability or death.           (a) Subject to subsection (b), a Participant’s total Account balance, shall be distributed as soon as administratively practicable following the Participant’s Separation from Service.           (b) If the Participant is classified as a Key Employee at the time of the Participant’s Separation from Service (or at such other time for determining Key Employee status as may apply under Section 409A), then such Participant’s Account shall not be paid, as a result of the Participant’s Separation from Service, earlier than the date that is at least 6 months after the Participant’s Separation from Service. 6.03 Distributions on Account of Death:           (a) Upon a Participant’s death, the Participant’s total Account balance shall be distributed as soon as administratively practicable following the Participant’s death. Amounts paid following a Participant’s death shall be paid to the Participant’s Beneficiary.           (b) Any claim to be paid with respect to any amounts standing to the credit of a Participant in connection with the Participant’s death must be received by the Plan Administrator at least 14 days before any such amount is paid out by the Plan Administrator. Any claim received thereafter is untimely, and it shall be unenforceable against the Plan, the Company, the Plan Administrator, or any other party acting for one or more of them. 6.04 Distributions on Account of Disability:      Prior to the time that an amount would become distributable under Section 6.02, 6.03, 6.05 or 6.06, if a Participant believes he or she is suffering from a Disability, the Participant may file a written request with the Plan Administrator for payment of the entire amount credited to his or her Account in connection with a Disability. After a Participant has filed a written request pursuant to this Section, along with all supporting material that may be required by the Plan Administrator from time to time, the Plan Administrator shall determine within 45 days (or as soon as practicable thereafter if special circumstances warrant additional time and such extension does not violate applicable law) whether the Participant meets the criteria for a Disability. In addition, to the extent required under Section 409A, if the Company becomes aware that the Participant appears to meet the criteria for a Disability, the Company shall advise the Plan Administrator and the Plan Administrator shall proceed to determine if the Participant meets the criteria for a Disability under this Plan, even if the 17 --------------------------------------------------------------------------------   Participant has not yet applied for payment from this Plan. To the extent practicable, the Participant shall be expected to permit whatever medical examinations are necessary for the Plan Administrator to make its determination. If the Plan Administrator determines that the Participant has satisfied the criteria for a Disability, the Participant’s total Account balance shall be distributed as soon as administratively practicable following the date on which the Disability determination is made. 6.05 Distributions on Account of Change in Control:      Each Participant’s total Account balance shall be distributed as soon as administratively practicable following the occurrence of a Change in Control. 6.06 Distributions on Account of Unforeseeable Emergency:      Prior to the time that an amount would become distributable under Sections 6.02 through 6.05, a Participant may file a written request with the Plan Administrator for accelerated payment of all or a portion of the amount credited to the Participant’s Account based upon an Unforeseeable Emergency. After a Participant has filed a written request pursuant to this Section, along with all supporting material that may be required by the Plan Administrator from time to time, the Plan Administrator shall determine within 45 days (or such other number of days that is necessary if special circumstances warrant additional time) whether the individual meets the criteria for an Unforeseeable Emergency. If the Plan Administrator determines that an Unforeseeable Emergency has occurred, the Participant shall receive a distribution from his or her Account as soon as administratively practicable. However, the value of such distribution shall not exceed the dollar amount necessary to satisfy the Unforeseeable Emergency (plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution) after taking into account the extent to which the Unforeseeable Emergency is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). Distributions under this Section 6.06 may only be made in whole shares of UST Inc. Common Stock (or such other stock that applies after application of Section 5.02(b)(3)). No cash may be distributed for a fractional share. The distribution made to a Participant shall be reduced as necessary to comply with this restriction. 6.07 Valuation:      If a particular Section in this Article does not specify a Distribution Valuation Date to be used in calculating the distribution, the Distribution Valuation Date that is on or immediately prior to such distribution shall be used. In determining the value of a Participant’s remaining Account following a partial distribution under Section 6.06 for a distribution on account of an Unforeseeable Emergency, such distribution shall reduce the value of the Participant’s Account as of the close of the Distribution Valuation Date preceding the payment date for such partial distribution. 18 --------------------------------------------------------------------------------   6.08 Impact of Section 16 of the Act on Distributions:      The provisions of Section 7.06 shall apply in determining whether a Participant’s distribution shall be delayed beyond the date applicable under the preceding provisions of this Article VI. 19 --------------------------------------------------------------------------------   ARTICLE VII — PLAN ADMINISTRATION 7.01 Plan Administrator:      The Plan Administrator is responsible for the administration of the Plan. The Plan Administrator has the authority to name one or more delegates to carry out certain responsibilities hereunder, as specified in the definition of Plan Administrator. To the extent not already set forth in the Plan, any such delegation shall state the scope of responsibilities being delegated and is subject to Section 7.06 below. 7.02 Action:      Action by the Plan Administrator may be taken in accordance with procedures that the Plan Administrator adopts from time to time or that the Company’s legal department determines are legally permissible. 7.03 Powers of the Plan Administrator:      The Plan Administrator shall administer and manage the Plan and shall have (and shall be permitted to delegate) all powers necessary to accomplish that purpose, including the following:           (a) To exercise its discretionary authority to construe, interpret, and administer this Plan;           (b) To exercise its discretionary authority to make all decisions regarding eligibility, participation and deferrals, to make allocations and determinations required by this Plan, and to maintain records regarding Participants’ Accounts;           (c) To compute and certify to the Company the amount and kinds of payments to Participants or their Beneficiaries, and to determine the time and manner in which such payments are to be paid;           (d) To authorize all disbursements by the Company pursuant to this Plan;           (e) To maintain (or cause to be maintained) all the necessary records for administration of this Plan;           (f) To make and publish such rules for the regulation of this Plan as are not inconsistent with the terms hereof;           (g) To delegate to other individuals or entities from time to time the performance of any of its duties or responsibilities hereunder; 20 --------------------------------------------------------------------------------             (h) To change the phantom investment under Article V;           (i) To hire agents, accountants, actuaries, consultants and legal counsel to assist in operating and administering the Plan; and           (j) Notwithstanding any other provision of this Plan except Section 7.07 (relating to compliance with Section 409A), the Plan Administrator may take any action that it determines is necessary to assure compliance with any policy of the Company respecting insider trading as may be in effect from time to time. Such actions may include altering the distribution date of Deferral Subaccounts. Any such actions shall alter the normal operation of the Plan to the minimum extent necessary.      The Plan Administrator has the exclusive and discretionary authority to construe and to interpret the Plan, to decide all questions of eligibility for benefits, to determine the amount and manner of payment of such benefits and to make any determinations that are contemplated by (or permissible under) the terms of this Plan, and its decisions on such matters will be final and conclusive on all parties. Any such decision or determination shall be made in the absolute and unrestricted discretion of the Plan Administrator, even if (1) such discretion is not expressly granted by the Plan provisions in question, or (2) a determination is not expressly called for by the Plan provisions in question, and even though other Plan provisions expressly grant discretion or call for a determination. As a result, benefits under this Plan will be paid only if the Plan Administrator decides in its discretion that the applicant is entitled to them. In the event of a review by a court, arbitrator or any other tribunal, any exercise of the Plan Administrator’s discretionary authority shall not be disturbed unless it is clearly shown to be arbitrary and capricious. 7.04 Compensation, Indemnity and Liability:      The Plan Administrator will serve without bond and without compensation for services hereunder. All expenses of the Plan and the Plan Administrator will be paid by the Company. To the extent deemed appropriate by the Plan Administrator, any such expense may be charged against specific Participant Accounts, thereby reducing the obligation of the Company. No member of the Compensation Committee (who serves as the Plan Administrator), and no individual acting as the delegate of the Compensation Committee, shall be liable for any act or omission of any individual, nor for any act or omission on his or her own part, excepting his or her own willful misconduct. The Company will indemnify and hold harmless each member of the Compensation Committee and any employee of the Company (or a Company affiliate, if recognized as an affiliate for this purpose by the Plan Administrator) acting as the delegate of the Compensation Committee against any and all expenses and liabilities, including reasonable legal fees and expenses, arising in connection with this Plan (or his or her serving as the delegate of the Compensation Committee), excepting only expenses and liabilities arising out of his or her own willful misconduct or bad faith. 21 --------------------------------------------------------------------------------   7.05 Taxes:      If the whole or any part of any Participant’s Account becomes subject to the payment of any estate, inheritance, income, employment, or other tax which the Company may be required to pay or withhold, the Company will have the full power and authority to withhold and pay such tax out of any moneys or other property in its hand for the Account of the Participant. To the extent practicable, the Company will provide the Participant notice of such withholding. Prior to making any payment, the Company may require such releases or other documents from any lawful taxing authority as it shall deem necessary. In addition, pursuant to Section 409A amounts deferred under this Plan shall be reported to the Internal Revenue Service to the extent required under Section 409A. Also, any amounts that become taxable hereunder shall be reported as taxable compensation to the Participant to the extent required under Section 409A. 7.06 Section 16 Compliance:      This Plan is intended to be a formula plan for purposes of Section 16 of the Act. Accordingly, in the case of a deferral or other action under the Plan that constitutes a transaction that could be covered by Rule 16b-3(d) or (e), if it were approved by the Company’s Board or Compensation Committee (“Board Approval”), it is intended that the Plan shall be administered, in the case of a Participant who is subject to Section 16 of the Act, in a manner that will permit the Board Approval of the Plan to avoid any additional Board Approval of specific transactions to the maximum possible extent. 7.07 Conformance with Section 409A:      At all times during each Plan Year, this Plan shall be operated in accordance with the requirements of Section 409A. Any action that may be taken (and, to the extent possible, any action actually taken) by the Plan Administrator or the Company shall not be taken (or shall be void and without effect), if such action violates the requirements of Section 409A. If the failure to take an action under the Plan would violate Section 409A, then to the extent it is possible thereby to avoid a violation of Section 409A, the rights and effects under the Plan shall be altered to avoid such violation. Any provision in this Plan document that is determined to violate the requirements of Section 409A shall be void and without effect. In addition, any provision that is required to appear in this Plan document to satisfy the requirements of Section 409A, but that is not expressly set forth, shall be deemed to be set forth herein, and the Plan shall be administered in all respects as if such provision were expressly set forth. Any distribution that is to be made as soon as practicable after a specified date shall in all cases be made on or before (i) the end of the calendar year containing such date, or (ii) if later, 21/2 months after such date (or on or before such still later date as may be permitted under the circumstances by Section 409A). In all cases, the provisions of this Section shall apply notwithstanding any contrary provision of the Plan that is not contained in this Section. 22 --------------------------------------------------------------------------------   ARTICLE VIII — CLAIMS PROCEDURE 8.01 Claims for Benefits:      If a Participant, Beneficiary or other person (hereafter, “Claimant”) does not receive timely payment of any benefits which he or she believes are due and payable under the Plan, he or she may make a claim for benefits to the Plan Administrator. The claim for benefits must be in writing and addressed to the Plan Administrator. If the claim for benefits is denied, the Plan Administrator will notify the Claimant within 90 days after the Plan Administrator initially received the benefit claim. However, if special circumstances require an extension of time for processing the claim, the Plan Administrator will furnish notice of the extension to the Claimant prior to the termination of the initial 90-day period and such extension may not exceed one additional, consecutive 90-day period. Any notice of a denial of benefits shall advise the Claimant of the basis for the denial, any additional material or information necessary for the Claimant to perfect his or her claim, and the steps which the Claimant must take to appeal his or her claim for benefits. 8.02 Appeals of Denied Claims:      Each Claimant whose claim for benefits has been denied may file a written appeal for a review of his or her claim by the Plan Administrator. The request for review must be filed by the Claimant within 60 days after he or she received the notice denying his or her claim. The decision of the Plan Administrator will be communicated to the Claimant within 60 days after receipt of a request for appeal. The notice shall set forth the basis for the Plan Administrator’s decision. If special circumstances require an extension of time for processing the appeal, the Plan Administrator will furnish notice of the extension to the Claimant prior to the termination of the initial 60-day period and such extension may not exceed one additional, consecutive 60-day period. In no event shall the Plan Administrator’s decision be rendered later than 120 days after receipt of a request for appeal. 8.03 Special Claims Procedures for Disability Determinations:      Notwithstanding Sections 8.01 and 8.02 to the contrary, if the claim or appeal of the Claimant relates to Disability benefits, such claim or appeal shall be processed pursuant to the applicable provisions of Department of Labor Regulation Section 2560.503-1 relating to Disability benefits, including Sections 2560.503-1(d), 2560.503-1(f)(3), 2560.503-1(h)(4) and 2560.503-1(i)(3). 23 --------------------------------------------------------------------------------   ARTICLE IX — AMENDMENT AND TERMINATION 9.01 Amendment of Plan:      The Board of Directors of the Company has the right in its sole discretion to amend this Plan in whole or in part at any time and in any manner, including the manner of making deferral elections, the terms on which distributions are made, and the form and timing of distributions. However, except for mere clarifying amendments necessary to avoid an inappropriate windfall, no Plan amendment shall reduce the amount credited to the Account of any Participant as of the date such amendment is adopted. Any amendment shall be in writing and adopted by the Board of Directors. All Participants and Beneficiaries shall be bound by such amendment. Any amendments made to the Plan shall be subject to any restrictions on amendment that are applicable to ensure continued compliance under Section 409A. 9.02 Termination of Plan:      The Company expects to continue this Plan, but does not obligate itself to do so. The Company, acting by the Board of Directors, reserves the right to discontinue and terminate the Plan at any time, in whole or in part, for any reason (including a change, or an impending change, in the tax laws of the United States or any State). Termination of the Plan will be binding on all Participants (and a partial termination shall be binding upon all affected Participants) and their Beneficiaries, but in no event may such termination reduce the amounts credited at that time to any Participant’s Account. If this Plan is terminated (in whole or in part), the termination resolution shall provide for how amounts theretofore credited to affected Participants’ Accounts will be distributed. Any termination shall be subject to any restrictions on termination that are applicable to ensure continued compliance under Section 409A. 24 --------------------------------------------------------------------------------   ARTICLE X — MISCELLANEOUS 10.01 Limitation on Participant’s Rights:      Participation in this Plan does not give any Participant the right to be retained in the service of the Company. The Company reserves the right to terminate the service of any Participant without any liability for any claim against the Company under this Plan, except for a claim for payment of deferrals as provided herein. 10.02 Unfunded Obligation of the Company:      The benefits provided by this Plan are unfunded. All amounts payable under this Plan to Participants are paid from the general assets of the Company. Nothing contained in this Plan requires the Company to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants. Neither a Participant, Beneficiary, nor any other person shall have any property interest, legal or equitable, in any specific Company asset. This Plan creates only a contractual obligation on the part of the Company, and the Participant has the status of a general unsecured creditor of the Company with respect to amounts of compensation deferred hereunder. Such a Participant shall not have any preference or priority over the rights of any other unsecured general creditor of the Company. No other Company affiliate guarantees or shares such obligation, and no other Company affiliate shall have any liability to the Participant or his or her Beneficiary. 10.03 Other Plans:      This Plan shall not affect the right of any Eligible Director or Participant to participate in and receive benefits under and in accordance with the provisions of any other Director compensation plans which are now or hereafter maintained by the Company, unless the terms of such other plan or plans specifically provide otherwise or it would cause such other plan to violate a requirement for tax favored treatment. 10.04 Receipt or Release:      Any payment to a Participant in accordance with the provisions of this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Plan Administrator and the Company, and the Plan Administrator may require such Participant, as a condition precedent to such payment, to execute a receipt and release to such effect. 10.05 Governing Law:      This Plan shall be construed, administered, and governed in all respects in accordance with applicable federal law and, to the extent not preempted by federal law, in accordance with the laws of the State of Delaware. If any provisions of this instrument shall be held by a 25 --------------------------------------------------------------------------------   court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 10.06 Gender, Tense and Examples:      In this Plan, whenever the context so indicates, the singular or plural number and the masculine, feminine, or neuter gender shall be deemed to include the other. Whenever an example is provided or the text uses the term “including” followed by a specific item or items, or there is a passage having a similar effect, such passage of the Plan shall be construed as if the phrase “without limitation” followed such example or term (or otherwise applied to such passage in a manner that avoids limitation on its breadth of application). 10.07 Successors and Assigns; Nonalienation of Benefits:      This Plan inures to the benefit of and is binding upon the parties hereto and their successors, heirs and assigns; provided, however, that the amounts credited to the Account of a Participant are not (except as provided in Section 7.05) subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to any benefits payable hereunder, including, without limitation, any assignment or alienation in connection with a separation, divorce, child support or similar arrangement, will be null and void and not binding on the Plan or the Company. Notwithstanding the foregoing and to the extent permissible under Section 409A, the Plan Administrator reserves the right to make payments in accordance with a divorce decree, judgment or other court order as and when payments are made in accordance with the terms of this Plan from the Deferral Subaccount of a Participant. Any such payment shall be charged against and reduce the Participant’s Account. 10.08 Facility of Payment:      Whenever, in the Plan Administrator’s opinion, a Participant or Beneficiary entitled to receive any payment hereunder is under a legal disability or is incapacitated in any way so as to be unable to manage his or her financial affairs, the Plan Administrator may direct the Company to make payments to such person or to the legal representative of such person for his or her benefit, or to apply the payment for the benefit of such person in such manner as the Plan Administrator considers advisable. Any payment in accordance with the provisions of this Section shall be a complete discharge of any liability for the making of such payment to the Participant or Beneficiary under the Plan. 26 --------------------------------------------------------------------------------   ARTICLE XI — SIGNATURE      This Plan has been adopted and approved by the Company’s Compensation Committee to be effective as stated herein.               UST INC.               By:               Date Signed       Name:         Title: 27

AMENDED AND RESTATED WESTERN RESERVE BANK SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EFFECTIVE DATE: May 15, 2003 As amended December 21, 2006 1 WESTERN RESERVE BANK AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Whereas, Western Reserve Bank (the Company) adopted a Supplemental Executive Retirement Plan effective May 15, 2003; and Whereas, the Internal Revenue Code of 1986, as amended, was amended in 2004 to include Section 409A; and Whereas, the Company desires to amend the Plan to provide for compliance with the provisions of Section 409A and to provide for other terms and conditions for participation. Now Therefore this Amended and Restated Supplemental Executive Retirement Plan is adopted effective December 21, 2006 (hereinafter the “Plan”). The Plan is intended to promote the best interests of the Company by enabling the Company to retain and employ those key employees who have materially contributed, and continue to contribute, to the success of the business through their outstanding efforts, and to attract persons of outstanding ability to key management positions. ARTICLE I DEFINITIONS Whenever used herein, the masculine pronoun shall be deemed to include the feminine, and the singular to include the plural, unless the context clearly indicates otherwise. The following definitions shall govern the Plan: 1.1      “Board of Directors” or “Board” means the Board of Directors of the Company. 1.2      “Cause” shall mean and be limited to failure satisfactorily and faithfully to perform his duties hereunder through act or omission beyond negligence or bad judgment. Negligence or bad judgment shall not constitute “cause,” so long as such act or omission shall be without intent of personal profit and is reasonably believed by the Employee to be in or not adverse to the best interests of the Corporation; or, 1.3      “Change in Control” shall have the meaning set forth on Exhibit A. 1.4      “Code” shall mean the Internal Revenue Code of 1986, as amended. 1.5      “Disability” of a participant means that the participant (a) 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 (b) 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 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the participant’s employer. 1.6      “Effective Date” means May 15, 2003. 1.7      “Eligible Person” means an employee satisfies the requirements of Section 2. 1.8      “Normal Retirement Age” means age 65. 1.9      “Participant” means an Eligible Person who is participating in the plan after satisfying the requirements of Section 2. 1.10      “Plan” shall mean this Western Reserve Bank Supplemental Executive Retirement Plan, as it may be amended from time to time 1.11      “Plan Year” means the 12-month period commencing on January 1 and ending on December 31. ARTICLE II ELIGIBILITY 2.1 Eligible Persons.  Eligibility for participation in the Plan shall be limited to employees of the Company who are designated as eligible to participate by the CEO and approved by the Board, in their sole discretion, provided however that only highly compensated or key management employees shall be considered for eligibility. Individuals who are chosen to participate shall be notified by the Company as to their eligibility to participate in the Plan. 2.2 Commencement of Participation.  The initial group of Eligible Employees shall begin participation on the Effective Date. Eligible Employees who become eligible after the initial group shall begin participation in the Plan on the date chosen by the Board. 2.3 Termination of Participation.  Active participation in the Plan shall end when a Participant’s employment terminates for any reason. Upon termination of employment, a Participant shall remain an inactive Participant in the Plan until all of the benefits to which he or she is entitled hereunder have been paid in full. ARTICLE III PLAN BENEFITS 3.1 Vesting. A Participant shall have a vested and nonforfeitable right to receive supplemental benefits under this Plan upon the occurrence of one of the following events: (a) Attainment of Retirement Age; (b) Termination of employment without Cause; (c) Change in Control; (d) Disability; (e) Death (f) Service Vesting as provided for by the Board upon initial enrollment of the Participant and as designated in the “Enrollment and Designation of Beneficiary Form.” 3.2 Termination prior to Vesting. A Participant, whose employment terminates either voluntarily or involuntarily for Cause, shall not be entitled to receive a benefit under this Plan. 3.3 Retirement Benefit. (a) A Participant who terminates employment at or after his Normal Retirement Age shall be entitled to receive the Normal Retirement Benefit specified in such Participant’s Enrollment and Designation of Beneficiary Form. The payment of the benefit provided for herein may be made by the Company in annual or monthly payments or more frequent payments in accordance with the normal payroll practices of the Company. (b) A Participant who is partially vested pursuant to the service vesting provisions of Section 3.1(f) hereof and who voluntarily terminates employment, prior to Normal Retirement Age, shall be entitled to the Normal Retirement Benefit specified in such Participant’s Enrollment and Designation of Beneficiary Form, reduced by the unvested portion of such benefit if any, using the Participant’s base salary as of the date of such termination of employment, with such amount to be paid beginning at the Participant’s Normal Retirement Age. The payment of the benefit provided for herein may be made by the Company in annual or monthly payments or more frequent payments in accordance with the normal payroll practices of the Company. (c) A Participant who is partially vested pursuant to the service vesting provisions of Section 3.1(f) hereof and whose employment is terminated by the Company, other than for Cause, prior to Normal Retirement Age, shall be entitled to the Normal Retirement Benefit, using the Participants base salary as of the date of such termination of employment, with such amount to be paid beginning at the Participant’s Normal Retirement Age. The payment of the benefit provided for herein may be made by the Company in annual or monthly payments or more frequent payments in accordance with the normal payroll practices of the Company. 3.4 Spousal Survivor Benefit. (a) If a Participant dies while employed by the Company, the Participant’s spouse shall be entitled to receive an annual benefit equal to the greater of: (i) fifty percent (50%) of the Normal Retirement Benefit, or (ii) the Normal Retirement Benefit reduced by the unvested portion of such benefit if any, in each case using the Participant’s base salary as of the date of such termination of employment due to death. The payment shall be payable in annual or monthly payments or more frequent payments in accordance with the normal payroll practices of the Company to Participant’s spouse for life or ten years, whichever comes first, with 5 years of payments guaranteed. Such payments shall begin no later than ninety (90) days after Participant’s death. In the event the Participant’s spouse dies prior to receiving 5 years of payments hereunder, or Participant dies with no spouse, the contingent beneficiary named by the Participant shall be entitled to receive a lump sum benefit equal to the present value of the remaining guaranteed payments using reasonable actuarial assumptions. If no contingent beneficiary is named by the Participant, such benefit shall be paid to the Participant’s estate. In the event the Participant’s spouse dies after receiving 5 years of payments hereunder, the survivor payments shall cease and no further survivor benefit shall be paid. (b) If a Participant dies while receiving a Retirement Benefit under Section 3.3 of the Plan, the Participant’s spouse shall receive the remainder of the payments due to the Participant as of the date of Participant’s death. In the event the Participant’s spouse dies prior to receiving the final payment hereunder, the payments shall cease and no further payments shall be paid. In the event that a Participant who is receiving a Normal Retirement Benefit dies with no spouse, no further benefits shall be paid. 3.5 Disability. In the event a Participant incurs a Disability prior to having attained the Normal Retirement Age, such Participant shall receive, upon attainment of Normal Retirement Age, the Normal Retirement Benefit, under Section 3.3. The spouse of a disabled Participant shall be entitled to a spousal survivor benefit under Section 3.4(a) if the disabled Participant dies prior reaching age 65. The spouse of a disabled Participant who is receiving a benefit under this section shall be entitled to a spousal survivor benefit under Section 3.4(b) if the disabled Participant dies prior to receive the final payment hereunder. 3.6 Change in Control. Upon a Change in Control, a Participant shall, be entitled to receive the Normal Retirement Benefit under Section 3.3 in a lump sum equal to the present value of the Normal Retirement Benefit, using the Participants base salary as of the date of such termination of employment and using reasonable actuarial assumptions, and assuming that such benefit would be payable beginning at the Participant’s Normal Retirement Age. 3.7 Tax Withholding.  All payments under this Plan shall be subject to all applicable withholding for state and federal income tax and to any other federal, state or local tax which may be applicable thereto. 3.8 Payment to Guardian. If a Plan benefit is payable to a person declared incompetent or to a person incapable of handling the disposition of the benefit, the Board may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such incompetent or person. The Board may require proof of incompetency, incapacity or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company and Board with respect to such benefits. 3.9 Forfeiture or Suspension of Benefits Notwithstanding any other provision of this Plan to the contrary, benefits under this Plan shall be forfeited or suspended as follows: (a) No benefits shall be paid if the Participant is discharged from the Company for Cause. (b) No benefits shall be paid if the Participant commits suicide within the two years after the Participant becomes eligible to participate in the Plan. (c) No benefits shall be paid to a Participant who terminates from the Company and thereafter accepts employment that is competitive to the Company. The determination that employment is competitive to the Company shall be made by the Committee in its sole discretion. This 3.9(c) shall not apply after a Change in Control. ARTICLE IV ADMINISTRATION 4.1 Administration of the Plan.  The Plan may be administered by the Compensation Committee of the Board. In that case, “Committee” shall refer to the Compensation Committee of the Board. If the Board does not delegate such administration to the Compensation Committee, “Committee” shall refer to the Board. The Committee shall have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of the Plan and decide or resolve any and all questions including interpretations of the Plan, as may arise in connection with the Plan including the determination of “all reasonable actuarial assumptions” called for by the Plan. A majority vote of the Committee members shall control any decision. 4.2 Delegation of Administration. The Committee may from time to time, employ other agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company. 4.3 Administration Procedures. The Committee may from time to time establish rules and regulations for the administration of the Plan. 4.4 Binding Effect of Committee Decisions. All determinations of the Committee shall be binding on all parties. In construing or applying the provisions of the Plan, the Company shall have the right to rely upon a written opinion of legal counsel, which may be independent legal counsel or legal counsel regularly employed by the Company, whether or not any question or dispute has arisen as to any distribution from the Plan. ARTICLE V CLAIMS PROCEDURE 5.1 Claim Denial Procedure. If a claim for benefits under the Plan is denied in whole or in part, the claimant will be notified by the Committee within sixty (60) days of the date the claims is delivered to the Committee. A claim that is not acted upon within sixty (60) days may be deemed by the claimant to have been denied. The notification will be written in understandable language and will state: (a) Specific reasons for denial of the claim; (b) Specific references to Plan provisions on which the denial is based; (c) A description (if appropriate) of any additional material or information necessary for the claimant to perfect the claim and which such material or information is necessary; and (d) An explanation of the Plan’s review procedure. 5.2 Time Limit for Claim Submission. No claim shall be valid unless it is submitted within 60 days following the receipt of the disputed Plan benefit or the denial of a Plan benefit. 5.3 Review of Claims Denials. Within 60 days after a claim has been denied, or deemed denied, the claimant or his or her authorized representative may make a request for a review by submitting to the Committee a written statement requesting a review of the denial of the claim, setting forth all of the grounds upon which the request for review is based and any facts in the support thereof, and setting forth any issues or comments which the claimant deems relevant to the claim. The claimant may review pertinent documents relating to the denial. The Committee shall make a decision of review within 60 days after the receipt of the claimant’s request for review or receipt of all additional materials reasonably requested by the Committee from the claimant, unless an extension of time for processing a review is required, in which case the claimant will be notified and a decision will be made within 120 days of receipt of the request for review. The decision will be in writing, and in understandable language. It will give specific references to the Plan provisions on which the decision is based. The decision of the Committee on review shall be final and conclusive upon all persons if supported by substantial evidence. ARTICLE VI MISCELLANEOUS 6.1 Nontransferability. The interest of any Participant or beneficiary under this Plan shall not be transferred or transferable, voluntarily or by operation of law, by assignment, anticipation, hypothecation, pledge or other encumbrance, or by garnishment, attachment, levy, seizure or other execution, or by insolvency, receivership, bankruptcy or other debtor proceeding. 6.2 Unfunded Plan. This Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation for a select group of management or highly compensated employees within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and therefore to be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. No Employee or any other person shall have any interest in any fund or in any specific asset or assets of the Company by reason of this Plan, or for any other reason, or have any right to receive any distributions under the Plan except as and to the extent expressly provided under the Plan. Employees are general creditors of the Company with regard to the amounts owed pursuant to the Plan. 6.3 Binding Effect. This Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns and Employee and his heirs, executors, administrators and legal representatives. 6.4 No Rights as Employee. Nothing contained herein shall be construed as conferring upon any Employee the right to continue in the employ of the Company as an employee. 6.5 Reimbursement of Costs. If the Company, Employee or a successor in interest to either of the foregoing, brings legal action to enforce any of the provisions of this Plan, the prevailing party in such legal action shall be reimbursed by the other party, the prevailing party’s costs of such legal action including, without limitation, reasonable fees of attorneys, accountants and similar advisors and expert witnesses. 6.6 Applicable Law. This Plan shall be construed in accordance with and governed by the laws of the State of Ohio. 6.7 Entire Agreement. This Plan and any applicable enrollment forms constitute the entire understanding and agreement with respect to the Plan, and there are no agreements, understandings, restrictions, representations or warranties among Employee and the Company other than those as set forth or provided for therein. 6.8 Trusts. At its discretion, the Company may establish one or more trusts, with such trustees as the Board may approve, for the purpose of providing for the payment of Plan benefits. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company’s creditors. To the extent any benefits provided under the Plan are actually paid from any such trust, the Employer shall have no further obligation with respect thereto, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by, the Company. 6.9 Amendment of Plan. This Plan may be amended by the Company at any time in its sole discretion by resolution by its Board; provided however that no amendment may reduce a benefit or delay the time at which benefits shall be paid to a Participant pursuant to the Plan without the consent of the Participant. 6.10 Key Man Insurance. The Company may purchase and own such key man life insurance as it chooses on the life of any Participant. Such policies shall be corporate assets and no Participant, nor his beneficiaries, heirs, assigns, personal representative or estate, shall have any right to or interest in any such policy or the proceeds payable thereunder on his death. On death of the Participant, the proceeds of any such policy shall be payable solely to the Company. 6.11 Medical Underwriting. As a condition of becoming a Plan Participant, each Eligible Employee shall undertake certain medical underwriting requirements as requested by the Company. The cost of such underwriting shall be borne by the Company. The specific results of such medical underwriting shall remain confidential among the Participant, the insurance carrier and the Company. ARTICLE VII CODE SECTION 409A COMPLIANCE 7.1 Additional Restrictions on Deferred Compensation. Effective on and after January 1, 2005, any payment of benefits under the Plan to an Employee shall be subject to the additional restrictions imposed by Code section 409A as set forth in this section 7.1. (a) Restriction on In-Service Distributions. No benefits payable to an Employee under this Plan shall be distributed earlier than   (i)   the date of the Employee’s separation from service with the Company [as this term may be defined in section 409A(a)(2)(A)(i) of the Code and regulations promulgated thereunder],     (ii)   the date the Employee suffers a Disability,     (iii)   the date of the Employee’s death, or     (iv)   a Change in Control of the Company, but only to the extent provided under the provisions of regulations issued under Code section 409A.   (b) Additional Restriction on Distributions to Key Employees. Notwithstanding any other provision hereof, on or after January 1, 2005, if at the time a benefit would otherwise be payable to an Employee under this Plan, the Employee is a “specified employee” [as defined below], the distribution of the Employee’s benefit may not be made until six months after the date of the Employee’s separation from service with the Company [as that term may be defined in Section 409A(a)(2)(A)(i) of the Code and regulations promulgated thereunder], or, if earlier the date of death of the Employee. This section 7.1(b) shall remain in effect only for periods in which the stock of the Company is publicly traded on an established securities market. For purposes of this section 7.1(b), a “specified employee” shall mean any Employee of the Company who is a “key employee” of the Company within the meaning of Code section 416(i) (without regard to paragraph (5) thereof). This shall include any Employee who is (i) a 5-percent owner of the Company’s common stock, or (ii) an officer of the Company with annual compensation from the Company of $130,000.00 or more, or (iii) a 1-percent owner of Company’s common stock with annual compensation from the Company of $150,000.00 or more (or such higher annual limit as may be in effect for years subsequent to 2005 pursuant to indexing section 416(i) of the Code). (c) Restrictions on Subsequent Elections. Any request or election to change the form in which an Employee’s benefits under this Plan are distributed filed with the Company on or after January 1, 2005 shall be given effect only if it satisfies the following conditions:   (i)   such request or election may not take effect until at least 12 months after the date on which the election is filed with the Company; and     (ii)   in the case of any request or election to change the timing of payment for a benefit from this Plan (other than a benefit payable as result of the Employee’s death), the first payment made pursuant to such an election may not be made prior to the end of the period of 5 years from the date such payment would otherwise have been made.   7.2 Interpretation. Sections 7.1 has been adopted only in order to comply with the requirements added by Code section 409A. These sections shall be interpreted and administered in a manner consistent with the requirements of Code section 409A, together with any regulations or other guidance which may be published by the Treasury Department or Internal Revenue Service interpreting such Code section 409A. These sections are not intended to restrict the operation of this Plan in any manner not necessary to avoid adverse tax consequences under Code section 409A. IN WITNESS WHEREOF, the Company has caused this Amended and Restated Supplemental Executive Retirement Plan to be executed by a duly authorized officer effective as of the Effective Date. WESTERN RESERVE BANK By: /s/Edward J. McKeon, President and Chief Executive Officer 2 Exhibit A Change in Control Definition A “Change in Control” shall mean a “Change in Ownership” as defined in (a) hereof; a “Change in Effective Control” as defined in (b), hereof; or a “Change in Ownership of a Substantial Portion of Assets” as defined in (c) hereof.   (a)   Change in Ownership. For purposes of this Agreement, a “change in the ownership” of the Corporation occurs on the date that any one person, or more than one         person acting as a group (as defined in subsection (d) hereof, acquires ownership of stock of the Corporation 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 Corporation. However, 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 total voting power of the stock of the Corporation, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Corporation (or to cause a change in the effective control of the Corporation (within the meaning of subsection (b) hereof. An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Corporation acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this section.   (b)   Change in the Effective Control. For purposes of this Agreement, a change in the effective control of the Corporation occurs on the date that either –   (i)   Any one person, or more than one person acting as a group (as determined under subsection (d) hereof, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Corporation possessing 35 percent or more of the total voting power of the stock of the Corporation; or     (ii)   a majority of members of the Corporation’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 Corporation’s board of directors prior to the date of the appointment or election.   In the absence of an event described in subsection (b)(i) or (ii) above, a change in the effective control of a Corporation will not have occurred.   (c)   Change in the Ownership of a Substantial Portion of the Corporation’s Assets. For purposes of this Agreement, a change in the ownership of a substantial portion of the Corporation’s assets occurs on the date that any one person, or more than one person acting as a group (as determined in subsection(d) hereof, 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 Corporation that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. There is no Change in Control Event under this subsection (c) when there is a transfer to an entity that is controlled by the shareholders of the Corporation immediately after the transfer, as provided in this paragraph. A transfer of assets by the Corporation is not treated as a change in the ownership of such assets if the assets are transferred to —   (i)   A shareholder of the Corporation (immediately before the asset transfer) in exchange for or with respect to its stock;     (ii)   An entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the Corporation;     (iii)   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 Corporation; or     (iv)   An entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a person described in subparagraph (c)(iii) hereof.   For purposes of this subsection(c) and except as otherwise provided, a person’s status is determined immediately after the transfer of the assets. For example, a transfer to a corporation in which the transferor corporation has no ownership interest before the transaction, but which is a majority-owned subsidiary of the transferor corporation after the transaction is not treated as a change in the ownership of the assets of the transferor corporation.   (d)   Persons Acting as a Group. Persons will not be considered to be acting as a group solely because they purchase assets or 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, purchase or acquisition of assets, or similar business transaction with the Corporation. If a person, including an entity shareholder, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only to the extent of the ownership in that corporation prior to the transaction giving rise to the change and not with the ownership interest in the other corporation. Notwithstanding the foregoing, no trust department or designated fiduciary or other trustee of such trust department of the Corporation or a subsidiary of the Corporation, or other similar fiduciary capacity of the Corporation with direct voting control of the stock shall be treated as a person or group within the meaning of hereof. Further, no profit-sharing, employee stock ownership, employee stock purchase and savings, employee pension, or other employee benefit plan of the Corporation or any of its subsidiaries, and no trustee of any such plan in its capacity as such trustee, shall be treated as a person or group within the meaning hereof. 3 ENROLLMENT AND DESIGNATION OF BENEFICIARY FORM           ENROLLMENT AUTHORIZATION Participant: Brian K. Harr Date of Enrollment   December 21, 2006 Normal Retirement Benefit:       Payment Amount The benefit payable shall be equal to 20% of Participants base salary in effect at the time of termination of employment. Payment Period Ten Years       Service Vesting 5% each December 31, beginning December 31, 2006 The undersigned duly authorized officer of the Company hereby certifies that: Brian K. Harr , meets the requirements for participation in the Western Reserve Bank Supplemental Executive Retirement Plan as set forth in paragraph 2.1 and has been approved by the CEO and the Board for inclusion as a participant.       Western Reserve Bank By:   /s/ Edward J. McKeon       Its:   President & CEO       Dated:   December 21, 2006             4 DESIGNATION OF BENEFICIARY A. Primary Beneficiary. The Participant hereby designates the person(s) named below to be his or her primary beneficiary and to receive the balance of any unpaid benefits under the Plan.               Name   Address   Percentage of Benefit                                       %                                         %                 B. Contingent Beneficiary. In the event that the primary beneficiary or beneficiaries named above are not living at the time of the Participant’s death, the Participant hereby designates the following person(s) to be his or her contingent beneficiary for purposes of the Plan:               Name   Address   Percentage of Benefit                                       %                                         %                 Participant:       5 ENROLLMENT AND DESIGNATION OF BENEFICIARY FORM           ENROLLMENT AUTHORIZATION Participant: Cynthia A. Mahl Date of Enrollment   December 21, 2006 Normal Retirement Benefit:       Payment Amount The benefit payable shall be equal to 20% of Participants base salary in effect at the time of termination of employment. Payment Period Ten Years       Service Vesting 5% each December 31, beginning December 31, 2006 The undersigned duly authorized officer of the Company hereby certifies that: Cynthia A. Mahl , meets the requirements for participation in the Western Reserve Bank Supplemental Executive Retirement Plan as set forth in paragraph 2.1 and has been approved by the CEO and the Board for inclusion as a participant.       Western Reserve Bank By:   /s/ Edward J. McKeon       Its:   President & CEO       Dated:   12/21/2006             6 DESIGNATION OF BENEFICIARY C. Primary Beneficiary. The Participant hereby designates the person(s) named below to be his or her primary beneficiary and to receive the balance of any unpaid benefits under the Plan.               Name   Address   Percentage of Benefit                                       %                                         %                 D. Contingent Beneficiary. In the event that the primary beneficiary or beneficiaries named above are not living at the time of the Participant’s death, the Participant hereby designates the following person(s) to be his or her contingent beneficiary for purposes of the Plan:               Name   Address   Percentage of Benefit                                       %                                         %                 Participant:       7

LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT is made on October 26, 2005, by and among Alpharma Inc., a Delaware corporation (individually and, in its capacity as the representative of the other Borrowers pursuant to Section 4.4, "Parent"), Alpharma Operating Corporation, a Delaware corporation, Alpharma USPD Inc., a Maryland corporation, Alpharma U.S. Inc., a Delaware corporation, G.F. Reilly Company, a Delaware corporation, Parmed Pharmaceuticals, Inc., a Delaware corporation, Alpharma Euro Holdings Inc., a Delaware corporation, Alpharma (Bermuda) Inc., a Delaware corporation, Alpharma USHP Inc., a Delaware corporation, Alpharma Animal Health Company, a Texas corporation, Mikjan Corporation, an Arkansas corporation, Alpharma Holdings Inc., a Delaware corporation, Alpharma Pharmaceuticals Inc., a Delaware corporation, Purepac Pharmaceutical Holdings, Inc., a Delaware corporation, Alpharma Branded Products Division Inc., a Delaware corporation, Purepac Pharmaceutical Co., a Delaware corporation and Alpharma Investment Inc., a Delaware corporation (collectively referred to herein as "Borrowers," and individually as a "Borrower"); the various financial institutions listed on the signature pages hereof (together with their respective successors and permitted assigns, the "Lenders"); and Bank of America, N.A., a national bank, in its capacity as a Lender, Issuing Bank and collateral and administrative agent for the Lenders pursuant to Section 13 (together with its successors in such capacity, "Agent"). Capitalized terms used in this Agreement have the meanings assigned to them in Section 1. R e c i t a l s : Each Borrower has requested that Lenders make available a revolving credit, term loan and letter of credit facility to Borrowers, which shall be used by Borrowers to finance their mutual and collective enterprise of developing, manufacturing and marketing pharmaceutical products for humans and animals. In order to utilize the financial powers of each Borrower in the most efficient and economical manner, and in order to facilitate the financing of each Borrower's needs, Lenders will, at the request of any Borrower, make loans to all Borrowers under the term loan and revolving credit facility on a combined basis and in accordance with the provisions hereinafter set forth. Borrowers' business is a mutual and collective enterprise, and Borrowers believe that the consolidation of all term loan and revolving credit loans under this Agreement will enhance the aggregate borrowing powers of each Borrower and ease the administration of their term and revolving credit loan relationship with Lenders, all to the mutual advantage of Borrowers. Lenders' willingness to extend credit to Borrowers and to administer each Borrower's collateral security therefor, on a combined basis as more fully set forth in this Agreement, is done solely as an accommodation to Borrowers and at Borrowers' request in furtherance of Borrowers' mutual and collective enterprise. Each Borrower has agreed to be jointly and severally liable for loans and all outstanding other obligations under this Agreement and to guarantee the obligations of each of the other Borrowers under this Agreement and each of the other Loan Documents. NOW, THEREFORE, for Ten Dollars ($10.00) and other good and valuable consideration, the parties hereto, intending to be bound hereby, agree as follows:   SECTION 1.   DEFINITIONS; RULES OF CONSTRUCTION 1.1     Definitions. As used in this Agreement, the following terms shall have the following meanings ascribed to them (terms used in the singular to have the same meaning when used in the plural, and vice versa): Account - shall have the meaning given to the term "account" in the UCC and shall include any and all rights of a Borrower to payment for goods sold, leased, licensed, assigned or otherwise disposed of, or for services rendered that are not evidenced by an Instrument or Chattel Paper, whether or not they have been earned by performance. Account Debtor - a Person who is or becomes obligated under or on account of an Account, Chattel Paper or General Intangible. Accounts Formula Amount - on any date of determination thereof, an amount equal to the lesser of: (i) the Revolver Commitments on such date or (ii) the sum of: (x) 85% of the net amount of Eligible Accounts (other than Eligible Generic Accounts) on such date, and (y) the lesser of (I) $30,000,000, (II) 90% of Trailing Receipts and (III) the Applicable Advance Rate of the net amount of Eligible Generic Accounts on such date. As used herein, the phrase "net amount of Eligible Accounts" and "net amount of Eligible Generic Accounts" shall mean (a) the face amount of such Accounts on any date less (without duplication) (b) any and all actual returns, rebates, discounts, credits, allowances, including, any and all direct and indirect customer rebates, floor stock adjustments, general sales allowances and other allowances, accrued free goods, and customer rebate accruals, or Taxes (including sales, excise or other taxes) at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with, or any interest accrued on the amount of, such Accounts at such date, in each case, in accordance with GAAP and consistent with past practices of Borrowers; provided that in no event shall such reserve be greater than the amount of the Account for which a reserve has been established under GAAP. Adjusted LIBOR Rate - for any Interest Period, with respect to LIBOR Loans, the rate of interest per annum determined pursuant to the following formula: LIBOR Rate = Offshore Base Rate ____ 1.00 - Eurodollar Reserve Percentage     Where, "Offshore Base Rate" means the rate per annum appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) 2 Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the Offshore Base Rate shall be, for any Interest Period, the rate per annum appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) 2 Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. If for any reason none of the foregoing rates is available, the Offshore Base Rate shall be, for any Interest Period, the rate per annum determined by Agent as the rate of interest at which Dollar deposits in the approximate amount of the applicable LIBOR Loan would be offered by BofA's London Branch to major banks in the offshore Dollar market at their request at or about 11:00 a.m. (London time) 2 Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. "Eurodollar Reserve Percentage" means for any day during any Interest Period, the reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day applicable to member banks under regulations issued from time to time by the Board of Governors for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Offshore Rate for each outstanding LIBOR Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. Affiliate - with respect to any Person, any other Person (i) who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person; or (ii) who is an officer, director, partner or managing member of such Person. For purposes hereof, "control" means the possession, directly or indirectly, of the power to vote 10% or more of the voting interests of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of any Equity Interest, by contract or otherwise. After-Acquired Real Estate - as such term is defined in Section 7.3 hereof. Agent Advances - as defined in Section 2.1.6. Agent Indemnitees - Agent and all of it's present and future officers, directors, employees, agents and attorneys. Agent Professionals - attorneys, accountants, appraisers, business valuation experts, environmental engineers or consultants, turnaround consultants and other professionals or experts retained by Agent. Agreement - this Loan and Security Agreement and all Exhibits and Schedules thereto. ALI - A.L. Industrier AS. ANDA - an Abbreviated New Drug Application that is filed with the FDA. Anti-Terrorism Laws - any laws relating to terrorism or money laundering, including Executive Order No. 13224 and the USA Patriot Act. Applicable Advance Rate - 85%, subject to adjustment from time to time by Agent in its reasonable credit judgment based upon the Dilution Adjustment. Applicable Law - all laws, rules and regulations applicable to the Person, conduct, transaction, covenant or Loan Document in question, including all applicable common law and equitable principles; all provisions of all applicable state, federal and foreign constitutions, statutes, rules, regulations and orders of Governmental Authorities; and all applicable orders, judgments and decrees of all courts and arbitrators. Applicable Margin - a percentage equal to 0.25% with respect to Revolver Loans that are Base Rate Loans, 1.75% with respect to Revolver Loans that are LIBOR Loans, 1.75% with respect to each Term Loan Advance made or outstanding as a Base Rate Loan, 3.25% with respect to each Term Loan Advance made or outstanding as a LIBOR Loan and 0.30% with respect to the Unused Line Fee, provided that the Applicable Margin shall be increased or decreased, on a quarterly basis (commencing with the first full Fiscal Quarter after the Closing Date), according to the performance of Borrowers as measured by the Average Availability for the immediately preceding Fiscal Quarter, as follows:     REVOLVER LOANS TERM LOAN   LEVEL AVERAGE AVAILABILITY LIBOR LOANS BASE RATE LOANS LIBOR LOANS BASE RATE LOANS UNUSED LINE-FEE I Less than $50,000,000 2.00% 0.50% 3.50% 2.00% 0.25% II Greater than or equal to $50,000,000 but less than $100,000,000 1.75% 0.25% 3.25% 1.75% 0.30% III Greater than or equal to $100,000,000 but less than $150,000,000 1.50% Zero 3.00% 1.50% 0.35% IV Greater than or equal to $150,000,000 1.25% Zero 2.75% 1.25% 0.35% Any such increase or reduction in the Applicable Margin shall be calculated as of the last day of the immediately preceding Fiscal Quarter based upon the Average Availability for such Fiscal Quarter and subject to receipt of a month-end Borrowing Base Certificate for the last Fiscal Month of the immediately preceding Fiscal Quarter. Any such adjustment in the Applicable Margin shall be effective on the third Business Day after Agent's receipt of such Borrowing Base Certificate. Notwithstanding the foregoing, Agent and Lenders shall be entitled to accrue and receive (and Borrowers shall be obligated to pay) interest at the Default Rate to the extent authorized by Section 3.1.5. Appraised Fair Market Value of Eligible Real Estate - on any date and with respect to any Eligible Real Estate, the fair market value of the applicable Eligible Real Estate as determined by reference to the most recent appraisal of the fair market value of such Real Estate received by Agent and acceptable to Agent and performed by an independent appraiser reasonably satisfactory to Agent. Appraised Net Orderly Liquidation Value of Eligible Equipment - on any date with respect to any Eligible Equipment, the value of such Eligible Equipment expected to be realized at an orderly, negotiated sale of such Eligible Equipment that is held within a reasonable period of time, as such value is determined by reference to the most recent Net Orderly Liquidation Value Appraisal received by Agent and acceptable to Agent on or before such date. Approved Credit Enhancement - in Agent's discretion and at its option, either (i) an irrevocable letter of credit that is in form and substance reasonably acceptable to Agent, issued or confirmed by a bank reasonably acceptable to Agent, and payable in Dollars at a place of payment within the United States that is acceptable to Agent (except for sight drafts that are advised by a United States bank acceptable to Agent), where the proceeds of such letter of credit have been assigned to Agent for the benefit of Secured Parties (with such assignment acknowledged by the issuing or confirming bank) or, if so requested by Agent, duly transferred to Agent for the benefit of Lenders (together with sufficient documentation to permit direct draws under any such letter of credit by Agent for the benefit of Lenders) or (ii) credit insurance that is issued by a credit insurance company acceptable to Agent and is in form and substance reasonably acceptable to Agent (which credit insurance shall be payable to Agent for the benefit of Secured Parties in Dollars). Approved Escrow - an escrow of cash with Agent (and over which Agent has control for purposes of the UCC) or with a trustee of the Senior Notes or Convertible Notes that is in an amount sufficient to repay in full the Senior Notes or Convertible Notes, as applicable, and that is subject to an irrevocable letter of instruction from Borrowers that is acceptable to Agent to repay in full the Senior Notes or Convertible Notes, as applicable. Asset Disposition - a sale, lease, license or other transfer or disposition of Property of an Obligor, including a disposition of Property in connection with a sale-leaseback transaction. Assignment and Acceptance - an assignment and acceptance entered into by a Lender and an Eligible Assignee and accepted by Agent, and, if applicable, Borrowers, in the form of Exhibit H. Audit Spring Back Date - as defined in Section 3.2.4 hereof. Availability  - on any date, the amount that Borrowers are entitled to borrow as Revolver Loans on such date, such amount being the difference derived when the sum of the principal amount of Revolver Loans then outstanding (including any outstanding Swingline Loans) is subtracted from the Borrowing Base on such date. If the amount outstanding is equal to or greater than the Borrowing Base, Availability is zero. Availability Reserve - on any date of determination thereof, an amount equal to the sum of the following (without duplication): (i) the Inventory Reserve; (ii) the Rent Reserve; (iii) the LC Reserve; (iv) the aggregate amount of reserves established by Agent from time to time in its reasonable credit judgment in respect of Banking Relationship Debt; (v) the Environmental Reserve; (vi) the aggregate amount of all liabilities and obligations that are secured by Liens upon any of the Collateral that are senior in priority to Agent's Liens if such Liens are not Permitted Liens (provided that the imposition of a reserve hereunder on account of such Liens shall not be deemed a waiver of the Event of Default that arises from the existence of such Liens) or are Permitted Liens for property taxes under Section 10.2.5(ii); (vii) at Agent's election 60 days prior to the maturity of the Convertible Notes, the Convertible Note Reserve; (viii) at Agent's election, a reserve in an amount equal to the amount payable to Plantex USA, Inc. from time to time under the Amended and Restated Supply Agreement dated April 26, 2004, between Plantex and Purepac Pharmaceutical Co.; and (ix) such additional reserves, in such amounts and with respect to such matters, as Agent in its reasonable credit judgment may elect to impose from time to time. If Agent shall elect to establish any reserve under clause (ix) above or to change any of the foregoing reserves to increase the amount of such reserves, then unless an Event of Default exists, Agent agrees to give Borrower Representative notice of such reserve but Agent's failure to give such notice shall not result in any liability to Agent hereunder but until such notice is given, such reserve shall not be effective. If an Event of Default exists, Agent shall not be required to give such notice as provided in the forgoing sentence but may do so at its election. Average Availability - for any period, an amount equal to the sum of the actual amount of Availability on each calendar day during such period, as determined in good faith by Agent, divided by the number of calendar days in such period. Average Revolver Loan Balance - for any period, the amount obtained by adding the unpaid balance of Revolver Loans (excluding Swingline Loans) and LC Obligations at the end of each calendar day for the period in question and by dividing such sum by the number of calendar days in such period. Bank Products - any one or more of the following types of products, services or facilities extended to any Obligor by any Lender or any Affiliate of a Lender: (i) commercial credit cards; (ii) merchant card services; (iii) products or services under Cash Management Agreements; (iv) products under Hedging Agreements; and (v) interstate depository network services. Banking Relationship Debt - Debt or other obligations of an Obligor to any Lender or any Affiliate of a Lender arising out of or relating to Bank Products. Bankruptcy Code - title 11 of the United States Code. Base Rate - the rate of interest announced or quoted by BofA from time to time as its prime rate. The prime rate announced by BofA is a reference rate and does not necessarily represent the lowest or best rate charged by BofA. BofA from time to time makes loans or other extensions of credit at, above or below its announced prime rate. If the prime rate is discontinued by BofA as a standard, a comparable reference rate designated by BofA as a substitute therefor shall be the Base Rate. Base Rate Loan - a Loan, or portion thereof, during any period in which it bears interest at a rate based upon the Base Rate. Blocked Person - (a) a Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224; (b) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224; (c) a Person or entity with which any bank or other financial institution is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; (d) a Person or entity that commits, threatens or conspires to commit or supports "terrorism" as defined in Executive Order No. 13224; (e) a Person or entity that is named as a "specially designated national" on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control (OFAC) at its official website or any replacement website or other replacement official publication of such list; (f) a Person or entity who is affiliated with a Person or entity listed above; or (g) an agency of the government of, an organization directly or indirectly controlled by, or a Person resident in, a country on any official list maintained by OFAC. Board of Governors - the Board of Governors of the Federal Reserve System. BofA - Bank of America, N.A., a national bank, and its successors and assigns. BofA Indemnitees - BofA, Banc of America Securities LLC, and all of their respective present and future officers, directors, employees, agents and attorneys. Borrower Representative - as defined in Section 4.4. Borrowing - a borrowing consisting of Loans of one Type made on the same day by Lenders (or by BofA in the case of a Borrowing funded by Swingline Loans) or a conversion of a Loan or Loans of one Type from Lenders on the same day. Borrowing Base - on any date of determination thereof, an amount equal to the lesser of: (a) the aggregate amount of the Revolver Commitments on such date minus the LC Reserve on such date, or (b) an amount equal to (i) the sum of the Accounts Formula Amount plus the Inventory Formula Amount plus the Fixed Asset Sublimit on such date minus (ii) the Availability Reserve on such date; provided that at any time, the amounts set forth in clause (b) shall be determined by reference to the most recent Borrowing Base Certificate that has been delivered to Agent in accordance with, and subject to the terms of, Section 8.6 hereof and, subject to the adjustment of the Borrowing Base from time to time by Agent in accordance with the terms of this Agreement. Borrowing Base Certificate - a certificate, in a form similar to Exhibit L, as adjusted from time to time in accordance with this Agreement, by which Borrowers shall certify to Agent and Lenders, the amount of the Borrowing Base as of the date of the certificate (which date shall be not more than 25 days earlier than the date of submission of such certificate to Agent) and the calculation of such amount. Business Day - any day excluding Saturday, Sunday and any other day that is a legal holiday under the laws of the State of New York, the State of North Carolina or the State of Georgia or is a day on which banking institutions located in such state are closed; provided, however, that when used with reference to a LIBOR Loan (including the making, continuing, prepaying or repaying of any LIBOR Loan), the term "Business Day" shall also exclude any day on which banks are not open for dealings in Dollar deposits on the London interbank market. Capital Adequacy Regulation - any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case regarding capital adequacy of any bank or of any corporation controlling a bank. Capital Expenditures - expenditures made or liabilities incurred by a Borrower for the acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto which have a useful life of more than one year, including Capitalized Lease Obligations, that are set forth in a consolidated statement of cash flow of Consolidated Group Members for such period prepared in accordance with GAAP. Capitalized Lease Obligation - any Debt represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. Cash Collateral - cash, and any interest or other income earned thereon, that is deposited with Agent in accordance with this Agreement for the Pro Rata benefit of Lenders to Cash Collateralize any LC Obligations or other Obligations. Cash Collateral Account - a demand deposit, money market or other account established by Agent at BofA or such other such financial institution as Agent may select in its discretion, which account shall be in Agent's name and subject to Agent's Liens. Cash Collateralize - with respect to LC Obligations arising from Letters of Credit outstanding on any date or Obligations arising under Hedging Agreements on such date, the deposit with Agent of immediately available funds into the Cash Collateral Account in an amount equal to 103% of the sum of the aggregate Undrawn Amounts of such Letters of Credit and other LC Obligations, all Obligations existing under such Hedging Agreements, and all related fees and other amounts due in connection with such LC Obligations and Hedging Agreements. Cash Equivalents - (i) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government having maturities of not more than 12 months from the date of acquisition; (ii) domestic certificates of deposit and time deposits having maturities of not more than 12 months from the date of acquisition, bankers' acceptances having maturities of not more than 12 months from the date of acquisition and overnight bank deposits, in each case issued by any commercial bank organized under the laws of the United States, any state thereof or the District of Columbia, which at the time of acquisition are rated A-1 (or better) by S&P or P-1 (or better) by Moody's, and (unless issued by a Lender) not subject to offset rights in favor of such bank arising from any banking relationship with such bank; (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (i) and (ii) entered into with any financial institution meeting the qualifications specified in clause (ii) above or with any primary dealer; (iv) commercial paper having at the time of investment therein or a contractual commitment to invest therein a rating of A-1 or next highest (or better) by S&P or P-1 or next highest (or better) by Moody's, and having a maturity within 12 months after the date of acquisition thereof; and (v) shares of any money market fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) - (iv), (b) has net assets not less than $500,000,000 and (c) has the highest or next highest rating obtainable from either Moody's or S&P. Cash Management Agreements - any agreement entered into from time to time between any Borrower or any of its Subsidiaries, on the one hand, and any Lender or any of its Affiliates, on the other, in connection with cash management services for operating, collections, payroll and trust accounts of such Borrower or its Subsidiaries provided by such banking or financial institution, including automatic clearinghouse services, controlled disbursement services, electronic funds transfer services, information reporting services, lockbox services, stop payment services and wire transfer services. CERCLA - the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. Section9601 et seq.). Change of Control - the occurrence of any of the following: (i) at any time after ALI and the EWS Parties cease to beneficially own (within the meaning of Rule 13d-3 promulgated under the Exchange Act) shares of common stock of Parent with a combined voting power sufficient to elect a majority of the board of directors of Parent, any Person (other than Parent or any of its Subsidiaries, ALI or the EWS Parties or any employee benefit plan of Parent or any of its Subsidiaries which acquires beneficial ownership of voting interests of Parent) shall acquire, or acquire the power to vote or direct the voting of, 30% or more, on a fully diluted basis, of the outstanding Equity Interests of Parent; (ii) a Consolidated Group Member is merged with or into another Person, other than a Consolidated Group Member except as permitted under Section 10.2.1; (iii) any Person or related group of Persons acquires by way of a purchase, merger, consolidation or other business combination a majority of the Equity Interests entitled to vote in the election of directors of Parent (other than ALI or an EWS Party); or (iv) a change in the majority of the board of directors of Parent unless approved by the then majority of the board of directors of Parent, provided, however, that for the purpose of clauses (i) and (iii) above, the terms "Person" shall not be deemed to include (x) ALI, (y) the stockholders of ALI in the case of a distribution of shares of capital stock of Parent beneficially owned by ALI to the stockholders of ALI, unless a Change of Control of ALI has occurred or occurs concurrently with such a distribution, or in a series of related transactions of which such distribution is a part (determined without regard to the exclusion for stockholders of ALI provided for in this clause (y) of this proviso), provided that the exclusion for stockholders of ALI provided for in this clause (y) shall not apply to any subsequent acquisition of shares of common stock of Parent by any such person (other than any of the persons described in clause (z) below) or (z) E.W. Sissener, his spouse, any heir or descendant of Mr. Sissener or the spouse of any such heir or descendant or the estate of Mr. Sissener (each, an "EWS Party") or any trust or other similar arrangement for the benefit of any EWS Party or any corporation or other person or entity controlled by one or more EWS Parties, or any group controlled by one or more EWS Parties. For purposes of the above sentence, (i) a "liquidation" or "dissolution" shall not be deemed to include any transfer of the Equity Interests in Parent solely to any of the Persons described in clauses (x), (y) and (z) of the proviso in such sentence and (ii) a "Change of Control of ALI" shall be determined in accordance with this definition of "Change of Control" (without regard to clauses (x) and (y) in the proviso of the preceding sentence), with each reference to Parent in such definition being deemed to refer to ALI. Chattel Paper - shall have the meaning given to the term "chattel paper" in the UCC. Claims - all liabilities, losses, damages, actions, judgments, suits and related charges, expenses and disbursements of any kind or nature (including reasonable attorneys' fees and expenses for one counsel (and local counsels if determined by Agent) for Agent, and one counsel for all other Indemnitees) which may at any time (including at any time following Full Payment of the Obligations, termination of the Commitments, resignation or replacement of Agent or replacement of any Lender) be imposed on, incurred by, or asserted against any Indemnitee in any way relating to or arising out of (i) the enforcement under any of the Loan Documents or consummation of any of the transactions described herein, (ii) any action taken or omitted to be taken by any Indemnitee under or in connection with any of the Loan Documents or Applicable Law, (iii) the existence, perfection or realization upon Agent's Liens upon any Collateral, (iv) the exercise by Agent or any Lender of any of its rights or remedies under any of the Loan Documents or Applicable Law, or (v) the failure of any Obligor to observe, perform or discharge any of such Obligor's covenants or duties under any of the Loan Documents or the inaccuracy or incompleteness of any representation or warranty of any Borrower in any of the Loan Documents, in each case including any costs or expenses incurred by any Indemnitee in connection with any investigation, litigation, arbitration or other judicial or non-judicial proceeding (including any Insolvency Proceeding or appellate proceedings) whether or not such Indemnitee is a party thereto; provided, however that notwithstanding anything to the contrary contained in this Agreement, no party shall have any obligation under this Agreement to indemnify an Indemnitee with respect to any Claim to the extent that it is determined in a final, non-appealable judgment by a court of competent jurisdiction that such Claim resulted from the gross negligence or willful misconduct of such Indemnitee (or its officers, directors, employees, agents or attorneys). Closing Date - the date on which all of the conditions precedent in Section 11 are satisfied or waived and the initial Loans are made under this Agreement. Collateral - all of the Property and interests in Property described in Section 7; all Property described in any of the Security Documents as security for the payment or performance of any of the Obligations; and all other Property and interests in Property that now or hereafter secure (or are intended to secure) the payment and performance of any of the Obligations. Commercial Tort Claim - shall have the meaning given to the term "commercial tort claim" in the UCC. Commitment - at any date for any Lender, the amount of such Lender's Revolver Commitment and Term Loan Commitment on such date, and "Commitments" means the aggregate amount of all Revolver Commitments and Term Loan Commitments on such date. Commitment Termination Date - the date that is the soonest to occur of (i) the last day of the Term; (ii) the date on which either Borrowers or Agent terminate the Revolver Commitments pursuant to Section 6.2; or (iii) the date on which the Revolver Commitments are automatically terminated pursuant to Section 12.2. Compliance Certificate - a Compliance Certificate to be provided by Borrowers to Agent in accordance with, and in the form annexed as Exhibit F to, this Agreement and the supporting schedules to be annexed thereto. Consolidated - the consolidation in accordance with GAAP of the accounts or other items as to which such term applies. Consolidated Group - Parent and each of its Domestic Subsidiaries. Consolidated Group Member - a Person that is in the Consolidated Group. Consolidated Net Income - for any period, the net income of the Consolidated Group for such period, determined on a Consolidated basis and in accordance with GAAP but excluding for each such period (without duplication): (a) any gain or loss arising from the sale of capital assets; (b) any gain arising from any write-up of assets during such period and any loss arising from any write down of assets during such period; (c) net income of any Consolidated Group Member accrued prior to the date it became a Consolidated Group Member; (d) net income of any other Person, substantially all the assets of which have been acquired in any manner by a Consolidated Group Member, realized by such Person and accrued prior to the date of such acquisition; (e) net income of any entity (other than a Consolidated Group Member) in which a Consolidated Group Member has an ownership interest (unless such net income has actually been received by a Consolidated Group Member in the form of cash Distributions but excluding such cash Distributions that have been used to repay, defease or redeem the Senior Notes or the Convertible Notes); (f) the net income of any Consolidated Group Member to the extent that such Consolidated Group Member is prohibited from making any payment of Distributions to any Consolidated Group Member; (g) the net income of any Person (other than a Consolidated Group Member) into which a Consolidated Group Member shall have merged or consolidated with, accrued prior to the date of such transaction; and (h) the net income of any Person in which a Person other than such Person or any of its Subsidiaries owns or otherwise holds an Equity Interest, except to the extent such income (or loss) shall have been received in the form of distributions actually paid to such Person or any of its Subsidiaries by such other Person during such period. Contingent Obligation - with respect to any Person, any obligation of such Person arising from any guaranty or other assurance of payment or performance of any Debt, lease, dividend or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including (i) the direct or indirect guaranty, endorsement (other than for collection or deposit in the Ordinary Course of Business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (ii) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement (excluding standard minimum purchase requirements under supply agreements with Borrowers' vendors in the Ordinary Course of Business), (iii) 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 (1) for the purchase or payment of any such primary obligations or (2) 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 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 Obligations" shall not include contingent obligations incurred in the Ordinary Course of Business or any indemnities given under or liabilities retained in connection with any Permitted Asset Disposition, Permitted Acquisition or Permitted Investment. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation with respect to 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 with respect thereto, as determined by such Person in good faith. Controlled Disbursement Account - a demand deposit account maintained by Borrowers at BofA and to which proceeds of Loans may be wired from time to time. Convertible Indenture - that certain Indenture dated as of June 2, 1999, between Parent and First Union National Bank (now known as Wachovia Bank, National Association), as Trustee, pursuant to which Parent issued the Convertible Notes, as amended or modified in accordance herewith. Convertible Note Documents - the Convertible Notes, the Convertible Indenture and any and all other documents, agreements or instruments executed in connection therewith or pursuant thereto. Convertible Note Reserve - a reserve in an amount equal to the outstanding principal amount of the Convertible Notes plus all accrued interest thereon and fees payable under the terms of the Convertible Notes. Convertible Notes - the $170,000,000 3% Convertible Senior Subordinated Notes due June 1, 2006 issued by Parent. Covenant Spring-Back Date - as such term is defined in Section 10.3.1. CWA - the Clean Water Act (33 U.S.C. SectionSection 1251 et seq.). Debt - as applied to a Person means, without duplication: (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as of the date as of which Debt is to be determined, including Capitalized Lease Obligations; (ii) all Contingent Obligations of such Person; (iii) all reimbursement obligations in connection with letters of credit or letter of credit guaranties issued for the account of such Person; and (iv) in the case of a Borrower (without duplication), the Obligations; provided that the amount of any contingent liability under any indemnity obligation existing under any document or agreement evidencing such Debt shall, to the extent such contingent liability is unrelated to the underlying financial obligations of such Person in respect of such Debt, be excluded from the definition of "Debt" until such time as when such contingent liability matures or is or should be reported as "debt" for the purposes of GAAP. The Debt of a Person shall include any recourse Debt of any partnership or joint venture in which such Person is a general partner or joint venturer to the extent such Person is liable therefor. Default - an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default. Default Rate - on any date, a rate per annum that is equal to (i) in the case of each Revolver Loan outstanding on such date and the principal balance of the Term Loan outstanding on such date, 2% in excess of the rate otherwise applicable to such Loans on such date, and (ii) in the case of any of the other Obligations outstanding on such date, 2.50% in excess of the Base Rate in effect on such date. Deposit Account - shall have the meaning given to the term "deposit account" in the UCC. Deposit Account Control Agreements - the Deposit Account Control Agreements to be executed by each depository institution of a Borrower in favor of Agent as security for the Obligations, in accordance with Section 8.5. Dilution Adjustment - a reduction in the advance rate against Eligible Generic Accounts from time to time based upon dilution of Borrowers' Generic Accounts during a calendar month prior to the date of determination, as established by Borrowers' records or by a field examination conducted by Agent's employees or representatives, as the same may be adjusted by Agent in the exercise of its reasonable credit judgment. Distribution - in respect of any entity, (i) any payment of any dividends or other distributions on Equity Interests of the entity (except distributions in such Equity Interests) and (ii) any purchase, redemption or other acquisition or retirement for value of any Equity Interests of the entity unless made contemporaneously from the net proceeds of the sale of Equity Interests. Document - shall have the meaning given to the term "document" in the UCC. Dollars and the sign $ - lawful money of the United States of America. Domestic Subsidiary - a Subsidiary of a Borrower (other than a Subsidiary that is a Borrower) that is incorporated under the laws of a state of the United States or the District of Columbia. Dominion Account - a special account of Agent established by Borrowers at BofA and over which Agent shall have exclusive access and control for withdrawal purposes. Dominion Spring-Back Date - as such term is defined in Section 8.2.5(ii). EBITDA - on any date of determination thereof, with respect to the Consolidated Group (A) Consolidated Net Income plus to the extent included (i) non-cash expenses including non-cash restructuring charges and impairment charges; (ii) any non-cash gain arising from extraordinary or non-recurring items; (iii) impairment or amortization of goodwill and other intangibles; (iv) costs and expenses incurred in connection with the entering into by the Obligors of the Loan Documents, any defeasance, redemption, refinancing or escrow of the Senior Notes and the Convertible Notes occurring after the Closing Date, acquisitions or dispositions permitted hereunder (including any Permitted Portfolio Transaction); (v) all non-cash expenses taken in connection with employee stock options and other employee equity awards following adoption of Financial Accounting Standard 123R; (vi) provision for taxes based upon income; (vii) interest expense; and (viii) depreciation and amortization expenses, all as determined in accordance with GAAP on a Consolidated basis. Electronic Chattel Paper - shall have the meaning given to the term "electronic chattel paper" in the UCC. Eligible Account - an Account that arises in the Ordinary Course of Business of a Borrower from the sale of goods, is payable in Dollars, is subject to Agent's duly perfected Lien, and is deemed by Agent, in its reasonable credit judgment, to be an Eligible Account. Without limiting the generality of the foregoing, no Account shall be an Eligible Account if (i) it arises out of a sale made by a Borrower to an Affiliate of a Borrower, a Person controlled by an Affiliate of a Borrower or a Blocked Person; (ii) it is unpaid for more than 60 days after the original due date shown on the invoice; (iii) it is due or unpaid more than 150 days after the original invoice date; (iv) 50% or more of the Accounts from the Account Debtor are not deemed Eligible Accounts hereunder; (v) the total unpaid Accounts of the Account Debtor exceed 15% of the aggregate amount of all Eligible Accounts (or exceed 40% of the aggregate amount of all Accounts if the Account Debtor is AmeriSource, Wal-Green, Cardinal Health or McKesson) or exceed a higher credit limit established by Agent for such Account Debtor, in each case, to the extent of such excess; (vi) any covenant, representation or warranty contained in this Agreement with respect to such Account has been breached in any material respect; (vii) the Account Debtor is also such Borrower's creditor or supplier, or has disputed liability with respect to such Account or has made any claim with respect to any other Account due from such Account Debtor to such Borrower, or the Account otherwise is or may become subject to any right of setoff, counterclaim, recoupment, reserve, defense or chargeback, provided that, the Accounts of such Account Debtor shall be ineligible only to the extent of such dispute or right of offset, counterclaim, recoupment, reserve, defense or chargeback; (viii) an Insolvency Proceeding has been commenced by or against the Account Debtor or the Account Debtor has failed, suspended or ceased doing business or the Account Debtor is unable in general to pay its debts as they become due; (ix) it arises from a sale to an Account Debtor that is organized under the laws of any jurisdiction outside of the United States except to the extent that the sale is supported or secured by an Approved Credit Enhancement; (x) it arises from a sale to the Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, or consignment basis (unless each of the Permitted Consignment Sale Conditions have been satisfied) or any other repurchase or return basis; (xi) the Account Debtor is the United States of America or any department, agency or instrumentality thereof, unless the applicable Borrower is not prohibited from assigning the Account and does assign its right to payment of such Account to Agent, in a manner satisfactory to Agent, so as to comply with the Assignment of Claims Act of 1940 (31 U.S.C. Section3727 and 41 U.S.C. Section15), or is a state, county or municipality, or a political subdivision or agency thereof and Applicable Law disallows or restricts an assignment of Accounts on which it is the Account Debtor; (xii) the Account Debtor is located in New Jersey, Minnesota, Indiana or any other jurisdiction which imposes conditions on the right of, or restricts the ability of, a creditor to collect accounts receivable unless the applicable Borrower has either qualified to transact business in such jurisdiction as a foreign entity or filed a Notice of Business Activities Report or other required report with the appropriate officials in those jurisdictions for the then current year; (xiii) the Account is subject to a Lien other than a Permitted Lien; (xiv) the goods giving rise to such Account have not been delivered to and accepted by the Account Debtor or the Account otherwise does not represent a final sale; (xv) the Account is evidenced by Chattel Paper or an Instrument of any kind, or has been reduced to judgment; (xvi) the Account represents a progress billing or a retainage or arises from a sale on a cash-on-delivery basis; (xvii) such Borrower has made any agreement with the Account Debtor for any deduction therefrom, except for discounts or allowances which are made in the Ordinary Course of Business and which discounts or allowances are reserved for by Borrowers in accordance with GAAP; (xviii) such Borrower has made an agreement with the Account Debtor to extend the time of payment thereof; (xix) the Account represents, in whole or in part, a billing for interest, fees or late charges, provided that such Account shall be ineligible only to the extent of the amount of such billing; (xx) the Account Debtor has made a partial payment with respect to such Account; (xxi) it arises from the sale of Inventory that is not Eligible Inventory pursuant to clause (ii) of the definition of "Eligible Inventory"; or (xxii) it arises from a retail sale of Inventory to a Person who is purchasing the same primarily for personal, family or household purposes; provided, that, notwithstanding anything to the contrary set forth in this definition, Accounts arising from the generics business of Borrowers shall be included in Eligible Accounts subject to a reserve (which in no event shall be greater than the amount of the Account for which a reserve has been established under GAAP) in accordance with GAAP, consistent with the past practices of Borrowers and so long as Agent otherwise deems such Account to be an Eligible Account in its reasonable credit judgment. Eligible Assignee - a Person that is a Lender, a U.S. based Affiliate of a Lender or an Approved Fund (as defined below); a commercial bank, finance company, or other financial institution, in each case that is organized under the laws of the United States or any state, has total assets in excess of $5 billion, extends asset-based lending facilities of the type contemplated herein in the Ordinary Course of Business and whose becoming an assignee would not constitute a prohibited transaction under Section 4975 of ERISA or any other Applicable Law, is acceptable to Agent and, unless an Event of Default exists, Borrowers (such approval by Borrowers, when required, not to be unreasonably withheld or delayed) and, at any time that an Event of Default exists, any other Person (other than a competitor of Borrowers) acceptable to Agent in its discretion. The term "Approved Fund" means with respect to any Lender, 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 Business of such Person and that is administered or managed by (i) such Lender, (ii) an Affiliate of such Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender. Eligible Equipment - new Equipment located in the United States which (i) is owned by a Borrower and has been delivered to and accepted by a Borrower and installed at premises owned or leased by a Borrower; (ii) is subject to Agent's duly perfected security interest and no other Lien that is not a Permitted Lien; (iii) does not and will not, after delivery to and installation at a Borrower's premises (other than premises owned by any Consolidated Group Member), constitute a fixture under Applicable Law unless each landlord and mortgagee in respect of such premises have executed in favor of Agent a Lien Waiver; and (iv) does not and will not, after delivery to and installation at a Borrower's premises, constitute an accession to other Equipment that is subject to any Lien (whether or not a Permitted Lien) in favor of any Person other than Agent unless the holder of any such Lien agrees to disclaim any interest in the Eligible Equipment. Eligible Generic Account - a Generic Account that otherwise constitutes an Eligible Account. Eligible Inventory - Inventory which is owned by a Borrower (other than packaging or shipping materials, labels, samples, display items, bags and manufacturing supplies) and which Agent, in its reasonable credit judgment, deems to be Eligible Inventory. Without limiting the generality of the foregoing, no Inventory shall be Eligible Inventory unless: (i) it is raw materials or finished goods; (ii) it is owned by a Borrower and it is not held by such Borrower on consignment from or subject to any guaranteed sale, sale-or-return, sale-on-approval or repurchase agreement with any supplier; (iii) it is not damaged, not defective, not obsolete, not otherwise unfit for sale and is in good and saleable condition and is not goods returned to such Borrower by or repossessed from an Account Debtor; (v) it is and continues to be FDA-approved and meets all other material standards imposed by any Governmental Authority; (vi) it conforms in all material respects to the warranties and representations set forth in this Agreement and is fully insured in the manner required by this Agreement; (vii) it is at all times subject to Agent's duly perfected, first priority security interest and no other Lien except a Permitted Lien; (viii) it is in such Borrower's possession and control at a location in compliance with this Agreement, is not in transit or outside the United States (except for Permitted Canadian Inventory) and is not consigned to any Person unless each of the Permitted Consignment Sale Conditions have been satisfied; (ix) it is not the subject of a negotiable warehouse receipt or other negotiable Document; (x) it has not been sold or leased and such Borrower has not received any deposit or downpayment in respect thereof in anticipation of a sale; (xi) no more than 50% of such Inventory consists of a single product; (xii) the age for a human health generic or an animal health generic is no more than 360 days and 180 days, respectively, prior to its expiration date; and (xiii) it appears in the details of a current perpetual inventory report. Eligible Real Estate - the Real Estate listed on Exhibit K and other Real Estate in the United States that is owned by a Borrower in fee simple title or which is subject to a ground lease reasonably acceptable to Agent, which satisfies each of the following conditions as determined by Agent: (i) Agent has a perfected first-priority Lien in such Real Estate for the benefit of the Secured Parties (subject only to Permitted Liens) and the applicable Borrower has executed and delivered to Agent such Mortgages and other documents as Agent may request; (ii) such Real Estate has been appraised by a third party appraiser reasonably acceptable to Agent and the results of such appraisal are satisfactory in all respects to Agent; (iii) Agent has received an environmental site assessment of such Real Estate acceptable to Agent in all respects; (iv) such Real Estate is improved by fully constructed buildings occupied by Borrowers and utilized as Borrowers' corporate offices or for their manufacturing, development and distribution of pharmaceutical products; and (v) the applicable Borrower has delivered to Agent title insurance, surveys, flood insurance certifications and other real estate items, as required by, and satisfactory to, Agent, including, but not limited to, those items required by FIRREA. Enforcement Action - action taken or to be taken by Agent, during any period that an Event of Default exists, to enforce collection of the Obligations or to realize upon the Collateral (whether by judicial action, under power of sale, by self-help repossession, by notification to Account Debtors, or by exercise of rights of setoff or recoupment). Environmental Agreement - the Agreement Regarding Environmental Matters to be executed by Borrowers in favor of Agent on or about the Closing Date, which Agreement sets forth the understanding and agreements of Indemnitees, Agent and Lenders with respect to environmental matters and by which each Borrower shall, among other things, indemnify Agent and Lenders from liability for such Borrower's failure to comply with any Environmental Laws. Environmental Laws - all federal, state, local and foreign laws, rules, regulations, codes, ordinances, orders and consent decrees (together with all programs, permits and guidance documents promulgated by regulatory agencies, to the extent having the force of law), now or hereafter in effect, that relate to public health (but excluding occupational safety and health, to the extent regulated by OSHA) or the protection or pollution of the environment, whether new or hereafter in effect, including CERCLA, RCRA and CWA. Environmental Reserve - a reserve to be included in the Availability Reserve in an amount equal to the costs and expenses of remediation with respect to any of the Real Estate, as determined by Agent in its reasonable credit judgment. Agent may release all or any portion of such Environmental Reserve upon receipt by Agent of written evidence, satisfactory to Agent in all respects, that such remediation has been completed and that the Real Estate is in compliance with all Environmental Laws. Equipment - shall have the meaning given to the term "equipment" in the UCC and shall include all of each Borrower's machinery, apparatus, equipment, fittings, furniture, fixtures and other tangible personal Property (other than Inventory) of every kind and description, whether now owned or hereafter acquired by such Borrower and wherever located, and all parts, accessories and special tools therefor, all accessions thereto, and all substitutions and replacements thereof, excluding motor vehicles. Equity Interest - the interest of (i) a shareholder in a corporation, (ii) a partner (whether general or limited) in a partnership (whether general, limited or limited liability), (iii) a member in a limited liability company, or (iv) any other Person having any other form of equity security or ownership interest. ERISA - the Employee Retirement Income Security Act of 1974. Euro Debt - any Debt incurred or issued by any Foreign Subsidiary of Parent, which indebtedness could include, without limitation, a European high yield offering, an asset based credit facility and/or a bridge facility. Event of Default - as defined in Section 12. EWS Party - has the meaning ascribed to such term in the definition of "Change of Control." Excess Borrowing Base Amount - the amount by which the Borrowing Base on any date of determination exceeds the Pro Forma Borrowing Base. Excess FAS Amount - on any date of determination, the difference between (i) the Fixed Asset Sublimit on the Closing Date, as reduced after the Closing Date by the quarterly amortization amounts referenced in the definition of Fixed Asset Sublimit and (ii) on any date of determination after the Closing Date in connection with a prepayment under Section 5.3.3, an amount equal to the sum of (I) 85% of the Appraised Net Orderly Liquidation Value of Eligible Equipment and (II) 65% of the Appraised Fair Market Value of Eligible Real Estate. Exchange Act - the Securities Exchange Act of 1934, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. Excluded Subsidiary - a Domestic Subsidiary of Parent that is formed by Parent solely for purposes of administrative filings with the FDA and that does not have any assets on an on-going basis other than (i) ANDAs that are subsequently transferred to a Borrower and (ii) sufficient capitalization to carry out the purposes for which it was formed. Executive Order No. 13224 - Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001. Extraordinary Expenses - all costs, expenses, fees (including fees incurred to Agent Professionals) or advances that Agent (or any Lender) may suffer or incur in connection with the Obligations or the Loan Documents during any period that an Event of Default exists, or during the pendency of an Insolvency Proceeding of an Obligor, on account of or in connection with (i) the audit, inspection, repossession, storage, repair, appraisal, insuring, completion of the manufacture of, preparing for sale, advertising for sale, selling, collecting or otherwise preserving or realizing upon any Collateral; (ii) any action, suit, litigation, arbitration, contest or other judicial or non-judicial proceeding (whether instituted by or against Agent, any Lender, any Obligor, any representative of creditors of any Obligor or any other Person) in any way arising out of or relating to any of the Collateral (or the validity, perfection, priority or avoidability of Agent's Liens with respect to any of the Collateral), any of the Loan Documents or the validity, allowance or amount of any of the Obligations, including any lender liability or other Claims asserted against Agent or any Lender; (iii) the exercise, protection or enforcement of any rights or remedies of Agent in, or the monitoring of, any Insolvency Proceeding; (iv) the settlement or satisfaction of any Liens upon any Collateral (whether or not such Liens are Permitted Liens); (v) the collection or enforcement of any of the Obligations, whether by Enforcement Action or otherwise; (vi) the negotiation, documentation, and closing of any amendment, waiver, restructuring or forbearance agreement with respect to the Loan Documents or Obligations; (vi) amounts advanced by Agent pursuant to Sections 8.1.3 or 15.10; or (viii) the enforcement of any of the provisions of any of the Loan Documents; provided, however, that such expenses shall include the reasonable legal fees and expenses of only one counsel to Agent (and any necessary local counsel as determined by Agent) and in addition, Lenders who are not the Agent shall be entitled to reimbursement for no more than one counsel representing all such Lenders (absent a conflict of interest in which case Lenders may engage and be reimbursed for additional counsel). Extraordinary Expenses shall not include the allocation of any overhead expenses consisting of rent, utilities and employee salaries of any Secured Party. Such costs, expenses and advances may include transfer fees, taxes, storage fees, insurance costs, permit fees, utility reservation and standby fees, legal fees, appraisal fees, brokers' fees and commissions, auctioneers' fees and commissions, accountants' fees, environmental study fees, wages and salaries paid to employees of any Borrower or independent contractors in liquidating any Collateral, travel expenses, all other fees and expenses payable or reimbursable by Borrowers or any other Obligor under any of the Loan Documents, and all other reasonable fees and expenses associated with the enforcement of rights or remedies under any of the Loan Documents, but excluding compensation paid to employees (including inside legal counsel who are employees) of Agent or any Lender and in each case, subject to the limitations set forth above. FDA - the United States Food and Drug Administration, and any Governmental Authority succeeding to any of its principal functions. Federal Funds Rate - for any period, a fluctuating interest rate per annum equal for each date during such period to 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 for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from 3 federal funds brokers of recognized standing selected by Agent. Fee Letter - the fee letter agreement dated on or before the Closing Date among Agent, Banc of America Securities LLC and Borrowers. FEIN - with respect to any Person, the Federal Employer Identification Number of such Person. Financed Capital Expenditures - (i) Capital Expenditures funded with the proceeds of Debt permitted under Section 10.2.3, including Permitted Purchase Money Debt (excluding Loans) and those represented by Capitalized Lease Obligations, (ii) Capital Expenditures funded with the proceeds of any equity securities issued or capital contributions received, or Debt borrowed (other than Borrowings under this Agreement) by any Consolidated Group Member, (iii) Capital Expenditures that satisfy the requirements of a Permitted Acquisition or Permitted Investment, (iv) any expenditures which are contractually required to be, and are, reimbursed to a Consolidated Group Member in cash by a third party (including landlords) during such period of calculation, (v) Capital Expenditures made with the cash proceeds of any insurance, condemnation or eminent domain event, or (vi) Capital Expenditures made with the cash proceeds from any Permitted Asset Disposition (other than proceeds of any Inventory, Accounts, Eligible Equipment and Eligible Real Estate). FIRREA - Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Fiscal Month - each calendar month in Borrowers' Fiscal Year. Fiscal Quarter - the period commencing January 1 in any Fiscal Year and ending on the next succeeding March 31, the period commencing April 1 in any Fiscal Year and ending on the next succeeding June 30, the period commencing July 1 in any Fiscal Year and ending on the next succeeding September 30 or the period commencing October 1 in any Fiscal Year and ending on the next succeeding December 31, as the context may require, or, if any such Subsidiary was not in existence on the first day of any such period, the period commencing on the date on which such Subsidiary is incorporated, organized, formed or otherwise created and ending on the last day of such period. Fiscal Year - the fiscal year of Borrowers and their Subsidiaries for accounting and tax purposes, which ends on December 31 of each year. Fixed Asset Sublimit - on any date of determination thereof, an amount equal to the lesser of (i) the sum of (x) 85% of the Appraised Net Orderly Liquidation Value of Eligible Equipment and (y) 65% of the Appraised Fair Market Value of Eligible Real Estate or (ii) $50,000,000. The Fixed Asset Sublimit shall be reduced on a quarterly basis in accordance with the following schedule: Amortization Date Quarterly Amortization Amount 12/31/2006 1,250,000 03/31/2007 1,250,000 06/30/2007 1,250,000 09/30/2007 1,250,000 12/31/2007 1,250,000 03/31/2008 1,250,000 06/30/2008 1,250,000 09/30/2008 1,250,000 12/31/2008 2,750,000 03/31/2009 2,750,000 06/30/2009 2,750,000 09/30/2009 2,750,000 12/31/2009 4,375,000 03/31/2010 4,375,000 06/30/2010 4,375,000 09/30/2010 4,375,000     The remainder of the Fixed Asset Sublimit shall be reduced to zero on the Commitment Termination Date. Fixed Charge Coverage Ratio - for any period, the ratio of (a) EBITDA for such period minus Capital Expenditures (excluding Financed Capital Expenditures) for such period, to (b) the sum of all Fixed Charges for such period, all calculated for the Consolidated Group on a Consolidated basis. Fixed Charges - for any fiscal period, the sum of (i) interest expense of the Consolidated Group (other than interest payable-in-kind to the extent not paid in cash) for such period less interest income of the Consolidated Group for such period plus (ii) scheduled principal payments on Funded Debt of the Consolidated Group (including scheduled principal payments of Capitalized Lease Obligations but excluding the scheduled reductions of the Fixed Asset Sublimit, and any repurchase or defeasance of the Convertible Notes or the Senior Notes) during such period plus (iii) Distributions made by Parent or Distributions made by any other Borrower to a Person that is not a Borrower during such period plus (iv) cash incomes taxes (net of cash refunds received) paid during such period. FLSA - the Fair Labor Standards Act of 1938. Food and Drug Laws - all federal, state or local statues, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, licenses, authorization and permits of, and agreements with, any United States and foreign Governmental Authority, in each case relating to manufacture, sale, testing, handling, management, marketing and disposal or pharmaceutical, medical device, biological and drug products, including but not limited to those relating to good manufacturing practices, good clinical practices, labeling, record keeping and obligations for products for which (a) monograph conditions must be met, or (b) a 510K or similar application must be filed, or (c) approval of the FDA and/or similar foreign Governmental Authority is required, before they may be marketed or sold. Foreign Lender - any Lender that is organized under the laws of a jurisdiction other than the laws of the United States, any state thereof or the District of Columbia. Foreign Subsidiary - a Subsidiary that is not a Domestic Subsidiary. Full Payment - with respect to any of the Obligations, the full and final payment in full, in cash and in Dollars, of such Obligations (other than contingent indemnification obligations for which no claim has been made or asserted), including all interests, fees and other charges payable in connection therewith under any of the Loan Documents, whether such interests, fees or other charges accrue or are incurred prior to or during the pendency of an Insolvency Proceeding and whether or not any of the same are allowed or recoverable in any bankruptcy case pursuant to Section 506 of the Bankruptcy Code or otherwise; with respect to any LC Obligations represented by undrawn Letters of Credit and Banking Relationship Debt (including Debt arising under Hedging Agreements), the depositing of cash with Agent, as security for the payment of such Obligations, not to exceed 103% of the aggregate undrawn amount of such Letters of Credit and 100% of Agent's good faith estimate of the amount of Banking Relationship Debt due and to become due after termination of such Bank Products; and with respect to any Obligations that are contingent in nature (other than Obligations consisting of LC Obligations or Banking Relationship Debt), such as a right of Agent or a Lender to indemnification by any Obligor, the depositing of cash with Agent in an amount equal to 100% of such Obligations or, if such Obligations are unliquidated in amount and represent a claim which has been overtly asserted (or is reasonably probable of assertion) against Agent or a Lender and for which an indemnity has been provided by Borrowers in any of the Loan Documents, in an amount that is equal to such claim or Agent's good faith estimate of such claim. None of the Loans shall be deemed to have been paid in full until all Commitments related to such Loans have expired or been terminated. Funded Debt - with respect to the Consolidated Group, the sum, without duplication, of (i) the aggregate amount of Debt of the Consolidated Group consisting of (a) the borrowing of money or the obtaining of credit (other than accrued expenses and accounts payables incurred in the Ordinary Course of Business and any repurchase, redemption, refinancing in full or defeasance of, or Approved Escrow with respect to, the Senior Notes or the Convertible Notes and the Senior Notes and the Convertible Notes to the extent so defeased or escrowed), including the Obligations on any date of determination (but excluding repayment and reborrowing of Revolver Loans), and any other notes or bonds, (b) the deferred purchase price of assets (other than trade payables incurred in the Ordinary Course of Business), or (c) Capitalized Lease Obligations, plus (ii) Debt of the type referred to in clause (i) of another Person guaranteed by a Consolidated Group Member, in each case as determined on a Consolidated basis. GAAP - generally accepted accounting principles in the United States of America in effect from time to time. General Intangibles - shall have the meaning given to the term "general intangibles" in the UCC and shall include each Borrower's choses in action, causes of action, company or other business records, inventions, blueprints, designs, patents, patent applications, trademarks, trademark applications, trade names, trade secrets, service marks, goodwill, brand names, copyrights, registrations, licenses, franchises, customer lists, permits, tax refund claims, computer programs, operational manuals, internet addresses and domain names, insurance refunds and premium rebates, all rights to indemnification and all other intangible property of such Borrower of every kind and nature (other than Accounts). Generic Account - an Account that arises from sales of generic pharmaceuticals made through Alpharma USPD Inc. or Purepac Pharmaceutical Co. Goods - shall have the meaning given to the term "goods" in the UCC. Governmental Approvals - all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all Governmental Authorities. Governmental Authority - any federal, state, municipal, national, foreign or other governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions of any government or any court, in each case whether associated with a state of the United States, the District of Columbia or a foreign entity or government. Guarantors - each Person after the Closing Date who guarantees payment or performance of the whole or any part of the Obligations. Guaranty - each guaranty agreement now or hereafter executed by a Guarantor in favor of Agent with respect to any of the Obligations. Hedging Agreement - any interest rate protection agreement, interest rate swap, cap, collar agreements, foreign currency exchange agreement, forward, future or option contract, currency swap agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement or other similar agreements. Impermissible Qualification - any qualification or exception to the opinion or certification of any independent public accountant as to any financial statement of Parent and its Subsidiaries which (i) is of a "going concern" or similar nature, or (ii) relates to the limited scope of examination of matters relevant to such financial statements. Indemnitees - the Agent Indemnitees, the Lender Indemnitees, the Issuing Bank Indemnities and the BofA Indemnitees. Initial Lender - BofA, in its capacity as a "Lender" under this Agreement on the Closing Date. Insolvency Proceeding - any action, case or proceeding commenced by or against a Person under any state, federal or foreign bankruptcy, insolvency, receivership or similar law for (i) the entry of an order for relief under any chapter of the Bankruptcy Code or other bankruptcy insolvency, receivership or similar law (whether state, federal or foreign), (ii) the appointment of a receiver (or administrative receiver), trustee, liquidator, administrator or conservator for such Person or any substantial part of its Property, (iii) a general assignment or trust mortgage for the benefit of creditors of such Person, or (iv) except to the extent otherwise expressly permitted herein, the liquidation, dissolution or winding up of the affairs of such Person. Instrument - shall have the meaning given to the term "instrument" in the UCC. Intellectual Property - all intellectual and intangible Property and other similar Property of a Person of every kind and description, including inventions, designs, patents, patent applications, copyrights, trademarks, service marks, trade names, mask works, trade secrets, confidential or proprietary information, know-how, software and databases and all embodiments or fixations thereof and related documentation, registrations and all licenses, or other rights to use any of the foregoing. Intellectual Property Claim - the assertion by any Person of a claim (whether asserted in writing, by action, suit or proceeding or otherwise) that any Borrower's ownership, use, marketing, sale or distribution of any Inventory, Equipment, Intellectual Property or other Property is violative of any ownership of or right to use any Intellectual Property of such Person. Interest Period - shall have the meaning ascribed to it in Section 3.1.3. Inventory - shall have the meaning given to the term "inventory" in the UCC and shall include all goods intended for sale or lease by a Borrower, or for display or demonstration; all work in process, all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, printing, packing, shipping, advertising, selling, leasing or furnishing of such goods or otherwise used or consumed in a Borrower's business (but excluding Equipment). Inventory Formula Amount - on any date of determination thereof, an amount equal to the lesser of (A) the Revolver Commitments or (B) the sum of (i) the lesser of (x) 65% of the Value of Eligible Inventory consisting of finished goods on such date or (y) 85% of the product obtained by multiplying the Value of Eligible Inventory on such date consisting of finished goods by the Net Orderly Liquidation Value Percentage; plus (ii) the lesser of (x) 65% of the Value of Eligible Inventory consisting of raw materials on such date or (y) 85% of the product obtained by multiplying the Value of Eligible Inventory on such date consisting of raw materials by the Net Orderly Liquidation Value Percentage. Inventory Reserve - such reserves as may be established from time to time by Agent in its reasonable credit judgment to reflect changes in the salability of any Eligible Inventory in the Ordinary Course of Business or such other factors as could be reasonably expected to negatively impact the Value of any Eligible Inventory. Without limiting the generality of the foregoing, such reserves may include reserves based on obsolescence, theft or other shrinkage, markdowns, and vendor chargebacks; provided that any reserve for returns and rebates shall be determined consistent with Borrowers' past practice and in accordance with GAAP and shall otherwise be acceptable to Agent in its reasonable credit judgment. Investment Property - shall have the meaning given to the term "investment property" in the UCC and shall include all securities (whether certificated or uncertificated), security entitlements, securities accounts, commodity contracts and commodity accounts. Issuing Bank - BofA or an Affiliate of BofA. Issuing Bank Indemnitees - Issuing Bank and all of its present and future officers, directors, employees, agents and attorneys. LC Application - an application by any or all Borrowers to Issuing Bank, pursuant to a form approved by Issuing Bank, for the issuance of a Letter of Credit, that is submitted to Issuing Bank at least 3 Business Days prior to the requested issuance of such Letter of Credit. LC Conditions - the following conditions, the satisfaction of each of which is required before Issuing Bank shall be obligated issue a Letter of Credit: (i) each of the conditions set forth in Section 11.1 and Section 11.2 in connection with the issuance of Letters of Credit on the Closing Date and each of the conditions set forth in Section 11.2 for Letters of Credit issued thereafter has been and continues to be satisfied, including the absence of any Default or Event of Default; (ii) after giving effect to the issuance of the requested Letter of Credit and all other unissued Letters of Credit for which an LC Application has been signed by a Borrower and approved by Agent and Issuing Bank, the LC Obligations would not exceed $25,000,000 and no Out-of-Formula Condition would exist, and, if no Revolver Loans are outstanding, the LC Obligations do not, and would not upon the issuance of the requested Letter of Credit, exceed the Borrowing Base; (iii) such Letter of Credit has an expiration date that is no more than 365 days from the date of issuance in the case of standby Letters of Credit and no more than 120 days from the date of issuance in the case of documentary Letters of Credit and, in either event, such expiration date is at least 30 days prior to the last Business Day of the Term unless otherwise agreed by Agent in its discretion; (iv) the currency in which payment is to be made under the Letter of Credit is Dollars; and (v) the form of the proposed Letter of Credit is satisfactory to Agent and Issuing Bank in their discretion, provides for sight drafts only and does not contain any language that automatically increases the amount available to be drawn under the Letter of Credit. LC Documents - any and all agreements, instruments and documents (including an LC Application) required by Issuing Bank to be executed by Borrowers or any other Person and delivered to Issuing Bank for the issuance, amendment or renewal of a Letter of Credit. LC Facility - the subfacility for Letters of Credit established as part of the Revolver Commitments pursuant to Section 2.3. LC Obligations - on any date, an amount (in Dollars) equal to the sum of (without duplication) (i) all amounts then due and payable by any Obligor on such date by reason of any payment that is made by Issuing Bank under a Letter of Credit and that has not been repaid to Issuing Bank, plus (ii) the aggregate Undrawn Amount of all Letters of Credit which are then outstanding or for which an LC Application has been delivered to and accepted by Issuing Bank, plus (iii) all fees and other amounts due and payable in respect of Letters of Credit outstanding on such date. LC Request - a Letter of Credit Request from Borrowers to Issuing Bank in the form of Exhibit J annexed hereto. LC Reserve - at any date, the aggregate of all LC Obligations on such date, other than (i) LC Obligations that Borrowers shall Cash Collateralize on or prior to such date and (ii) during any period that no Default or Event of Default exists, the portion of LC Obligations described in clause (iii) of the definition thereof. Lender Indemnitees - Lenders and all of their respective present and future officers, directors, employees, agents and attorneys. Lenders - shall have the meaning given to it in the preamble to this Agreement and shall include BofA (whether in its capacity as a provider of Loans under Section 2 or as the provider of Swingline Loans under Section 4.1.3 ) and any other Person who may from time to time become a "Lender" under this Agreement, including each assignee that becomes a party to this Agreement pursuant to Section 14.3. Letter of Credit - any standby or documentary letter of credit issued by Issuing Bank for the account of any Borrower. Letter-of-Credit Right - shall have the meaning given to the term "letter-of-credit-right" in the UCC. LIBOR Lending Office - with respect to a Lender, the office designated as a LIBOR Lending Office for such Lender on the signature page hereof (or on any Assignment and Acceptance, in the case of an assignee) or such other office of such Lender or any of its Affiliates that is hereafter designated by written notice to Agent. LIBOR Loan - a Loan, or portion thereof, during any period in which it bears interest at a rate based upon the applicable Adjusted LIBOR Rate. License Agreement - any agreement between a Borrower and a Licensor pursuant to which such Borrower is authorized to use any Intellectual Property in connection with the manufacturing, marketing, sale or other distribution of any Inventory of such Borrower. Licensor - any Person from whom a Borrower obtains the right to use (whether on an exclusive or non-exclusive basis) any Intellectual Property in connection with such Borrower's manufacture, marketing, sale or other distribution of any Inventory. Lien - means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, collateral assignment, charge or security interest in, on or of such asset, (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 asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. Lien Waiver - an agreement duly executed in favor of Agent, in form and content reasonably acceptable to Agent, by which (i) for locations leased by an Obligor, an owner or mortgagee of premises upon which the Property of an Obligor is located agrees to waive or subordinate any Lien it may have with respect to such Property in favor of Agent's Lien therein and to permit Agent to enter upon such premises and remove such Property or to use such premises to store or dispose of such Property, or (ii) for locations at which any Obligor places Inventory with a warehouseman or a processor, such warehouseman or processor agrees to waive or subordinate any Lien it may have with respect to such Property in favor of Agent's Lien therein and to permit Agent to enter upon such premises and remove such Property or to use such premises to store or dispose of such Property, or, in either case, otherwise reasonably acceptable to Agent. Loan - a Revolver Loan or a Term Loan Advance (and, without duplication, each Base Rate Loan and LIBOR Loan comprising such Loan). Loan Account - the loan account established by each Lender on its books pursuant to Section 5.8. Loan Documents - this Agreement, the Other Agreements and the Security Documents. Loan Year - a period commencing each calendar year on the same month and day as the date of this Agreement and ending on the same month and day in the immediately succeeding calendar year, with the first such period (i.e. the first Loan Year) to commence on the date of this Agreement. Margin Stock - shall have the meaning ascribed to it in Regulation U and of the Board of Governors. Material Adverse Effect - the effect of any event, condition or circumstance, which (i) has a material adverse effect upon the business, operations, Properties, or financial condition of Parent and its Subsidiaries, taken as a whole or the ability of the Consolidated Group to repay the Obligations; (ii) has or could be reasonably expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement or any of the other Loan Documents; or (iii) has a material adverse effect upon the value of the whole or any substantial part of the Collateral, the Liens of Agent with respect to such Collateral or the priority of any such Liens; or (iv) has a material adverse effect on the ability of Agent or any Lender to enforce or collect the Obligations or realize upon any material portion of the Collateral in accordance with the Loan Documents and Applicable Law. Material Contract - an agreement to which an Obligor is a party (other than the Loan Documents) for which breach, termination, cancellation, nonperformance or failure to renew could reasonably be expected to have a Material Adverse Effect. Maximum Rate - the maximum non-usurious rate of interest permitted by Applicable Law that at any time, or from time to time, may be contracted for, taken, reserved, charged or received on the Debt in question or, to the extent that at any time Applicable Law may thereafter permit a higher maximum non-usurious rate of interest, then such higher rate. Notwithstanding any other provision hereof, the Maximum Rate shall be calculated on a daily basis (computed on the actual number of days elapsed over a year of 365 or 366 days, as the case may be). Money Borrowed - as applied to any Obligor, without duplication, (i) Debt arising from the lending of money by any other Person to such Obligor; (ii) Debt, whether or not in any such case arising from the lending of money by another Person to such Obligor, (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Debt that constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit; and (v) Debt of such Obligor under any guaranty of obligations that would constitute Debt for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by such Obligor. Moody's - Moody's Investors Services, Inc. Mortgages - the mortgages, deeds of trust and/or deeds to secure debt to be executed by a Borrower on or before the Closing Date in favor of Agent and pursuant to which such Borrower shall grant and convey to Agent, for the benefit of Secured Parties, Liens upon the Real Estate of such Borrower listed on Exhibit K attached hereto as security for the payment of the Obligations. Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of ERISA. Negative Pledge Agreement - each Negative Pledge Agreement to be executed by the applicable Borrower on or before the Closing Date, pursuant to which such Borrower agrees that it shall not consensually pledge, assign, transfer, encumber or grant any Lien in favor of any other Person in any of the Specified Real Estate of such Borrower that has not been pledged to Agent or permit any Lien to exist thereon (other than a Permitted Lien) until the Full Payment of the Obligations. Net Disposition Proceeds - proceeds (including cash receivable (when received) by way of deferred payment) received by an Obligor in cash from an Asset Disposition under clause (ii), (ix) or (x) of the definition of Permitted Asset Disposition, net of: (i) the reasonable fees and out-of-pocket costs and expenses actually incurred in connection with such Asset Disposition (including legal fees, accountants, appraisals, brokerage, title fees and expenses and sales commissions); (ii) amounts applied to repayment of Debt (other than the Obligations) secured by a Permitted Lien on such Collateral disposed of that is senior in priority to Agent's Liens; (iii) recording, transfer, sales or similar taxes; and (iv) reserves for escrows and indemnities, until such reserves are no longer required and such reserves or escrows are released to a Borrower. Net Orderly Liquidation Value Appraisal - an appraisal of the orderly liquidation value of Inventory or Equipment (as applicable) of Borrowers performed by an appraiser reasonably satisfactory to Agent, which appraisal shall deduct as a factor in the determination of orderly liquidation value, all costs and expenses projected to be incurred in the conduct of any liquidation of all or any portion of the Inventory or Equipment (as applicable). Net Orderly Liquidation Value Percentage - at any date and with respect to any Inventory, the percentage of the value of such Inventory expected to be realized at an orderly, negotiated sale of such Inventory that is held within a reasonable period of time, as such percentage is determined by Agent from the most recent Net Orderly Liquidation Value Appraisal received by Agent and acceptable by Agent on or before such date. Notes - each Revolver Note, each Term Note, the Swingline Note and any other promissory note executed by Borrowers at Agent's request to evidence any of the Obligations. Notice of Borrowing - as defined in Section 4.1.1(i). Notice of Conversion/Continuation - as defined in Section 3.1.2(ii). Obligations - in each case, whether now in existence or hereafter arising, (i) the principal of, and interest and premium, if any, on the Loans, (ii) all LC Obligations and all other obligations of any Obligor to Agent or Issuing Bank arising in connection with the issuance of any Letter of Credit, (iii) all liabilities and obligations of Borrowers under any indemnity for Claims, (iv) all Extraordinary Expenses, (v) all other Debts, covenants, duties and obligations (including Contingent Obligations) now or at any time or times hereafter owing by any Obligor to Agent or any Lender under or pursuant to this Agreement or any of the other Loan Documents, in each case, whether evidenced by any note or other writing, whether arising from any extension of credit, opening of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise and whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, or joint or several, including all interest, charges, expenses, fees or other sums chargeable to any or all Obligors under any of the Loan Documents, and (vi) any Banking Relationship Debt. Obligor - each Borrower and each Guarantor. Ordinary Course of Business - with respect to any transaction involving any Person, the ordinary course of such Person's business and undertaken by such Person in good faith and not for the purpose of evading any covenant or restriction in any Loan Document. Organic Documents - with respect to any Person, its charter, certificate or articles of incorporation, bylaws, articles of organization, limited liability agreement, operating agreement, members agreement, shareholders agreement, partnership agreement, certificate of partnership, certificate of formation, voting trust, or similar agreement or instrument governing the formation or operation of such Person. OSHA - the Occupational Safety and Hazard Act of 1970. Other Agreements - the Notes, the Fee Letter, the LC Documents, each Lien Waiver, and any and all other agreements, instruments and documents (other than this Agreement and the Security Documents), heretofore, now or hereafter executed by any Borrower, any other Obligor or any other Person and delivered to Agent or any Lender, in each case in respect of the transactions contemplated by this Agreement or other Loan Documents. Out-of-Formula Condition - as defined in Section 2.1.2. Out-of-Formula Loan - a Revolver Loan made or existing when an Out-of-Formula Condition exists or the amount of any Revolver Loan which, when funded, results in an Out-of-Formula Condition. Participant - as defined in Section 14.2.1. Participating Lender - as defined in Section 2.3.2(i). Patent Security Agreement - each Patent Security Agreement to be executed by Borrowers in favor of Agent on or before the Closing Date and by which Borrowers shall grant to Agent, for the benefit of Secured Parties, as security for the Obligations, a security interest in all of Borrowers' right, title and interest in and to the patents and patent applications listed therein. Payment Account - an account maintained by Agent to which all monies from time to time deposited to a Dominion Account shall be transferred and all other payments shall be sent in immediately available federal funds. Payment Intangible - shall have the meaning given to the term "payment intangible" in the UCC. Payment Item - each check, draft, or other item of payment payable to a Borrower, including those evidencing or constituting proceeds of any of the Collateral. Pending Revolver Loans - at any date, the aggregate principal amount of all Revolver Loans which have been requested in any Notice of Borrowing received by Agent but which have not theretofore been advanced by Agent or Lenders. Permitted Acquisition - the acquisition by a Borrower of all or a portion of the capital stock or assets of a Person organized under the laws of the United States of America or any state thereof so long as each of the following conditions is satisfied:      (i)     such acquired Person is engaged primarily in one or more businesses in which Borrowers are engaged or businesses reasonably related or incidental thereto;      (ii)     the Pro Forma Fixed Charge Coverage Ratio for the immediately preceding twelve Fiscal Months (if a Restrictive Trigger Event has occurred, based upon the monthly financial statements required pursuant to Section 10.1.3(ii), and if a Restrictive Trigger Event has not occurred, then based upon the financial statements required pursuant to Section 10.1.3(iii)) is at least 1.0 to 1.0 and Availability at the time of and after giving effect thereto is at least $35,000,000 if any Term Loan is outstanding and $25,000,000 if no Term Loan is outstanding;      (iii)     with respect to any Person that is or becomes a Subsidiary, such Person (i) if requested by Agent, executes and delivers to Agent, for the benefit of Lenders, a joinder agreement to this Agreement and such other documents (including, if requested by Agent, an amendment to any Hedging Agreement to add such Subsidiary thereto) as may be determined by Agent to add such Subsidiary as an additional "Borrower" hereunder, and/or a new pledge agreement or such amendments to the relevant Security Documents as Agent shall deem necessary or reasonably advisable to grant to Agent, for the benefit of Secured Parties, a Lien on the capital stock of such Subsidiary (and if such Person has any direct Foreign Subsidiaries, a Lien on at least 65% of the capital stock of each direct Foreign Subsidiary), (ii) delivers to Agent the certificates representing such capital stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Borrowers or such Subsidiary, as the case may be, (iii) if requested by Agent, in lieu of being joined as a Borrower, causes such new Subsidiary to become a party to a subsidiary guarantee, if applicable, or such comparable documentation which is in form and substance reasonably satisfactory to Agent, and (iv)  takes all actions deemed necessary or advisable by Agent to cause the Lien created by this Agreement to be duly perfected against such Person in accordance with all Applicable Law (subject to Section 7.6 hereof) including the filing of financing statements in such jurisdictions as may be requested by Agent, subject to and in accordance with the Loan Documents; provided, however, that if such Subsidiary constitutes an Excluded Subsidiary, then Agent and Lenders will not require that such Subsidiary be joined to this Agreement as a Borrower or a Guarantor but may require that 100% of the capital stock of such Subsidiary be pledged to Agent, for the benefit of Lenders, as security for the Obligations and that all of the other provisions of this definition (other than the joinder provisions of this clause (iii)) be satisfied;      (iv)     the applicable Borrower has made available to Agent, not later than 10 Business Days (or such later date to which Agent may agree) prior to the proposed date of such acquisition, copies of lien search results and copies of the acquisition documents (including a copy of the purchase and sale agreement with all schedules and exhibits thereto) and other due diligence information as reasonably requested by Agent;      (v)     Borrowers shall have executed and deliver such amendments or supplements to this Agreement or the other Security Documents or such other documents as Agent may deem necessary or advisable to grant Agent a first priority Lien on all of the acquired assets to the extent required by the terms hereof and thereof;      (vi)     Agent shall have received a certificate of the Borrower Representative executed on its behalf by a Senior Officer, certifying that both before and after giving pro forma effect to such acquisition, the Consolidated Group, taken as a whole is Solvent; and       (vii)     no Default or Event of Default has occurred and is continuing or would result therefrom. In connection with any merger (or other distribution of the assets) of a Subsidiary that is not a Borrower with and into (or to) a Borrower, or any acquisition, whether by purchase of stock, merger, or purchase of assets and whether in a single transaction or series of related transactions, by a Borrower, Agent shall have the right to determine in its reasonable credit judgment which Inventory or Accounts so acquired shall be included in the Borrowing Base (subject to the provisions of the definitions "Borrowing Base," "Eligible Inventory" and "Eligible Accounts" and any other provisions of this Agreement and the other Loan Documents applicable to the computation and reporting of the Borrowing Base). In connection with such determination, Agent may obtain, at Borrowers' expense, such appraisals, commercial finance exams and other assessments of such Accounts and Inventory as it may reasonably deem desirable and all such appraisals, exams and other assessments shall be paid for by Borrowers and shall not be limited by or included in the number of appraisals and field exams reimbursable under Section 3.2.4. Permitted Asset Disposition - an Asset Disposition that consists of (i)  the sale of Inventory in the Ordinary Course of Business; (ii) for so long as no Default or Event of Default exists, dispositions of Property (other than Accounts, Inventory, Eligible Equipment or Eligible Real Estate) which, in the aggregate as to all Borrowers during any consecutive 12-month period, has a fair market value or book value, whichever is more, of $5,000,000 or less, provided that all Net Disposition Proceeds thereof are remitted to Agent for application to the Obligations, (iii) replacements of Equipment that is substantially worn, damaged or obsolete with Equipment of like kind, function and value, provided that the replacement Equipment shall be acquired prior to or concurrently with any disposition of the Equipment that is to be replaced, the replacement Equipment shall be free and clear of Liens other than Permitted Liens that are not Purchase Money Liens and Borrowers shall have given Agent at least 10 days prior written notice of such disposition, (iv) the licensing of Intellectual Property in the Ordinary Course of Business; (v) sales, transfers, licenses, leases or other dispositions of assets made by a Consolidated Group Member to another Consolidated Group Member (other than an Excluded Subsidiary or a Restrictive Subsidiary); (vi) transfers or forgiveness of Accounts in the Ordinary Course of Business and in connection with the collection or compromise thereof; (vii) the abandonment, failure to maintain or renew or cancellation of Intellectual Property of any Consolidated Group Member that is not material to such Consolidated Group Member's business in such Consolidated Group Member's reasonable business judgment; (viii) any sublease, sale or other disposition of any Specified Real Estate (ix) for so long as no Default or Event of Default exists, any sale or other disposition of the Piscataway New Jersey site; (x) for so long as no Default or Event of Default exists, any Permitted Portfolio Transaction; (xi) condemnations by Governmental Authorities of Real Estate (other than Eligible Real Estate); and (xii) for so long as no Default or Event of Default exists, mergers and consolidations permitted under Section 10.2.11. Permitted Canadian Inventory - Inventory of a Borrower that would otherwise constitute Eligible Inventory but for the fact that it is located in Canada and in which Agent has a first-priority, perfected Lien. Permitted Consignment Sale Conditions - each of the following conditions, the satisfaction of each of which shall be determined by Agent in its reasonable credit judgment (i) the consignee shall have executed a consignment agreement, in form and scope acceptable to Agent, granting a Borrower and its assigns a purchase money lien and security interest in all consigned Inventory that is consigned by such Borrower to such consignee, together with the cash and non-cash proceeds thereof; (ii) consignee and such Borrower shall have executed UCC financing statements, in form acceptable to Agent, based upon the requirements of the filing jurisdiction, naming such consignee as debtor and such Borrower as secured party (and, if requested by Agent, naming Agent as assignee), covering the consigned Inventory and the cash and non-cash proceeds thereof; such financing statement shall have been filed of record in all appropriate filing locations for the perfection of a first priority security interest in such consigned Inventory and the cash and non-cash proceeds thereof; and, after filing of such financing statements, such Borrower shall have conducted searches of all filings made against such consignee in such filing offices and taken such other action as Agent may reasonably request, including notification pursuant to the UCC to each holder of a conflicting Lien in such consigned Inventory, which shall confirm that the security interest in the consigned Inventory in favor of such Borrower that such Borrower has assigned to Agent, together with the cash and non-cash proceeds thereof, is and shall be a first priority Lien; (iii) if requested by Agent, after determination by Agent that such agreement is necessary for the protection of its assigned Lien in such consigned Inventory, based upon Applicable Law of the state in which the consigned Inventory is located, such Borrower shall obtain an agreement from the landlord of the premises where the consigned Inventory is to be located, in form and substance reasonably acceptable to Agent, waiving in favor of such Borrower and its assigns such landlord's Liens in such consigned Inventory; (v) if requested by Agent, Lender shall have received the originals of the consignment agreement, the filed UCC financing statements, the UCC searches, the landlord's agreement and the insurance agreement referred to in clauses (i) through (iv) above, and such other instruments, documents, certificates, opinions or assurances, and such Borrower shall have taken such other action as Agent may have reasonably requested in connection with the consignee; and (vi) consignee shall maintain the consigned Inventory at a location in the United States. Permitted Contingent Obligations - Contingent Obligations arising from endorsements of items of payment for collection or deposit in the Ordinary Course of Business; Contingent Obligations of any Consolidated Group Member existing as of the Closing Date, including extensions and renewals thereof that do not increase the amount of such Contingent Obligations as of the date of such extension or renewal; Contingent Obligations arising under indemnity agreements to title insurers to cause such title insurers to issue to Agent title insurance policies; Contingent Obligations with respect to customary indemnification obligations in favor of purchasers in connection with dispositions of Equipment permitted under Section 8.4.2; Contingent Obligations consisting of reimbursement obligations from time to time owing by any Borrower to Issuing Bank with respect to Letters of Credit (but in no event to include reimbursement obligations at any time owing by a Borrower to any other Person that may issue letters of credit for the account of Borrowers); unsecured guaranties made by a Consolidated Group Member for Debt or other obligations of another Consolidated Group Member that is expressly permitted to be incurred hereunder or not prohibited; other unsecured Contingent Obligations not to exceed $25,000,000 in the aggregate at any time; the Permitted Euro Debt Guaranty; and unsecured guaranties made by a Consolidated Group Member for Debt of another Consolidated Group Member that is expressly permitted to be incurred hereunder. Permitted Euro Debt Guaranty - the unsecured guaranty by Parent of the Euro Debt, not to exceed $400,000,000. Permitted Investment - investments in, or loans or investments to, (a) any Foreign Subsidiary of a Borrower or (b) joint ventures with other Persons organized under the laws of the United States of America or any state thereof, so long as each of the following conditions is satisfied as determined by Agent: such Person is engaged primarily in one or more businesses in which Borrowers are engaged or reasonably related or incidental thereto; Availability at the time of and after giving effect thereto is at least $35,000,000 if any Term Loan is outstanding and $25,000,000 if no Term Loan is outstanding; with respect to any Person that is or becomes a Domestic Subsidiary, such Person (i) if requested by Agent, executes and delivers to Agent, for the benefit of Lenders, a joinder agreement to this Agreement and such other documents (including, if requested by Agent, an amendment to any Hedging Agreement to add such Domestic Subsidiary thereto) as may be determined by Agent to add such Domestic Subsidiary as an additional "Borrower" hereunder, and/or a new pledge agreement or such amendments to the relevant Security Documents as Agent shall deem necessary or advisable to grant to Agent, for the benefit of Secured Parties, a Lien on the capital stock of such Domestic Subsidiary (and if such Person has any direct Foreign Subsidiaries, a Lien on at least 65% of the capital stock of such Foreign Subsidiary), (ii) delivers to Agent the certificates representing such capital stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Borrowers or such Subsidiary, as the case may be, and (iii) if requested by Agent, cause such new Domestic Subsidiary (a) to become a party to a subsidiary guarantee, if applicable, or such comparable documentation which is in form and substance reasonably satisfactory to Agent, and (b) to take all actions necessary or advisable to cause the Lien created by this Agreement to be duly perfected against such Person in accordance with all Applicable Law (subject to Section 7.6 hereof), including the filing of financing statements in such jurisdictions as may be requested by Agent subject to and in accordance with the Loan Documents; provided, however, that if such Subsidiary constitutes an Excluded Subsidiary, then Agent and Lenders will not require that such Subsidiary be joined to this Agreement as a Borrower or a Guarantor but may require that 100% of the capital stock of such Subsidiary be pledged to Agent, for the benefit of Lenders, as security for the Obligations and that all of the other provisions of this definition (other than the joinder provisions of this clause (iii)) be satisfied; the applicable Borrower has made available to Agent, not later than 10 Business Days prior to the proposed date of such investment, copies of the applicable investment documents, Organic Documents and other due diligence information as requested by Agent; Agent shall have received a certificate of the Borrower Representative executed on its behalf by a Senior Officer, certifying that both before and after giving pro forma effect to such investment, the Consolidated Group is Solvent; and No Default or Event of Default shall exist or result therefrom. Permitted Lien - a Lien of a kind specified in Section 10.2.5. Permitted Payment Conditions - each of the following conditions, the satisfaction of each shall be required before any Borrower shall be permitted to repurchase, redeem or prepay any Funded Debt under Section 10.2.6(ii): Availability at the time of and after giving effect thereto is at least $35,000,000 if any Term Loan is outstanding and $25,000,000 if no Term Loan is outstanding; the applicable Borrower has given Agent at least 10 Business Days' prior notice of such payment (or such later date as is acceptable to Agent); and no Default or Event of Default shall exist or result therefrom. Permitted Portfolio Transaction - a Portfolio Transaction so long as each of the following conditions is satisfied: Agent shall have received (a) at least thirty (30) days prior to the date of the consummation of such proposed Portfolio Transaction (or such later date as is acceptable to Agent) drafts of the purchase agreement and all other related documents, instruments and agreements and (b) at least five (5) days (or such later date as is acceptable to Agent) prior to the date of the consummation of such proposed Portfolio Transaction final copies of all such documents; Concurrently with the consummation of such Portfolio Transaction, Agent shall receive the Net Disposition Proceeds from such Portfolio Transaction for application in accordance with Section 5.3.5; If the Term Loan and Fixed Asset Sublimit are not to be repaid in full, Agent shall have received from a Senior Officer of Borrowers a written list of all Equipment and Real Estate to be sold as part of such Portfolio Transaction, including, with respect to such Equipment, the net book value and net orderly liquidation value of each piece of Equipment; Availability at the time of, and after giving pro forma effect to such Portfolio Transaction and the application of proceeds thereof, (a) shall not be less than $25,000,000 if no Term Loan is outstanding at such time and (b) shall not be less than $35,000,000 if any Term Loan is outstanding at such time and such Term Loan is not to be repaid in full upon consummation of such Portfolio Transaction; Borrowers shall have delivered to Agent a Pro Forma Borrowing Base Certificate, in form and substance reasonably satisfactory to Agent, that confirms that after application of the proceeds of the Portfolio Transaction there will be no Out-of-Formula Condition; no Default or Event of Default shall exist at the time or result therefrom; such Portfolio Transaction shall occur on or before December 31, 2006; and no more than 3 such Portfolio Transactions shall occur prior to the Full Payment of the Obligations; provided, that any series of related transactions that occur within one month shall be deemed to be one Portfolio Transaction (but subject to the satisfaction of each of the above conditions at each stage). Permitted Purchase Money Debt - Purchase Money Debt of Borrowers and their Subsidiaries (or of any target to the extent constituting a Permitted Acquisition) that is incurred after the date of this Agreement and that is unsecured or is secured only by a Purchase Money Lien, provided that the aggregate amount of Purchase Money Debt outstanding at any time does not exceed $25,000,000 and the incurrence of such Purchase Money Debt does not violate any limitation in the Loan Documents regarding Capital Expenditures. For the purposes of this definition, the principal amount of any Purchase Money Debt consisting of capitalized leases shall be computed as a Capitalized Lease Obligation. Permitted Subsidiary - a Person that becomes a Domestic Subsidiary of a Borrower after the Closing Date, subject to the satisfaction of each of the following conditions: No Default or Event of Default exists at the time of the creation or formation of such Subsidiary; Borrowers give Agent not less than 10 Business Days prior written notice of the formation of such Subsidiary (or such later date as is acceptable to Agent); such Subsidiary is engaged primarily in one or more businesses in which Borrowers are engaged or businesses reasonably related or incidental thereto; and with respect to any such Subsidiary, such Person (i) if requested by Agent, executes and delivers to Agent, for the benefit of Lenders, a joinder agreement to this Agreement and such other documents (including, if requested by Agent, an amendment to any Hedging Agreement to add such Subsidiary thereto) as may be determined by Agent to add such Subsidiary as an additional "Borrower" hereunder, and/or a new pledge agreement or such amendments to the relevant Security Documents as Agent shall deem necessary or reasonably advisable to grant to Agent, for the benefit of Secured Parties, a Lien on the capital stock of such Subsidiary (and if such Person has any direct Foreign Subsidiaries, a Lien on at least 65% of the capital stock of each direct Foreign Subsidiary), (ii) delivers to Agent the certificates representing such capital stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Borrowers or such Subsidiary, as the case may be, (iii) if requested by Agent, in lieu of being joined as a Borrower, causes such new Subsidiary to become a party to a subsidiary guarantee, if applicable, or such comparable documentation which is in form and substance reasonably satisfactory to Agent, and (iv)  takes all actions deemed necessary or advisable by Agent to cause the Lien created by this Agreement to be duly perfected against such Person in accordance with all Applicable Law (subject to Section 7.6 hereof), including the filing of financing statements in such jurisdictions as may be requested by Agent subject to and in accordance with the Loan Documents; provided, however, that if such Subsidiary constitutes an Excluded Subsidiary, then Agent and Lenders will not require that such Subsidiary be joined to this Agreement as a Borrower or a Guarantor but may require that 100% of the capital stock of such Subsidiary be pledged to Agent, for the benefit of Lenders, as security for the Obligations and that all of the other provisions of this definition (other than the joinder provisions of this clause (iv)) be satisfied. Agent shall have the right to determine in its reasonable credit judgment which Inventory or Accounts of such Subsidiary shall be included in the Borrowing Base (subject to the provisions of the definitions "Borrowing Base," "Eligible Inventory" and "Eligible Accounts" and any other provisions of this Agreement and the other Loan Documents applicable to the computation and reporting of the Borrowing Base). In connection with such determination, Agent may obtain, at Borrowers' expense, such appraisals, commercial finance exams and other assessments of such Accounts and Inventory as it may reasonably deem desirable and all such appraisals, exams and other assessments shall be paid for by Borrowers and shall not be limited by or included in the number of appraisals and field exams reimbursable under Section 3.2.4. Person - an individual, partnership, corporation, limited liability company, limited liability partnership, joint stock company, land trust, business trust, or unincorporated organization, or a Governmental Authority. Plan - an employee pension benefit plan that is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and that is either (i) maintained by a Borrower for employees or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a Borrower is then making or accruing an obligation to make contributions or has within the preceding 5 years made or accrued such contributions. Pledge Agreements - the Pledge Agreements to be executed by each Borrower on or before the Closing Date, pursuant to which each Borrower shall pledge to Agent, for the benefit of the Secured Parties, 100% of the Equity Interests of each of its Domestic Subsidiaries and 65% of the Equity Interests of each of its direct Foreign Subsidiaries, as security for the Obligations. Portfolio Transaction - a sale, transfer or other disposition in one or a series of transactions of all or any portion of the Equity Interests, properties and assets, rights or other interests constituting or relating to the generics pharmaceutical business. Prior Lenders - Bank of America, N.A., as agent for a syndicate of lenders which provided credit facilities to Borrowers pursuant to a certain Credit Agreement dated as of October 5, 2001, as amended. Pro Forma Borrowing Base - the Borrowing Base certified by Borrowers in a Borrowing Base Certificate, as of the month ended no more than 25 days prior to the proposed date of a Portfolio Transaction, that gives pro forma effect to a Portfolio Transaction. Pro Forma Fixed Charge Coverage Ratio - for any period, the ratio of (a) EBITDA for such period minus Capital Expenditures (excluding Financed Capital Expenditures) for such period, to (b) the sum of all Fixed Charges for such period, all calculated for the Consolidated Group on a Consolidated basis, provided, that for purposes of computing this ratio for Permitted Acquisitions only (and without duplication in each case): the last 12 months of EBITDA of the acquired target shall be added to the EBITDA of the Consolidated Group (as adjusted to give effect to any cost savings reasonably acceptable to Agent and certified by Borrowers in good faith arising from the synergies of the combination of the target's and the Consolidated Group's workforce, administration and business operations); the last 12 months of Capital Expenditures of the acquired target shall be added to the Capital Expenditures of the Consolidated Group; there shall be added to cash interest expense of the Consolidated Group the last 12 months of cash interest expense on Debt acquired in connection with such acquisition, plus, on a proforma basis, 12 months of cash interest expense on the incremental Loans undertaken by the Borrowers on the closing date of the acquisition; and there shall be added to scheduled and actual principal payments of the Consolidated Group the last 12 months of scheduled principal payments on Debt acquired in connection with such acquisition. Pro Rata - with respect to any Lender on any date, a percentage (expressed as a decimal, rounded to the ninth decimal place) derived by dividing the amount of the total Commitments of such Lender on such date by the aggregate amount of the Commitments of all Lenders on such date (regardless of whether or not any of such Commitments have been terminated on or before such date). Projections - (i) prior to the Closing Date and thereafter until Agent receives new projections pursuant to Section 10.1.5, the projections of Borrowers' consolidated balance sheets, income statements and cash flow statements and projected Availability, prepared on a quarterly basis for the Fiscal Year ending December 31, 2006, and on an annual basis for the Fiscal Years ending 2007, 2008, 2009 and 2010; and (ii) thereafter, the projections most recently received by Agent and Lenders pursuant to and as required by Section 10.1.5. Properly Contested - in the case of any Debt of an Obligor (including any Taxes) that is not paid as and when due or payable by reason of such Obligor's bona fide dispute concerning its liability to pay same or concerning the amount thereof, (i) such Debt is being properly contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (ii) such Obligor has established appropriate reserves as shall be required in conformity with GAAP; (iii) the non-payment of such Debt will not have a Material Adverse Effect; (iv) no Lien in excess of $500,000 is imposed upon any of such Obligor's assets with respect to such Debt unless such Lien is at all times junior and subordinate in priority to the Liens in favor of Agent (except only with respect to property taxes that have priority as a matter of Applicable Law) and enforcement of such Lien is stayed during the period prior to the final resolution or disposition of such dispute; and (v) if such contest is abandoned, settled or determined adversely (in whole or in part) to such Obligor, such Obligor forthwith pays such Debt. Property - any interest in any kind of property or asset, whether real, personal or mixed and whether tangible or intangible. Purchase Money Debt - means and includes (i) Debt (other than the Obligations but including capitalized leases) for the payment of all or any part of the purchase price of any fixed or capital assets consisting of Equipment, Real Estate or Software, (ii) any Debt (other than the Obligations) incurred or assumed at the time of or within 90 days prior to or after the acquisition or completion of construction of any fixed or capital assets consisting of Equipment, Real Estate or Software for the purpose of financing all or any part of the purchase price or construction or improvement thereof, including deferred purchase price and industrial revenue bonds or similar municipal or governmental bonds, and (iii) any renewals, extensions or refinancings (but not any increases in the principal amounts) thereof outstanding at the time. Purchase Money Lien - a Lien upon fixed or capital assets consisting of Equipment, Real Estate or Software which secures Purchase Money Debt, but only if such Lien shall at all times be confined solely to such asset acquired through the incurrence of the Purchase Money Debt secured by such Lien. RCRA - the Resource Conservation and Recovery Act (42 U.S.C. SectionSection 6991-6991i). Real Estate - all right, title and interest of a Borrower (whether as owner, lessor or lessee) at any time or times held by such Borrower in real Property or any buildings, structures, parking areas or other improvements thereon (excluding the Specified Real Estate). Refinancing Conditions - the following conditions, each of which must be satisfied before Refinancing Debt shall be permitted under Section 10.2.3: (i) the Refinancing Debt is in an aggregate principal amount that does not exceed the aggregate principal amount of the Debt being extended, renewed or refinanced, plus the amount of fees and expenses payable in connection with such refinancing and any premiums penalties, accrued interest and accreted amounts payable with respect to such Refinancing Debt, (ii) the Refinancing Debt has a later or equal final maturity and a longer or equal weighted average life than the Debt being extended, renewed or refinanced, (iii) the Refinancing Debt does not bear a rate of interest that exceeds, as of the date of such extension, renewal or refinancing, a market rate (as determined in good faith by a Senior Officer) for Debt of such type issued by an entity similar to the Borrower that is liable on the Debt being extended, renewed or refinanced, (iv) if the Debt being extended, renewed or refinanced is subordinate to the Obligations, the Refinancing Debt is subordinated to the same extent (other than the Convertible Notes), (v) the financial and other material covenants contained in any instrument or agreement relating to the Refinancing Debt are no less favorable when taken as a whole in any material respect to Borrowers than those relating to the Debt being extended, renewed or refinanced, (vi) at the time of and after giving effect to such extension, renewal or refinancing, no Default or Event of Default shall exist, and (vii) no additional Lien is granted to secure the repayment of the Refinancing Debt. Refinancing Debt - Debt that is permitted by Section 10.2.3 and that is the subject or the result of an extension, renewal or refinancing. Regulation D - Regulation D of the Board of Governors. Register - the register maintained by Agent in accordance with Section 5.8.2. Reimbursement Date - as defined in Section 2.3.1(iii). Rent Reserve - on any date, the aggregate of (i) all past due rent, fees or other charges owing on such date by any Obligor to any landlord of any premises where any of the Collateral is located or to any processor, repairman, mechanic or other Person who is in possession of any Collateral or has asserted any Lien or claim thereto, and (ii) a reserve equal to 3 months rent or other charges with respect to any Collateral in the possession of, or at a location owned by, a Person other than a Borrower if such Person has not duly executed and delivered to Agent a Lien Waiver reasonably satisfactory to Agent. Report - as defined in Section 13.1.5. Reportable Event - any of the events set forth in Section 4043(c) of ERISA. Reporting Spring-Back Date - as such term is defined in Section 10.1.3(ii). Required Lenders - at any date of determination thereof, Lenders having Commitments representing greater than 50% of the aggregate Commitments at such time; provided, however, that if any Lender shall be in breach of any of its obligations hereunder to Borrowers or Agent, including any breach resulting from its failure to honor its Commitment in accordance with the terms of this Agreement, then, for so long as such breach continues, the term "Required Lenders" shall mean Lenders (excluding each Lender that is in breach of its obligations under this Agreement) having Commitments representing greater than 50% of the aggregate Commitments (excluding the Commitments of each Lender that is in breach of its obligations under this Agreement) at such time; provided further, however, that if all of the Commitments have been terminated, the term "Required Lenders" shall mean Lenders (excluding each Lender that is in breach of its obligations under this Agreement) holding Loans (including Swingline Loans) representing greater than 50% of the aggregate principal amount of Loans (including Swingline Loans) outstanding at such time. Restricted Investment - any acquisition of Property comprising a division or business unit or all or a substantial part of the business of any Person by a Consolidated Group Member, or the purchase or acquisition by any Consolidated Group Member of Equity Interests in or Debt of any Person, or a loan, advance, capital contribution or subscription, except for the following: (a) acquisitions of the following: (i) fixed assets to be used in the Ordinary Course of Business of such Consolidated Group Member so long as the acquisition costs thereof are Capital Expenditures permitted hereunder; (ii) goods held for sale or lease or to be used in the manufacture of goods or the provision of services by such Consolidated Group Member in the Ordinary Course of Business; and (iii) current assets arising from the sale or lease of goods or the rendition of services in the Ordinary Course of Business of such Consolidated Group Member; (b) investments in Subsidiaries to the extent existing on the Closing Date; (c) investments in Cash Equivalents; (d) loans and other advances of money to the extent not prohibited by Section 10.2.2; (e) investments existing on the date hereof and described on Schedule 10.2.13 hereto; (f) investments in the Hedging Agreements permitted under this Agreement; (g) investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the Ordinary Course of Business, (h) Permitted Acquisitions; (i) Permitted Investments; (j) other investments not totaling more than $10,000,000 in the aggregate; (k) contingent obligations permitted under Section 10.2.3; (l) investments in Consolidated Group Members; (m) investments in Subsidiaries of Parent that are not Consolidated Group Members subject to the limitations set forth in Section 10.2.2(iii) hereof; and (n) notes receivable received by a Borrower in connection with a Permitted Portfolio Transaction as a portion of the purchase price. Restrictive Agreement - an agreement (other than any of the Loan Documents) that, if and for so long as an Obligor is a party thereto, would prohibit, condition or restrict such Obligor's right to incur the Obligations; grant Liens upon any of such Obligor's assets (including Liens granted in favor of Agent pursuant to the Loan Documents); declare or make Distributions; amend, modify, extend or renew any of the Loan Documents; or repay any Debt owed to another Obligor. Restrictive Subsidiary - each Subsidiary listed on Schedule 10.2.1.       Restrictive Trigger Event - shall mean: (i) for purposes of Sections 3.2.4, and 8.2.5(ii), any of the following events: (a) if Average Availability is less than $25,000,000 during any 10 Business Day period, with such measurement period commencing on the first day that Availability is less than $25,000,000, (b) any Event of Default exists, or (c) Availability is less than $20,000,000 at any time (provided, that, for purposes of this clause (c), Availability may be below $20,000,000 for 1 day during any consecutive 30 day period without causing a Restrictive Trigger Event to occur under this clause (c)); (ii) for purposes of Section 7.6, any of the following events: (a) Average Availability is less than $25,000,000 during any 10 Business Day period, with such measurement period commencing on the first day that Availability is less than $25,000,000, or (b) any Event of Default exists, or (c) Availability is less than $20,000,000 at any time (provided, that, for purposes of this clause (c) Availability may be below $20,000,000 for 2 days during any consecutive 30 day period without causing a Restrictive Trigger Event to occur under this clause (c)); (iii) for purposes of Section 10.1.3(ii), any of the following events: (a) if Average Availability is less than the lesser of (I) $35,000,000 or (II) the then outstanding principal amount of the Term Loan (but in no event less than $25,000,000) during any 10 Business Day period, with such measurement period commencing on the first day that Availability is less than such amount, (b) any Event of Default exists or (c) Availability is less than the lesser of (I) $30,000,000 or (II) $30,000,000 less (the difference between $35,000,000 and the then outstanding principal amount of the Term Loan) but in no event less than $20,000,000, at any time (provided, that for purposes of this clause (c), Availability may be below such amount for 2 days during any consecutive 30 day period without causing a Restrictive Trigger Event to occur under this clause (c)); and (iv) for purposes of Section 10.3.1, any of the following events: (a)(I) if the Full Payment of the Term Loan has not occurred and if Average Availability is less than the lesser of (A) $35,000,000 or (B) the then outstanding principal amount of the Term Loan (but in no event less than $25,000,000) during any 10 Business Day period, with such measurement period commencing on the first day that Availability is less than such amount, or (II) if the Full Payment of the Term Loan has occurred and if Average Availability is less than $25,000,000 during any 10 Business Day period, with such measurement period commencing on the first day that Availability is less than $25,000,000, (b) any Event of Default exists or (c) Availability is less than the lesser of (I) $30,000,000 or (II) $30,000,000 less (the difference between $35,000,000 and the then outstanding principal amount of the Term Loan) but in no event less than $20,000,000, at any time (provided, that for purposes of this clause (c), Availability may be below such amount for 2 days during any consecutive 30 day period without causing a Restrictive Trigger Event to occur under this clause (c)). Revolver Commitment - at any date for any Lender, the obligation of such Lender to make Revolver Loans and to purchase participations in LC Obligations pursuant to the terms and conditions of this Agreement, which shall not exceed the principal amount set forth opposite such Lender's name under the heading "Revolver Commitment" on the signature pages of this Agreement or the principal amount set forth in the Assignment and Acceptance by which it became a Lender, as modified from time to time pursuant to the terms of this Agreement or to give effect to any applicable Assignment and Acceptance; and "Revolver Commitments" means the aggregate principal amount of the Revolver Commitments of all Lenders, the maximum amount of which on any date shall be $175,000,000, as reduced from time to time pursuant to Section 2.1.5. Revolver Loan - a loan made by Lenders as provided in Section 2.1 (including any Out-of-Formula Loan) or a Swingline Loan funded solely by BofA. Revolver Note - a Revolver Note to be executed by Borrowers in favor of each Lender in the form of Exhibit A attached hereto, which shall be in the face amount of such Lender's Revolver Commitment and which shall evidence all Revolver Loans made by such Lender to Borrowers pursuant to this Agreement. Royalties - with respect to a License Agreement, all royalties, fees, expense reimbursement and other amounts at any time owing by a Borrower under such License Agreement. S&P - Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. Schedule of Accounts  - as defined in Section 8.2.1. SEC - Securities and Exchange Commission. Secured Parties - Agent, Issuing Bank, Lenders (including BofA as the provider of Swingline Loans) and any Lender or any Affiliate of a Lender as the provider of any Bank Products. Security Documents - the Patent Security Agreements, each Guaranty, the Trademark Security Agreements, the Deposit Account Control Agreements, the Pledge Agreements, the Mortgages, the Environmental Agreement, the Negative Pledge Agreements, and all other instruments and agreements now or at any time hereafter securing the whole or any part of the Obligations. Senior Note Documents - the Senior Notes, the Senior Notes Indenture and any and all other agreements, instruments or documents executed in connection therewith or pursuant thereto, as amended, supplemented, modified or restated in accordance with the terms hereof. Senior Notes - the 8 5/8% Senior Notes due 2011 issued by Parent, in the aggregate principal amount of $220,000,000. Senior Notes Indenture - that certain Indenture dated as of April 24, 2003, between Parent and Wachovia Bank, National Association, as Trustee, pursuant to which Parent issued the Senior Notes, as amended, supplemented, modified or restated in accordance with the terms hereof. Senior Officer - the chairman of the board of directors, the president, the chief financial officer, in-house legal counsel, the chief executive officer, the principal accounting officer or the treasurer of a Borrower (or the equivalent of any of the foregoing) or any other officer, partner or member (or person performing similar functions) of a Borrower responsible for overseeing the administration of, or reviewing compliance with, all or any portion of this Agreement or any of the other Loan Documents. Settlement Date - as defined in Section 4.1.3(i). Settlement Report - a report delivered by Agent to Lenders summarizing the amount of the outstanding Revolver Loans as of the Settlement Date and the calculation of the Borrowing Base as of such Settlement Date. Software - shall have the meaning given to the term "software" in the UCC. Solvent - as to any Person, such Person (i) owns Property whose fair salable value is greater than the amount required to pay all of such Person's debts (including contingent liabilities), (ii) owns Property whose present fair salable value (as defined below) is greater than the amount that will be required to pay the probable total liabilities (including contingent liabilities), of such Person on its debts as they become absolute and matured, (iii) is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital, and (iv) does not intend to, and does not believe that it will, incur debt or liabilities beyond such Person's ability to pay such debts and liabilities as they mature. As used herein, the term "fair salable value" of a Person's assets means the amount that may be realized within a reasonable time, either through collection or sale of such assets at the regular market value, based upon the amount that could be obtained for such assets within such period by a capable and diligent seller from an interested buyer who is willing (but is under no compulsion) to purchase under ordinary selling conditions. The amount of contingent liabilities at any time shall be computed as the amount that in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. Specified Real Estate - the Real Estate of Borrowers located in Salisbury, Maryland, Terre Haute, Indiana, Lowell, Arkansas and Palmyra, Missouri on the Closing Date. Statutory Reserves - on any date, the percentage (expressed as a decimal) established by the Board of Governors which is the then stated maximum rate for all reserves (including all basic, emergency, supplemental or other marginal reserve requirements and taking into account any transitional adjustments or other scheduled in reserve requirements) applicable to any member bank of the Federal Reserve System in respect to Eurocurrency Liabilities (or any successor category of liabilities under Regulation D). Such reserve percentage shall include those imposed pursuant to said Regulation D. The Statutory Reserve shall be adjusted automatically on and as of the effective date of any change in such percentage. Subordinated Debt - Debt incurred by a Borrower that is expressly subordinated and made junior in right of payment to the Full Payment of the Obligations and, to the extent that such Debt is incurred on or after the Closing Date, such Debt is payable on terms and conditions (including terms relating to repayment and subordination but excluding interest, fees and any call protection provisions) that are reasonably satisfactory to Agent. Subsidiary - any Person in which more than 50% of its outstanding Voting Securities or more than 50% of all Equity Interests is owned directly or indirectly by a Borrower, by one or more other Subsidiaries of such Borrower or by a Borrower and one or more other Subsidiaries. Supporting Obligation - shall have the meaning given to the term "supporting obligation" in the UCC. Swingline Loan - as defined in Section 4.1.3(ii). Swingline Note - the Swingline Note to be executed by Borrowers to the order of BofA on or before the Closing Date in the form of Exhibit C, to evidence the outstanding Swingline Loans owing to BofA from time to time pursuant to Section 4.1.3. Taxes - any present or future taxes, levies, imposts, duties, fees, assessments, deductions, withholdings or other charges of whatever nature, including income, receipts, excise, property, sales, use, transfer, license, payroll, withholding, social security and franchise taxes now or hereafter imposed or levied by the United States or any other Governmental Authority and all interest, penalties, additions to tax and similar liabilities with respect thereto, but excluding, in the case of each Lender, taxes imposed on or measured by the net income or overall gross receipts of such Lender. Term - as defined in Section 6.1. Term Loan - the aggregate of the Term Loan Advances made by Lenders to Borrowers pursuant to Section 2.2.1. Term Loan Advance - an advance made by a Lender as part of the Term Loan on the Closing Date and thereafter means such Lender's portion of the Term Loan. Term Loan Commitment - at any date for any Lender, the obligation of such Lender to make Term Loan Advances pursuant to the terms and conditions of this Agreement, which shall not exceed the principal amount set forth opposite such Lender's name under the heading "Term Loan Commitment" on the signature pages hereof or the principal amount set forth in any Assignment and Acceptance by which it became a Lender, as modified from time to time pursuant to the terms of this Agreement or to give effect to any applicable Assignment and Acceptance; and the term "Term Loan Commitments" means the aggregate principal amount of the Term Loan Commitment of each Lender, the maximum amount of which shall be $35,000,000. Term Note - as defined in Section 2.2.2. Trademark Security Agreement - each Trademark Security Agreement to be executed by the applicable Borrower in favor of Agent on or before the Closing Date and by which such Borrower shall grant to Agent, for the benefit of Secured Parties, as security for the Obligations, a security interest in all of such Borrower's right, title and interest in and to all of the trademark registrations and trademark applications listed therein. Trailing Receipts - on any date of determination, collections of Generic Accounts received by Borrowers for the immediately preceding 31 day period from the date of determination. Transferee - as defined in Section 14.3.3. Type - any type of a Loan determined with respect to the interest option applicable thereto, which shall be either a LIBOR Loan or a Base Rate Loan. UCC - the Uniform Commercial Code (or any successor statute) as adopted and in force in the State of New York or, when the laws of any other state govern the method or manner of the perfection or enforcement of any security interest in any of the Collateral, the Uniform Commercial Code (or any successor statute) of such state. Undrawn Amount - on any date with respect to a particular Letter of Credit, the total amount then available to be drawn under such Letter of Credit in Dollars. Unused Line Fee - as defined in Section 3.2.2. Upstream Payment - a payment or distribution directly or indirectly of cash or other Property by a Subsidiary of an Obligor to such Obligor, or by a Subsidiary that is not an Obligor to another Subsidiary that is not an Obligor, whether in repayment of Debt owed by such Subsidiary to such Obligor, as a dividend or distribution on account of such Obligor's ownership of Equity Interests or otherwise. USA Patriot Act - the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001). Value - with reference to the value of Inventory, value determined by Agent in good faith on the basis of the lower of cost or market of such Eligible Inventory, with the cost thereof calculated on a first-in, first-out basis in accordance with GAAP consistently applied. Voting Securities - Equity Interests of any class or classes of a corporation or other entity the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors or individuals performing similar functions.      1.2     Accounting Terms      Unless otherwise specified herein, all terms of an accounting character used in this Agreement shall be interpreted, all accounting determinations under this Agreement shall be made, and all financial statements required to be delivered under this Agreement shall be prepared in accordance with GAAP, applied on a basis consistent with the most recent audited Consolidated financial statements of Parent and its Subsidiaries delivered to Agent and Lenders hereunder and using the same method for inventory valuation as used in such audited financial statements, except for any change required by GAAP; provided, however, that for purposes of determining Borrowers' compliance with financial covenants contained in Section 10.3 and other financial terms and definitions used therein, all accounting terms shall be interpreted and all accounting determinations shall be made in accordance with GAAP as in effect on the date of this Agreement and applied on a basis consistent with the application used in the financial statements referred to in Section 9.1.9; provided, further however, that in the event that any accounting change under GAAP shall occur and such change results in a material change in the method of calculation of financial covenants or related financial definitions in this Agreement, then Borrowers and Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such accounting changes with the desired result that the criteria for evaluating Borrowers' financial condition shall be the same after such accounting changes as if such accounting changes had not been made. Until such time as such an amendment shall have been executed and delivered by Borrowers, Agent and Required Lenders, all financial covenants and related financial definitions in this Agreement shall continue to be calculated or construed as if such accounting changes had not occurred.      1.3    Other Terms    All other terms contained in this Agreement shall have, when the context so indicates, the meanings provided for by the UCC to the extent the same are used or defined therein.      1.4     Certain Matters of Construction    The terms "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." The section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of this Agreement. All references to statutes shall include all related rules and implementing regulations and any amendments of same and any successor statutes, rules and regulations; to any agreement, instrument or other documents (including any of the Loan Documents) shall include any and all modifications and supplements thereto and any and all restatements, extensions or renewals thereof to the extent such modifications, supplements, restatements, extensions or renewals of any such documents are permitted by the terms thereof; to any Person (including Agent, a Borrower, a Lender or BofA) shall mean and include the successors and permitted assigns of such Person; to "including" and "include" shall be understood to mean "including, without limitation" (and, for purposes of each Loan Document, the parties agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters to matters similar to the matters specifically mentioned); to the time of day shall mean the time of day on the day in question in New York, New York, unless otherwise expressly provided in this Agreement; or to the "discretion" of Agent or a Lender shall mean the sole and absolute discretion of such Person unless otherwise qualified. An Event of Default shall be deemed to exist at all times during the period commencing on the date that such Event of Default occurs to the date on which such Event of Default is waived in writing by Agent (acting with the consent or at the direction of the Lenders or the Required Lenders, as applicable) pursuant to this Agreement or, in the case of a Default, is cured within any period of cure expressly provided in this Agreement; and an Event of Default shall "continue" or be "continuing" until such Event of Default has been waived in writing by Agent (acting with the consent or at the direction of the Lenders or the Required Lenders, as applicable). All calculations of Value shall be in Dollars, all Loans shall be funded in Dollars and all Obligations shall be repaid in Dollars. Whenever the phrase "to the best of Borrowers' knowledge" or words of similar import relating to the knowledge or the awareness of a Borrower are used in this Agreement or other Loan Documents, such phrase shall mean and refer to the actual knowledge of a Senior Officer of any Borrower. SECTION 2.    CREDIT FACILITIES Subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Agreement and the other Loan Documents, Lenders severally agree to the extent and in the manner hereinafter set forth to make their respective shares of the Commitments available to Borrowers in an aggregate amount up to $210,000,000, as set forth hereinbelow: 2.1     Revolver Commitments. 2.1.1   Revolver Loans . Each Lender agrees, severally to the extent of its Revolver Commitment and not jointly with the other Lenders, upon the terms and subject to the conditions set forth herein, to make Revolver Loans to Borrowers on any Business Day during the period from the Closing Date through the Business Day before the last day of the Term, not to exceed in aggregate principal amount outstanding at any time such Lender's Revolver Commitment at such time, which Revolver Loans may be repaid and reborrowed in accordance with the provisions of this Agreement; provided, however, that Lenders shall have no obligation to Borrowers whatsoever to honor any request for a Revolver Loan on or after the Commitment Termination Date or if at the time of the proposed funding thereof the aggregate principal amount of all of the Revolver Loans then outstanding (including Swingline Loans) and Pending Revolver Loans exceeds, or would exceed after the funding of such Revolver Loan, the Borrowing Base. Each Borrowing of Revolver Loans shall be funded by Lenders on a Pro Rata basis in accordance with their respective Revolver Commitments (except for BofA with respect to Swingline Loans). The Revolver Loans shall bear interest as set forth in Section 3.1. Each Revolver Loan shall, at the option of Borrowers, be made or continued as, or converted into, part of one or more Borrowings that, unless specifically provided herein, shall consist of Base Rate Loans or LIBOR Loans. 2.1.2   Out-of-Formula Loans . If the unpaid balance of Revolver Loans outstanding at any time should exceed the Borrowing Base at such time (an "Out-of-Formula Condition"), such Revolver Loans shall nevertheless constitute Obligations that are secured by the Collateral and entitled to all of the benefits of the Loan Documents. In the event that Lenders are willing in their discretion to make Out-of-Formula Loans or are required to do so by Section 13.9.4 or Section 2.1.6, such Out-of-Formula Loans shall bear interest as provided in Section 3.1.5 and shall be payable on demand, provided, that, any Out-of-Formula Loans made by Lenders under Section 13.9.4 or Section 2.1.6 shall be payable at the end of the applicable period permitted by Lenders under Section 13.9.4, or on demand if an Event of Default exists. 2.1.3   Use of Proceeds . The proceeds of the Revolver Loans shall be used by Borrowers solely for one or more of the following purposes: (i) to satisfy the Debt owing on the Closing Date to the Prior Lenders; (ii) to pay the fees and transaction expenses associated with the closing of the transactions described herein; (iii) to pay any of the Obligations in accordance with this Agreement; and (iv) to make expenditures for working capital and other lawful corporate purposes of Borrowers to the extent such expenditures are not prohibited by this Agreement or Applicable Law. In no event may any Revolver Loan proceeds be used by any Borrower (x) to purchase or to carry, or to reduce, retire or refinance any Debt incurred to purchase or carry, any Margin Stock or for any related purpose that violates the provisions of Regulations T, U or X of the Board of Governors, or (y) to fund any operations or finance any investments or activities in, or to make payments to, a Blocked Person. 2.1.4   Revolver Notes . The Revolver Loans made by each Lender and interest accruing thereon shall be evidenced by the records of Agent and such Lender and by the Revolver Note payable to such Lender (or the assignee of such Lender), which shall be executed by Borrowers, completed in conformity with this Agreement and delivered to such Lender. All outstanding principal amounts and accrued interest under the Revolver Notes shall be due and payable as set forth in Section 5.2. 2.1.5   Voluntary Reductions of Revolver Commitments . Borrowers shall have the right to permanently reduce the amount of the Revolver Commitments, on a Pro Rata basis for each Lender, at any time and from time to time upon 3 Business Days written notice to Agent of such reduction, which notice shall specify the amount of such reduction, shall be irrevocable once given, and shall be effective on the fourth day after Agent's receipt of such notice. Agent shall promptly transmit such notice to each Lender. If on the effective date of any such reduction in the Revolver Commitments and after giving effect thereto an Out-of-Formula Condition exists, then the provisions of Section 5.2.1(iii) shall apply, except that such repayment shall be due immediately upon such effective date without further notice to or demand upon Borrowers. If the Revolver Commitments are reduced to zero, then such reduction shall be deemed a termination of the Commitments by Borrowers pursuant to Section 6.2.2. The Revolver Commitments, once reduced, may not be reinstated without the written consent of all Lenders. 2.1.6   Agent Advances. Agent shall be authorized, in its discretion, at any time or times that an Event of Default exists or any of the conditions precedent set forth in Section 11 have not been satisfied, to make Revolver Loans that are Base Rate Loans in an aggregate amount outstanding at any time not to exceed $10,000,000, but only to the extent that Agent, in the exercise of its sole credit judgment, deems the funding of such Loans (herein called "Agent Advances") to be necessary or desirable (i) to preserve or protect the Collateral or any portion thereof, (ii)  to enhance the likelihood, or increase the amount, of repayment of the Obligations or (iii) to pay any other amount chargeable to Borrowers pursuant to the terms of this Agreement, including costs, fees and expenses, all of which Agent Advances shall be deemed part of the Obligations and secured by the Collateral, and shall be treated for all purposes of this Agreement (including Sections 5.6.1 and 15.4) as advances for the repayment to Agent and Lenders of Extraordinary Expenses; provided, however, that the Required Lenders may at any time revoke Agent's authorization to make any such Agent Advances by written notice to Agent, which shall become effective prospectively upon and after Agent's actual receipt thereof. Absent such revocation, Agent's determination that the making of an Agent Advance is required for any such purposes shall be conclusive. Each Lender shall participate in each Agent Advance in an amount equal to its Pro Rata share of the Revolver Commitments. Notwithstanding the foregoing, the maximum amount of Agent Advances outstanding at any time, when added to the aggregate of Revolver Loans and LC Obligations outstanding at such time, shall not exceed the total of the Revolver Commitments (unless otherwise agreed by the Required Lenders) and shall not exceed 30 days if such Agent Advance constitutes an Out-of-Formula Loan. The aggregate amount of Loans made pursuant to this Section 2.1.6 and Section 13.9.4 shall not exceed $10,000,000 in the aggregate at any time. Nothing in this Section 2.1.6 shall be construed to limit in any way the amount of Extraordinary Expenses that may be incurred by Agent and that Borrowers shall be obligated to reimburse to Agent to the extent provided for in the Loan Documents. 2.2.     Term Loan Commitment. 2.2.1.   Term Loan. Subject to and upon the terms and conditions herein set forth, each Lender severally agrees to make to Borrowers a Term Loan Advance in an amount not to exceed such Lender's Term Loan Commitment. The Term Loan shall be comprised of Term Loan Advances in the aggregate principal amount of $35,000,000 and shall be funded by Lenders on the Closing Date, concurrently with Lenders' funding of their initial Revolver Loans. The proceeds of the Term Loan Advances shall be used by Borrowers solely for purposes for which the proceeds of the Revolver Loans are authorized to be used. The Term Loan Commitment of each Lender shall expire on the funding by such Lender of its Term Loan Advance. Borrowers shall not be entitled to reborrow any amounts repaid with respect to the Term Loan Advances. All Term Loan Advances shall bear interest as set forth in Section 3.1, shall initially be Base Rate Loans and shall be repaid as provided in Section 5.3. Each Lender shall make its Term Loan Advance available to Agent in immediately available funds, to such account of Agent as Agent may designate, not later than 12:00 noon on the Closing Date. After Agent's receipt of the proceeds of such Term Loan Advance, and upon satisfaction of the conditions precedent set forth in Section 11, Agent shall make the proceeds of all such Term Loan Advances available to Borrowers on the Closing Date by transferring same day funds equal to the proceeds of such Term Loan Advances received by Agent to an account designated by Borrowers in writing. 2.2.2.   Term Notes. Borrowers shall execute and deliver to Agent on behalf of each Lender, on the Closing Date, a promissory note substantially in the form of Exhibit B attached hereto and made a part hereof (such promissory note, together with any new notes issued pursuant to Section 14.3.2 upon the assignment of any portion of any Lender's Term Loan Advance, being hereinafter referred to collectively as the "Term Notes" and each of such promissory notes being hereinafter referred to individually as a "Term Note"), to evidence such Lender's Term Loan Advance to Borrowers, in the original principal amount equal to the amount of such Lender's Term Loan Commitment. Each Term Note shall be dated the Closing Date (or the date of the applicable Assignment and Acceptance) and shall provide for payment of the Term Loan Advance evidenced thereby as specified in Section 5.3. 2.3     LC Facility. 2.3.1.   Issuance of Letters of Credit . Subject to all of the terms and conditions hereof, Issuing Bank agrees to establish the LC Facility pursuant to which, during the period from the date hereof to (but excluding) the 30th day prior to the last day of the Term, Issuing Bank shall issue one or more Letters of Credit on any Borrower's request therefor from time to time, subject to the following terms and conditions: (i) Each Borrower acknowledges that Issuing Bank's willingness to issue any Letter of Credit is conditioned upon Issuing Bank's receipt of (A) an LC Application with respect to the requested Letter of Credit and (B) such other standard instruments and agreements as Issuing Bank may customarily require for the issuance of a letter of credit of equivalent type and amount as the requested Letter of Credit. Issuing Bank shall have no obligation to issue any Letter of Credit unless (x) Issuing Bank receives an LC Request and LC Application at least 3 Business Days prior to the date of issuance of a Letter of Credit, and (y) each of the LC Conditions is satisfied on the date of Issuing Bank's receipt of the LC Request and at the time of the requested issuance of a Letter of Credit. If Issuing Bank shall have received written notice from a Lender on or before the Business Day immediately prior to the date of Issuing Bank's issuance of a Letter of Credit that one or more of the conditions set forth in Section 11.2 has not been satisfied, Issuing Bank shall have no obligation to issue the requested Letter of Credit or any other Letter of Credit until such notice is withdrawn in writing by that Lender or until the Required Lenders shall have effectively waived such condition in accordance with this Agreement. In no event shall Issuing Bank be deemed to have notice or knowledge of any existence of any Default or Event of Default or the failure of any conditions in Section 11.2 to be satisfied prior to its receipt of such notice from a Lender. (ii) Letters of Credit may be requested by a Borrower only if they are to be used (a) to support obligations of such Borrower incurred in the Ordinary Course of Business of such Borrower or (b) for such other purposes as Agent may approve from time to time. (iii) Borrowers shall comply with all of the terms and conditions imposed on Borrowers by Issuing Bank that are contained in any LC Application or in any other standard agreement customarily or reasonably required by Issuing Bank in connection with the issuance of any Letter of Credit. If Issuing Bank shall honor any request for payment under a Letter of Credit, Borrowers shall be jointly and severally obligated to pay to Issuing Bank, in Dollars on the same day as the date on which payment was made by Issuing Bank (the "Reimbursement Date"), an amount equal to the amount paid by Issuing Bank under such Letter of Credit, together with interest from and after the Reimbursement Date until Full Payment is made by Borrowers at the Default Rate for Revolver Loans constituting Base Rate Loans. Until Issuing Bank has received payment from Borrowers in accordance with the foregoing provisions of this clause (iii), Issuing Bank, in addition to all of its other rights and remedies under this Agreement and any LC Application, shall be fully subrogated to the rights and remedies of each beneficiary under such Letter of Credit whose claims against Borrowers have been discharged with the proceeds of such Letter of Credit. Whether or not a Borrower submits any Notice of Borrowing to Agent, Borrowers shall be deemed to have requested from Lenders a Borrowing of Base Rate Loans in an amount necessary to pay to Issuing Bank all amounts due Issuing Bank on any Reimbursement Date and each Lender agrees to fund its Pro Rata share of such Borrowing whether or not any Default or Event of Default has occurred or exists, the Commitments have been terminated, the funding of the Borrowing would result in (or increase the amount of) any Out-of-Formula Condition, or any of the conditions set forth in Section 11 are not satisfied. (iv) Borrowers assume all risks of the acts, omissions or misuses of any Letter of Credit by the beneficiary thereof. The obligation of Borrowers to reimburse Issuing Bank for any payment made by Issuing Bank under a Letter of Credit shall be absolute, unconditional, irrevocable and joint and several and shall be paid without regard to any lack of validity or enforceability of any Letter of Credit or the existence of any claim, setoff, defense or other right which Borrowers may have at any time against a beneficiary of any Letter of Credit. In connection with the issuance of any documentary Letter of Credit, none of Agent, Issuing Bank or any Lender shall be responsible for the existence, character, quality, quantity, condition, packing, value or delivery of any goods purported to be represented by any Documents; any differences or variation in the character, quality, quantity, condition, packing, value or delivery of any goods from that expressed in the Documents; the form, validity, sufficiency, accuracy, genuineness or legal effect of any Documents or of any endorsements thereon, even if such Documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; the time, place, manner or order in which shipment of goods is made; partial or incomplete shipment of, or failure or omission to ship, any or all of the goods referred to in a documentary Letter of Credit or Documents applicable thereto; any deviation from instructions, delay, default or fraud by the shipper and/or any Person in connection with any goods or any shipping or delivery thereof; any breach of contract between the shipper or vendors and a Borrower; errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher, unless such errors, omissions, interruptions or delays are the result of the gross negligence or willful misconduct of Issuing Bank; errors in interpretation of technical terms; the misapplication by the beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; or any consequences arising from causes beyond the control of Issuing Bank including any act or omission (whether rightful or wrongful) of any present or future Governmental Authority. The rights, remedies, powers and privileges of Issuing Bank under this Agreement with respect to Letters of Credit shall be in addition to, and cumulative with, all rights, remedies, powers and privileges of Issuing Bank under any of the LC Documents. Nothing herein shall be deemed to release Issuing Bank from any liability or obligation that it may have in respect to any Letter of Credit arising out of and directly resulting from its own gross negligence or willful misconduct. (v) No Letter of Credit shall be extended or increased in amount, unless all of the LC Conditions are met as though a new Letter of Credit were being requested and issued. With respect to any Letter of Credit that contains any "evergreen" or automatic renewal provision, each Lender shall be deemed to have consented to any such extension or renewal, unless any such Lender shall have provided to Agent written notice that it declines to consent to any such extension or renewal at least 30 days prior to the date on which Issuing Bank is entitled to decline to extend or renew the Letter of Credit. If all of the LC Conditions are met and no Default or Event of Default exists, each Lender shall be deemed to have consented to any such extension or renewal. (vi) Unless otherwise provided in any of the LC Documents, each LC Application and each Letter of Credit shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce No. 500, and any amendments or revisions thereto. 2.3.2.   Participations. (i) Immediately upon the issuance of any Letter of Credit, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from Issuing Bank, without recourse or warranty, an undivided interest and participation equal to the Pro Rata share of such Lender (a "Participating Lender") in all LC Obligations arising in connection with such Letter of Credit, but in no event greater than an amount which, when added to such Lender's Pro Rata share of all Revolver Loans and LC Obligations then outstanding, exceeds such Lender's Revolver Commitment. (ii) If Issuing Bank makes any payment under a Letter of Credit and Borrowers do not repay or cause to be repaid the amount of such payment on the Reimbursement Date, Issuing Bank shall promptly notify Agent, which shall promptly notify each Participating Lender, of such payment and each Participating Lender shall promptly (and in any event within 1 Business Day after its receipt of notice from Agent) and unconditionally pay to Agent, for the account of Issuing Bank, in immediately available funds, the amount of such Participating Lender's Pro Rata share of such payment, and Agent shall promptly pay such amounts to Issuing Bank. If a Participating Lender does not make its Pro Rata share of the amount of such payment available to Agent on a timely basis as herein provided, such Participating Lender agrees to pay to Agent for the account of Issuing Bank, forthwith on demand, such amount together with interest thereon at the Federal Funds Rate until paid. The failure of any Participating Lender to make available to Agent for the account of Issuing Bank such Participating Lender's Pro Rata share of the LC Obligations shall not relieve any other Participating Lender of its obligation hereunder to make available to Agent its Pro Rata share of the LC Obligations. No Participating Lender shall be responsible for the failure of any other Participating Lender to make available to Agent its Pro Rata share of the LC Obligations on the date such payment is to be made. (iii) Whenever Issuing Bank receives a payment on account of the LC Obligations, including any interest thereon, as to which Agent has previously received payments from any Participating Lender for the account of Issuing Bank, Issuing Bank shall promptly pay to each Participating Lender which has funded its participating interest therein, in immediately available funds, an amount equal to such Participating Lender's Pro Rata share thereof. (iv) The obligation of each Participating Lender to make payments to Agent for the account of Issuing Bank in connection with Issuing Bank's payment under a Letter of Credit shall be absolute, unconditional and irrevocable, not subject to any counterclaim, setoff, qualification or exception whatsoever, and shall be made in accordance with the terms and conditions of this Agreement under all circumstances and irrespective of whether or not Borrowers may assert or have any claim for any lack of validity or unenforceability of this Agreement or any of the other Loan Documents; any Borrower's dispute as to its liability for any of the LC Obligations; the existence of any Default or Event of Default; any draft, certificate or other document presented under a Letter of Credit having been determined to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; the existence of any setoff or defense any Obligor may have with respect to any of the Obligations; or the termination of the Commitments. (v) Neither Issuing Bank nor any of its officers, directors, employees or agents shall be liable to any Participating Lender for any action taken or omitted to be taken under or in connection with any of the LC Documents except as a result of actual gross negligence or willful misconduct on the part of Issuing Bank. Issuing Bank does not assume any responsibility for any failure or delay in performance or breach by a Borrower or any other Person of its obligations under any of the LC Documents. Issuing Bank does not make to Participating Lenders any express or implied warranty, representation or guaranty with respect to the Collateral, the LC Documents, or any Obligor. Issuing Bank shall not be responsible to any Participating Lender for any recitals, statements, information, representations or warranties contained in, or for the execution, validity, genuineness, effectiveness or enforceability of or any of the LC Documents; the validity, genuineness, enforceability, collectibility, value or sufficiency of any of the Collateral or the perfection of any Lien therein; or the assets, liabilities, financial condition, results of operations, business, creditworthiness or legal status of any Obligor or any Account Debtor. In connection with its administration of and enforcement of rights or remedies under any of the LC Documents, Issuing Bank shall be entitled to act, and shall be fully protected in acting upon, any certification, notice or other communication in whatever form believed by Issuing Bank, in good faith, to be genuine and correct and to have been signed, sent or made by a proper Person. Issuing Bank may consult with and employ legal counsel, accountants and other experts and to advise it concerning its rights, powers and privileges under the LC Documents and shall be entitled to act upon, and shall be fully protected in any action taken in good faith reliance upon, any advice given by such experts. Issuing Bank may employ agents and attorneys-in-fact in connection with any matter relating to the LC Documents and shall not be liable for the negligence, default or misconduct of any such agents or attorneys-in-fact selected by Issuing Bank with reasonable care. Issuing Bank shall not have any liability to any Participating Lender by reason of Issuing Bank's refraining to take any action under any of the LC Documents without having first received written instructions from the Required Lenders to take such action. (vi) Upon the request of any Participating Lender, Issuing Bank shall furnish to such Participating Lender copies (to the extent then available to Issuing Bank) of each outstanding Letter of Credit and related LC Documents as may be in the possession of Issuing Bank and reasonably requested from time to time by such Participating Lender. 2.3.3.   Cash Collateral Account . If any LC Obligations, whether or not then due or payable, shall for any reason be outstanding (i) on any date that Availability is less than zero, (ii) on or at any time after the Commitment Termination Date, or (iii) on the day that is 5 Business Days prior to the last day of the Term, then Borrowers shall, on Issuing Bank's or Agent's request, forthwith pay to Agent, for the account of Issuing Bank, the amount of any LC Obligations that are then due and payable and shall, upon the occurrence of any of the events described in clauses (ii) or (iii) hereinabove, Cash Collateralize all outstanding Letters of Credit. If any LC Obligations, whether or not then due or payable, shall for any reason be outstanding at any time that an Event of Default exists, then Borrowers shall, on Issuing Bank's or Agent's (acting at the direction of the Required Lenders) request, forthwith pay to Agent, for the account of Issuing Bank, the amount of any LC Obligations that are then due and payable and shall Cash Collateralize all outstanding Letters of Credit. If Borrowers fail to Cash Collateralize any outstanding Letters of Credit on the first Business Day following Agent's or Issuing Bank's demand therefor as provided in the immediately preceding sentences, Lenders may (and shall upon direction of Agent) advance such amount as Revolver Loans (whether or not the Commitment Termination Date has occurred or an Out-of-Formula Condition is created thereby), to be funded to Agent for the account of Borrowers. Such cash (together with any interest accrued thereon) shall be held by Agent in the Cash Collateral Account and may be invested, in Agent's discretion, in Cash Equivalents. Each Borrower hereby pledges to Agent and grants to Agent a security interest in, for the benefit of Agent in such capacity and for the Pro Rata benefit of Lenders, all Cash Collateral held in the Cash Collateral Account from time to time and all proceeds thereof, as security for the payment of all Obligations (including LC Obligations), whether or not then due or payable. From time to time after cash is deposited in the Cash Collateral Account, Agent may apply Cash Collateral then held in the Cash Collateral Account to reimburse the Issuing Bank for payments on account of drawings under Letters of Credit for which it has not been reimbursed, and, to the extent not so applied, to the payment of the other LC Obligations. Neither Borrowers nor any other Person claiming by, through or under or on behalf of Borrowers shall have any right to withdraw any of the Cash Collateral held in the Cash Collateral Account, including any accrued interest, provided that upon termination or expiration of all Letters of Credit and the payment and satisfaction of all of the LC Obligations, any Cash Collateral remaining in the Cash Collateral Account shall be returned to Borrowers unless an Event of Default then exists (in which event Agent may apply such Cash Collateral to the payment of any other Obligations outstanding in accordance with the provisions of Section 5.6, with any surplus to be turned over to Borrowers). 2.3.4   Indemnifications. (i) In addition to and without limiting any other indemnity which Borrowers may have to any Indemnitees under any of the Loan Documents, each Borrower hereby agrees to indemnify and defend each of the Indemnitees and to hold each of the Indemnitees harmless from and against any and all actual out-of-pocket losses, claims, damages and expenses which any Indemnitee may suffer, incur or be subject to as a consequence, directly or indirectly, of (a) the issuance of, payment or failure to pay or any performance or failure to perform under any Letter of Credit, (b) any suit, investigation or proceeding as to which Agent or any Lender is or may become a party to as a consequence, directly or indirectly, of the issuance of any Letter of Credit or the payment or failure to pay thereunder or (c) Issuing Bank following any instructions of a Borrower with respect to any Letter of Credit or any Document received by Issuing Bank with reference to any Letter of Credit, in each case, unless such losses, claims, damages or expenses result from the gross negligence or willful misconduct of such Indemnitee (including such Indemnitee's officers, directors, employees, agents and attorneys but such defense shall not apply to any other Indemnitees). (ii) Each Participating Lender agrees to indemnify and defend each of the Issuing Bank Indemnitees (to the extent the Issuing Bank Indemnitees are not reimbursed by Borrowers or any other Obligor, but without limiting the indemnification obligations of Borrowers under this Agreement), to the extent of such Lender's Pro Rata share of the Revolver Commitments, from and against any and all Claims which may be imposed on, incurred by or asserted against any of the Issuing Bank Indemnitees in any way related to or arising out of Issuing Bank's administration or enforcement of rights or remedies under any of the LC Documents or any of the transactions contemplated thereby (including costs and expenses which Borrowers are obligated to pay under Section 15.2). 2.4.   Bank Products. Borrowers may request any Lender to provide, or to arrange for one or more of its Affiliates to provide, Bank Products, but no Lender shall have any obligation whatsoever to provide, or to arrange for the provision of, any Bank Products. If Bank Products are provided by an Affiliate of a Lender, Borrowers agree to indemnify and hold Agent and Lenders harmless from and against any and all Claims at any time incurred by Agent or any Lender that arise from any indemnity given to such Affiliates that relate to such Bank Products other than those Claims that arise from Agent's or any such Lender's gross negligence or willful misconduct. Borrowers acknowledge that obtaining Bank Products from any Lender or any Lender's Affiliate is in the discretion of such Lender or its Affiliates and is subject to all rules and regulations of such Lender and its Affiliates that are applicable to such Bank Products. SECTION 3.     INTEREST, FEES AND CHARGES 3.1.   Interest. 3.1.1.   Rates of Interest . Borrowers agree to pay interest in respect of all unpaid principal amounts of the Revolver Loans from the respective dates such principal amounts are advanced until paid (whether at stated maturity, on acceleration or otherwise) at a rate per annum equal to the applicable rate indicated below: (i) for Revolver Loans made or outstanding as Base Rate Loans, the Applicable Margin plus the Base Rate in effect from time to time; or (ii) for Revolver Loans made or outstanding as LIBOR Loans, the Applicable Margin plus the relevant Adjusted LIBOR Rate for the applicable Interest Period selected by Borrowers in conformity with this Agreement. Borrowers agree to pay interest in respect of all unpaid principal amounts outstanding with respect to Term Loan Advances from the respective dates such principal amounts are advanced until paid (whether at stated maturity, on acceleration, or otherwise) at a rate per annum equal to the applicable rate indicated below: (i) for any portion of Term Loan Advances made or outstanding as Base Rate Loans, the Applicable Margin plus the Base Rate in effect from time to time; or (ii) for any portion of Term Loan Advances made or outstanding as LIBOR Loans, the Applicable Margin plus the relevant Adjusted LIBOR Rate for the applicable Interest Period selected by Borrowers in conformity with this Agreement. Upon determining the Adjusted LIBOR Rate for any Interest Period requested by Borrowers, Agent shall promptly notify Borrowers thereof by telephone and, if so requested by Borrowers, confirm the same in writing. Such determination shall, absent manifest error, be final, conclusive and binding on all parties and for all purposes. The applicable rate of interest for all Loans (or portions thereof) bearing interest based upon the Base Rate shall be increased or decreased, as the case may be, by an amount equal to any increase or decrease in the Base Rate, with such adjustments to be effective as of the opening of business on the day that any such change in the Base Rate becomes effective. Interest on each Loan shall accrue from and including the date on which such Loan is made, converted to a Loan of another Type or continued as a LIBOR Loan to (but excluding) the date of any repayment thereof; provided, however, that, if a Loan is repaid on the same day made, one day's interest shall be paid on such Loan. 3.1.2.   Conversions and Continuations. (i) Borrowers may on any Business Day, subject to the giving of a proper Notice of Conversion/Continuation as hereinafter described, elect (A) to continue all or any part of a LIBOR Loan by selecting a new Interest Period therefor, to commence on the last day of the immediately preceding Interest Period, or (B) to convert all or any part of a Loan of one Type into a Loan of another Type; provided, however, during the period that any Default or Event of Default exists, Agent may (and shall at the direction of the Required Lenders) declare that no Loan may be made or continued as or converted into a LIBOR Loan. Any conversion of a LIBOR Loan into a Base Rate Loan shall be made on the last day of the Interest Period for such LIBOR Loan. Any conversion or continuation made with respect to less than the entire outstanding balance of the Loans must be allocated among Lenders on a Pro Rata basis, and the Interest Period for Loans converted into or continued as LIBOR Loans shall be coterminous for each Lender. (ii) Whenever Borrowers desire to convert or continue Loans under Section 3.1.2(i), Borrower Representative shall give Agent written notice (or telephonic notice promptly confirmed in writing) substantially in the form of Exhibit D (a "Notice of Conversion/Continuation"), signed by an authorized officer of Borrower Representative, at least 1 Business Day before the requested conversion date, in the case of a conversion into Base Rate Loans, and at least 3 Business Days before the requested conversion or continuation date, in the case of a conversion into or continuation of LIBOR Loans. Promptly after receipt of a Notice of Conversion/Continuation, Agent shall notify each Lender in writing of the proposed conversion or continuation. Each such Notice of Conversion/Continuation shall be irrevocable and shall specify the aggregate principal amount of the Loans to be converted or continued, the date of such conversion or continuation (which shall be a Business Day) and whether the Loans are being converted into or continued as LIBOR Loans (and, if so, the duration of the Interest Period to be applicable thereto and, in the absence of any specification by Borrowers of the Interest Period, an Interest Period of one month will be deemed to be specified) or Base Rate Loans. If, upon the expiration of any Interest Period in respect of any LIBOR Loans, Borrowers shall have failed to deliver the Notice of Conversion/Continuation, Borrowers shall be deemed to have elected to convert such LIBOR Loans to Base Rate Loans. 3.1.3.   Interest Periods . In connection with the making or continuation of, or conversion into, each Borrowing of LIBOR Loans, Borrowers shall select an interest period (each an "Interest Period") to be applicable to such LIBOR Loan, which interest period shall consist of 1, 2, 3 or 6 months and shall commence on the date such LIBOR Loan is made; provided, however, that: (i) the initial Interest Period for a LIBOR Loan shall commence on the date of such Borrowing (including the date of any conversion from a Loan of another Type) and each Interest Period occurring thereafter in respect of such Revolver Loan shall commence on the date on which the next preceding Interest Period expires; (ii) if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that, if any Interest Period in respect of LIBOR Loans would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the immediately preceding Business Day; (iii) any Interest Period that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall expire on the last Business Day of such calendar month; and (iv) no Interest Period shall extend beyond the last day of the Term. 3.1.4.   Interest Rate Not Ascertainable . If Agent shall reasonably determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) that on any date for determining the Adjusted LIBOR Rate for any Interest Period, by reason of any changes arising after the date of this Agreement affecting the London interbank market or any Lender's position in such market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Adjusted LIBOR Rate, then, and in any such event, Agent shall forthwith give notice (by telephone promptly confirmed in writing) to Borrowers of such determination. Until Agent notifies Borrowers that the circumstances giving rise to the suspension described herein no longer exist, the obligation of Lenders to make LIBOR Loans shall be suspended, and such affected Loans then outstanding shall, at the end of the then applicable Interest Period or at such earlier time as may be required by Applicable Law, bear the same interest as Base Rate Loans. 3.1.5.   Default Rate of Interest . Borrowers shall pay interest at a rate per annum equal to the Default Rate (i) with respect to the principal amount of any portion of the Obligations (and, to the extent permitted by Applicable Law, all past due interest) that is not paid on the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise) until Full Payment; (ii) with respect to the principal amount of all of the Obligations (and, to the extent permitted by Applicable Law, all past due interest) upon the earlier to occur of (x) Borrower Representative's receipt of notice from Agent of the Required Lenders' election to charge the Default Rate based upon the existence of any Event of Default (which notice Agent shall send only with the consent or at the direction of the Required Lenders), whether or not acceleration or demand for payment of the Obligations has been made, or (y) the commencement by or against any Borrower of an Insolvency Proceeding whether or not under the circumstances described in clauses (i) or (ii) hereof Lenders elect to accelerate the maturity or demand payment of any of the Obligations; and (iii) with respect to the principal amount of any Out-of-Formula Loans (unless otherwise agreed in writing by the Required Lenders), whether or not demand for payment thereof has been made by Agent. To the fullest extent permitted by Applicable Law, the Default Rate shall apply and accrue on any judgment entered with respect to any of the Obligations and to the unpaid principal amount of the Obligations during any Insolvency Proceeding of a Borrower. Each Borrower acknowledges that the cost and expense to Agent and each Lender attendant upon the occurrence of an Event of Default are difficult to ascertain or estimate and that the Default Rate is a fair and reasonable estimate to compensate Agent and Lenders for such added cost and expense. Interest accrued at the Default Rate shall be due and payable on demand. 3.2.   Fees . In consideration of Lenders' establishment of the Commitments in favor of Borrowers, and Agent's agreement to serve as collateral and administrative agent hereunder, Borrowers jointly and severally agree to pay the following fees: 3.2.1.   Fee Letter . Borrowers shall be jointly and severally obligated to pay to Agent such fees as are required by the Fee Letter on the dates set forth therein. 3.2.2.   Unused Line Fee . Borrowers shall be jointly and severally obligated to pay to Agent for the Pro Rata benefit of Lenders a fee (the "Unused Line Fee") equal to the Applicable Margin (for the Unused Line Fee) of the amount by which the Average Revolver Loan Balance for any quarter (or portion thereof that the Commitments are in effect) is less than the aggregate Revolver Commitments, such Unused Line Fee to be paid quarterly, in arrears, on the first day of each calendar quarter and on the Commitment Termination Date; provided, however, that if an Event of Default exists and the Default Rate is then in effect, then such Unused Line Fees shall be paid on a monthly basis, on the first day of each calendar month. 3.2.3.   LC Facility Fees . Borrowers shall be jointly and severally obligated to pay: (a)(i) to Agent for the Pro Rata account of each Lender for all Letters of Credit, the Applicable Margin in effect for Revolver Loans that are LIBOR Loans on a per annum basis based on the average amount available to be drawn under Letters of Credit outstanding and all Letters of Credit that are paid or expire during the period of measurement, payable quarterly, in arrears, on the first day of each calendar quarter; (ii) to Issuing Bank for its own account a Letter of Credit fronting fee of 0.125% per annum based on the average amount available to be drawn under all Letters of Credit outstanding and all Letters of Credit that are paid or expire during the period of measurement, payable quarterly, in arrears, on the first Business Day of the following calendar quarter; and (iii) to Issuing Bank for its own account all customary charges associated with the issuance, amending, negotiating, payment, processing and administration of all Letters of Credit; provided, however, that if an Event of Default exists and the Default Rate is then in effect, then such fees and charges shall be paid on a monthly basis, on the first day of each calendar month. All Letter of Credit fees that are expressed as a percentage shall be increased to a percentage that is 2% greater than the percentage that would otherwise be applicable to LIBOR Loans when the Default Rate is in effect. 3.2.4.   Audit and Appraisal Fees and Expenses . Borrowers shall reimburse Agent for all reasonable costs and expenses incurred by Agent (including standard fees charged by Agent's internal appraisal department) in connection with (i) examinations and reviews of any Obligor's books and records, (A) up to 3 times per Loan Year for any and all such examinations and reviews unless a Default or Event of Default exists (in which event, there shall be no limit on the number of examinations and reviews for which Borrowers shall be obligated to reimburse Agent) and (B) up to 2 times per Loan Year if no Restrictive Trigger Event has occurred and is continuing, and shall pay to Agent the standard amount charged by Agent per day ($850 per day as of the Closing Date) plus reasonable out-of-pocket expenses for each day that an employee or agent of Agent shall be engaged in an examination or review of any Obligor's books and records under this clause (i), and (ii) appraisals of Inventory no more frequently than 2 times per Loan Year, unless a Default or Event of Default exists (in which event, there shall be no limit on the number of Inventory appraisals for which Borrowers shall be obligated to reimburse Agent). If after the occurrence of a Restrictive Trigger Event, Availability is at least $25,000,000 for 90 consecutive days and no Event of Default exists, then as soon as practicable but in any event within 1 Business Day thereafter (the "Audit Spring-Back Date"), Agent will not require such examinations and reviews more frequently than 2 times per Loan Year unless another Restrictive Trigger Event occurs. If a Restrictive Trigger Event has occurred as a result of an Event of Default and not as a result of the failure of Borrowers to meet the Availability or Average Availability requirements, and Agent (or to the extent required by this Agreement, all Lenders or Required Lenders) waive the Event of Default in writing, then the Audit Spring-Back Date shall occur on the date of the waiver in writing of such Event of Default. The foregoing shall not be construed to limit Agent's right to conduct audits as provided in Section 10.1.1 (but shall limit Borrowers' obligation to reimburse Agent and Lenders for any such audit) or as provided in the definition of Permitted Acquisitions or to otherwise obtain appraisals of the Collateral at the expense of Agent and Lenders. 3.2.5.   General Provisions . All fees shall be fully earned by the identified recipient thereof pursuant to the foregoing provisions of this Agreement on the due date thereof (and, in the case of Letters of Credit, upon each issuance, renewal or extension of such Letter of Credit) and, except as otherwise set forth herein or required by Applicable Law, shall not be subject to rebate, refund or proration. All fees provided for in Section 3.2 are and shall be deemed to be compensation for services and are not, and shall not be deemed to be, interest or any other charge for the use, forbearance or detention of money. 3.3.   Computation of Interest and Fees . All fees and other charges provided for in this Agreement that are calculated as a per annum percentage of any amount and all interest shall be calculated daily and shall be computed on the actual number of days elapsed over a year of 360 days (except 365/366 days for Base Rate Loans). Each determination by Agent of interest and fees hereunder shall be presumptive evidence of the correctness of such interest and fees. 3.4.   Reimbursement Obligations. 3.4.1   Borrowers shall reimburse Agent and Lenders for any Extraordinary Expenses, on the sooner to occur of 10 Business Days after Agent's demand therefor or Agent's receipt of any proceeds of Collateral in connection with any Enforcement Action (subject to the provisions of Section 5.6 with respect to the application of any proceeds of Collateral). Borrowers also shall reimburse Agent for all reasonable accounting, appraisal and consulting fees, and reasonable attorney's fees and out-of-pocket expenses of one counsel to Agent (and local counsels as determined by Agent) and other reasonable fees and expenses suffered or incurred by Agent in connection with: (i) the negotiation and preparation of any of the Loan Documents, any amendment or modification thereto; (ii) the administration of the Loan Documents and the transactions contemplated thereby; (iii) action taken to perfect or maintain the perfection or priority of any of Agent's Liens with respect to any of the Collateral; (iv) any inspection of or audits conducted by Agent with respect to any Obligor's books and records or any of the Collateral (subject to the limitations set forth in Section 3.2.4 hereof); and (v) any effort by Agent to verify or appraise any of the Collateral (subject to the limitations set forth in Section 3.2.4). All amounts chargeable to or reimbursable Borrowers under this Section 3.4 shall constitute Obligations that are secured by all of the Collateral and if not sooner paid, shall be payable to Agent within 10 Business Days after demand by Agent. Borrowers shall also reimburse Agent for reasonable expenses incurred by Agent in its administration of any of the Collateral to the extent and in the manner provided in Section 8 or in any of the other Loan Documents. The foregoing shall be in addition to, and shall not be construed to limit, any other provision of any of the Loan Documents regarding the indemnification or reimbursement by Borrowers of Claims suffered or incurred by Agent or any Lender. 3.4.2.   If at any time Agent or (with the prior consent of Agent) any Lender shall agree to indemnify any Person against losses or damages that such Person may suffer or incur in its dealings or transactions with Borrowers, or shall guarantee or otherwise assure payment of any liability or obligation of Borrowers to such Person, or otherwise shall provide assurances of Borrowers' payment or performance under any agreement with such Person, including indemnities, guaranties or other assurances of payment or performance given by Agent or any Lender with respect to Banking Relationship Debt, then the Contingent Obligation of Agent or any Lender providing any such indemnity, guaranty or other assurance of payment or performance, together with any payment made or liability incurred by Agent or any Lender in connection therewith, shall constitute Obligations that are secured by the Collateral and Borrowers shall repay, within 10 Business Days, any amount so paid or any liability incurred by Agent or any Lender in connection with any such indemnity, guaranty or assurance (other than liabilities resulting from Agent's or such Lender's gross negligence or willful misconduct). Nothing herein shall be construed to impose upon Agent or any Lender any obligation to provide any such indemnity, guaranty or assurance. The foregoing agreement of Borrowers shall apply whether or not such indemnity, guaranty or assurance is in writing or oral and regardless of any Borrower's knowledge of the existence thereof, shall survive termination of the Commitments and Full Payment of the Obligations and any other provisions of the Loan Documents regarding reimbursement or indemnification by Borrowers of Claims suffered or incurred by Agent or any Lender. 3.5.   Bank Charges . Borrowers shall pay to Agent, on demand, any and all fees, costs or expenses which Agent pays to a bank or other similar institution (including any fees paid by Agent or any Lender to any Participant) arising out of or in connection with (i) the forwarding to a Borrower or any other Person on behalf of Borrower by Agent of proceeds of Loans made by Lenders to a Borrower pursuant to this Agreement and (ii) the depositing for collection by Agent of any Payment Item received or delivered to Agent on account of the Obligations. 3.6.   Illegality . Notwithstanding anything to the contrary contained elsewhere in this Agreement, if (i) any change in any law or regulation or in the interpretation thereof after the Closing Date by any Governmental Authority charged with the administration thereof shall make it unlawful for a Lender to make or maintain a LIBOR Loan or to give effect to its obligations as contemplated hereby with respect to a LIBOR Loan or (ii) at any time such Lender determines that the making or continuance of any LIBOR Loan has become impracticable as a result of a contingency occurring after the date hereof which adversely affects the London interbank market or the position of such Lender in such market, then such Lender shall give after such determination Agent and Borrowers notice thereof and may thereafter (1) declare that LIBOR Loans will not thereafter be made by such Lender, whereupon any request by a Borrower for a LIBOR Loan from such Lender shall be deemed a request for a Base Rate Loan unless such Lender's declaration shall be subsequently withdrawn (which declaration shall be withdrawn promptly after the cessation of the circumstances described in clause (i) or (ii) above); and (2) require that all outstanding LIBOR Loans made by such Lender be converted to Base Rate Loans, under the circumstances of clause (i) or (ii) of this Section 3.6 insofar as such Lender determines the continuance of LIBOR Loans to be impracticable, in which event all such LIBOR Loans of such Lender shall be converted automatically to Base Rate Loans as of the date of any Borrower's receipt of the aforesaid notice from such Lender. 3.7.   Increased Costs . If, by reason of (a) the introduction after the date hereof of or any change (including any change by way of imposition or increase of Statutory Reserves or other reserve requirements) in or in the interpretation of any law or regulation, or (b) the compliance with any guideline or request from any central bank or other Governmental Authority or quasi-Governmental Authority exercising control over banks or financial institutions generally (whether or not having the force of law) made after the date hereof (any such event a "Change in Law"): (i) any Lender shall be subject after the date hereof to any Tax, duty or other charge with respect to any LIBOR Loan or Letter of Credit or its obligation to make LIBOR Loans or to issue Letters of Credit or participate in the LC Obligations arising from the issuance of Letters of Credit, or a change shall result in the basis of taxation of payment to any Lender of the principal of or interest on its LIBOR Loans or its obligation to make LIBOR Loans, issue Letters of Credit or participate in the LC Obligations arising from the issuance of Letters of Credit (except for changes in the rate of Tax on the overall net income or gross receipts or franchise tax of such Lender imposed by the jurisdiction in which such Lender's principal executive office is located); or (ii) any reserve (including any imposed by the Board of Governors), special deposits or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender shall be imposed or deemed applicable or any other condition affecting its LIBOR Loans or Letters of Credit or its obligation to make LIBOR Loans or to issue Letters of Credit or participate in the LC Obligations arising from the issuance of Letters of Credit shall be imposed on such Lender or the London interbank market; and as a result thereof there shall be any increase in the cost to such Lender in any material amount in excess of those incurred by similarly situated Lenders of agreeing to make or making, funding or maintaining LIBOR Loans or issuing Letters of Credit (except to the extent already included in the determination of the applicable Adjusted LIBOR Rate for LIBOR Loans), or there shall be a reduction in any material respect in the amount received or receivable by such Lender, then such Lender shall, promptly after determining the existence or amount of any such increased costs for which such Lender seeks payment hereunder, give any Borrower notice thereof and Borrowers shall from time to time, upon written notice from and demand by such Lender setting forth in reasonable detail the manner in which such amount was determined (with a copy of such notice and demand to Agent), pay to Agent for the account of such Lender, within 10 Business Days after the date specified in such notice and demand, an additional amount sufficient to indemnify such Lender against such increased costs. A certificate as to the amount of such increased costs, submitted to Borrowers by such Lender, shall be final, conclusive and binding for all purposes, absent manifest error. If any Lender shall advise Agent at any time that, because of the circumstances described hereinabove in this Section 3.7 or any other circumstances arising after the date of this Agreement affecting such Lender or the London interbank market or such Lender's position in such market, the Adjusted LIBOR Rate, as determined by Agent, will not adequately and fairly reflect the cost to such Lender of funding LIBOR Loans or issuing Letters of Credit, then, and in any such event: (i) Agent shall forthwith give notice (by telephone confirmed promptly in writing) to Borrowers and Lenders of such event; (ii) Borrowers' right to request and such Lender's obligation to make LIBOR Loans or to issue Letters of Credit or participate in the LC Obligations arising from the issuance of Letters of Credit shall be immediately suspended and Borrowers' right to continue a LIBOR Loan as such beyond the then applicable Interest Period or to request a Letter of Credit shall also be suspended, until each condition giving rise to such suspension no longer exists; and (iii) such Lender shall make a Base Rate Loan as part of the requested Borrowing of LIBOR Loans, which Base Rate Loan shall, for all purposes, be considered part of such Borrowing. For purposes of this Section 3.7, all references to a Lender shall be deemed to include any bank holding company or bank parent of such Lender. If any Lender provides notice that, due to the circumstances described in this Section 3.7, the Adjusted LIBOR Rate will not adequately and fairly reflect the cost to such Lender of funding LIBOR Loans or participating in LC Obligations arising from the issuance of Letters of Credit, then such Lender may be replaced pursuant to the provisions of Section 13.17. 3.8.   Capital Adequacy . If any Lender determines that (i) the introduction after the date hereof of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation after the date hereof, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by such Lender or any corporation or other entity controlling such Lender with any Capital Adequacy Regulation, after the date hereof affects or would affect the amount of capital required or expected to be maintained by such Lender or any Person controlling such Lender and (taking into consideration such Lender's or such corporation's or other entity's policies with respect to capital adequacy) determines that the amount of such capital is increased as a consequence of its Commitments, loans, credits or obligations under this Agreement to a level below that which such Lender or such Lender's holding company would have achieved but for such change in law, then: (a) Agent shall promptly, after its receipt of a certificate from such Lender setting forth such Lender's determination of such occurrence, give notice thereof to Borrowers and Lenders; and (b) Borrowers shall pay to Agent, for the account of such Lender, as an additional fee from time to time, on demand, such amount as such Lender certifies in reasonable detail to be the amount reasonably calculated to compensate such Lender for such reduction. A certificate of such Lender claiming entitlement to compensation as set forth above will be conclusive in the absence of manifest error. Such certificate will set forth the nature of the occurrence giving rise to such compensation, the additional amount or amounts to be paid to such Lender (including the basis for such Lender's determination of such amount), and the method by which such amounts were determined, all in reasonable detail. In determining such amount, such Lender may use any reasonable averaging and attribution method. For purposes of this Section 3.8 all references to a Lender shall be deemed to include any bank holding company or bank parent of such Lender. 3.9.   Mitigation. Each Lender agrees that, with reasonable promptness after such Lender becomes aware that such Lender is entitled to receive payments under Sections 3.6, 3.7 or 3.8, or is or has become subject to U.S. withholding taxes payable by any Borrower in respect of its Loans, it will, to the extent not inconsistent with any internal policy of such Lender or any applicable legal or regulatory restriction, (i) use all reasonable efforts to make, fund or maintain the Commitment of such Lender or the Loans of such Lender through another lending office of such Lender or (ii) take such other reasonable measures, if, as a result thereof, the circumstances which would relieve Borrowers from their obligations to pay such additional amounts (or reduce the amount of such payments), or such withholding taxes would be reduced, and if the making, funding or maintaining of such Commitment or Loans through such other lending office or in accordance with such other measures, as the case may be, would not otherwise adversely affect such Commitment or Loans or the interests of such Lender. Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to Sections 3.7, 3.8 or 3.9 shall not constitute a waiver of such Lender's right to demand such compensation, provided that Borrowers shall not be required to compensate a Lender pursuant to any such Section for any increased costs or reductions incurred more than 120 days prior to the date that such Lender notifies the Borrowers of the change in law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor, and provided further that, if the change in law giving rise to such increased costs or reductions is retroactive, then the 120 day period referred to above shall be extended to include the period of retroactive effect thereof. 3.10.   Funding Losses . If for any reason (other than due to a default by a Lender or as a result of a Lender's refusal to honor a LIBOR Loan request due to circumstances described in this Agreement) a Borrowing of, or conversion to or continuation of, LIBOR Loans does not occur on the date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether or not withdrawn), or if any repayment (including any conversions pursuant to Section 3.1.2) of any of its LIBOR Loans occurs on a date that is not the last day of an Interest Period applicable thereto, or if for any reason Borrowers default in their obligation to repay LIBOR Loans when required by the terms of this Agreement, then Borrowers shall be jointly and severally obligated to pay to each Lender an amount equal to all losses and expenses which such Lender may sustain or incur as a consequence thereof, including any such loss or expense arising from the liquidation or redeployment of funds obtained by it to maintain its LIBOR Loans or from fees payable to terminate the deposits from which such funds were obtained. Borrowers shall pay all such amounts due to any Lender upon presentation by such Lender of a statement setting forth the amount and such Lender's calculation thereof in reasonable detail, which statement shall be deemed true and correct absent manifest error. For purposes of this Section 3.10, all references to a Lender shall be deemed to include any bank holding company or bank parent of such Lender. 3.11.   Maximum Interest . Regardless of any provision contained in any of the Loan Documents, in no contingency or event whatsoever shall the aggregate of all amounts that are contracted for, charged or received by Agent and Lenders pursuant to the terms of this Agreement or any of the other Loan Documents and that are deemed interest under Applicable Law exceed the highest rate permissible under any Applicable Law (including, to the extent applicable, 12 U.S.C.Section85). No agreements, conditions, provisions or stipulations contained in this Agreement or any of the other Loan Documents or the exercise by Agent of the right to accelerate the payment or the maturity of all or any portion of the Obligations, or the exercise of any option whatsoever contained in any of the Loan Documents, or the prepayment by Borrowers of any of the Obligations, or the occurrence of any contingency whatsoever, shall entitle Agent or any Lender to charge or receive in any event, interest or any charges, amounts, premiums or fees deemed interest by Applicable Law (such interest, charges, amounts, premiums and fees referred to herein collectively as "Interest") in excess of the Maximum Rate and in no event shall Borrowers be obligated to pay Interest exceeding such Maximum Rate, and all agreements, conditions or stipulations, if any, which may in any event or contingency whatsoever operate to bind, obligate or compel Borrowers to pay Interest exceeding the Maximum Rate shall be without binding force or effect, at law or in equity, to the extent only of the excess of Interest over such Maximum Rate. If any Interest is charged or received with respect to the Obligations in excess of the Maximum Rate ("Excess"), Borrowers stipulate that any such charge or receipt shall be the result of an accident and bona fide error, and such Excess, to the extent received, shall be applied first to reduce the principal of such Obligations and the balance, if any, returned to Borrowers, it being the intent of the parties hereto not to enter into a usurious or otherwise illegal relationship. Each Borrower recognizes that, with fluctuations in the rates of interest set forth in Section 3.1.1, and the Maximum Rate, such an unintentional result could inadvertently occur. All monies paid to Agent or any Lender hereunder or under any of the other Loan Documents, whether at maturity or by prepayment, shall be subject to any rebate of unearned Interest as and to the extent required by Applicable Law. By the execution of this Agreement, each Borrower covenants that (i) the credit or return of any Excess shall constitute the acceptance by such Borrower of such Excess, and (ii) such Borrower shall not seek or pursue any other remedy, legal or equitable, against Agent or any Lender, based in whole or in part upon contracting for, charging or receiving any Interest in excess of the Maximum Rate. For the purpose of determining whether or not any Excess has been contracted for, charged or received by Agent or any Lender, all Interest at any time contracted for, charged or received from Borrowers in connection with any of the Loan Documents shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated and spread in equal parts throughout the full term of the Obligations. Borrowers, Agent and Lenders shall, to the maximum extent permitted under Applicable Law, (i) characterize any non-principal payment as an expense, fee or premium rather than as Interest and (ii) exclude voluntary prepayments and the effects thereof. The provisions of this Section 3.11 shall be deemed to be incorporated into every Loan Document (whether or not any provision of this Section is referred to therein). All such Loan Documents and communications relating to any Interest owed by Borrowers and all figures set forth therein shall, for the sole purpose of computing the extent of Obligations, be automatically recomputed by Borrowers, and by any court considering the same, to give effect to the adjustments or credits required by this Section 3.11. SECTION 4.    LOAN ADMINISTRATION 4.1.   Manner of Borrowing and Funding Revolver Loans . Borrowings under the Commitments established pursuant to Section 2.1 shall be made and funded as follows: 4.1.1.   Notice of Borrowing. (i) Whenever Borrowers desire to make a Borrowing under Section 2.1 (other than a Borrowing resulting from a conversion or continuation pursuant to Section 3.1.2), Borrowers shall give Agent prior written notice (or telephonic notice promptly confirmed in writing) of such Borrowing request (a "Notice of Borrowing"), which shall be in the form of Exhibit E annexed hereto and signed by an authorized officer of Borrower Representative. Such Notice of Borrowing shall be given by Borrower Representative no later than 12:00 noon at the office designated by Agent from time to time (a) on the Business Day of the requested funding date of such Borrowing, in the case of Base Rate Loans, and (b) at least 3 Business Days prior to the requested funding date of such Borrowing, in the case of LIBOR Loans. Notices received after 12:00 noon shall be deemed received on the next Business Day. Each Notice of Borrowing (or telephonic notice thereof) shall be irrevocable and shall specify (a) the principal amount of the Borrowing, (b) the date of Borrowing (which shall be a Business Day), (c) whether the Borrowing is to consist of Base Rate Loans or LIBOR Loans, (d) in the case of LIBOR Loans, the duration of the Interest Period to be applicable thereto, and (e) the account of Borrowers to which the proceeds of such Borrowing are to be disbursed. (ii) Unless payment is otherwise timely made by Borrowers, the becoming due of any amount required to be paid with respect to any of the Obligations (whether as principal, accrued interest, fees or other charges, including Extraordinary Expenses and LC Obligations, and any amounts owed for Banking Relationship Debt) shall be deemed irrevocably to be a request (without any requirement for the submission of a Notice of Borrowing) for Revolver Loans on the due date of, and in an aggregate amount required to pay, such Obligations, and the proceeds of such Revolver Loans may be disbursed by way of direct payment of the relevant Obligation and shall bear interest as Base Rate Loans. Neither Agent nor any Lender shall have any obligation to Borrowers to honor any deemed request for a Revolver Loan on or after the Commitment Termination Date, when an Out-of-Formula Condition exists or would result therefrom, or when any applicable condition precedent set forth in Section 11 is not satisfied, but may do so in the discretion of Agent (or at the direction of the Required Lenders) and without regard to the existence of, and without being deemed to have waived, any Default or Event of Default and regardless of whether such Revolver Loan is funded after the Commitment Termination Date. (iii) If Borrowers elect to establish a Controlled Disbursement Account with BofA or any Affiliate of BofA, then the presentation for payment by BofA of any check or other item of payment drawn on the Controlled Disbursement Account at a time when there are insufficient funds in such account to cover such check shall be deemed irrevocably to be a request (without any requirement for the submission of a Notice of Borrowing) for Revolver Loans on the date of such presentation and in an amount equal to the aggregate amount of the items presented for payment, and the proceeds of such Revolver Loans may be disbursed to the Controlled Disbursement Account and shall bear interest as Base Rate Loans. Neither Agent nor any Lender shall have any obligation to honor any deemed request for a Revolver Loan on or after the Commitment Termination Date or when an Out-of-Formula Condition exists or would result therefrom or when any condition precedent in Section 11 is not satisfied, but may do so in the discretion of Agent (or at the direction of the Required Lenders) and without regard to the existence of, and without being deemed to have waived, any Default or Event of Default and regardless of whether such Revolver Loan is funded after the Commitment Termination Date. 4.1.2.   Fundings by Lenders . Subject to its receipt of notice from Agent of a Notice of Borrowing as provided in Section 4.1.1(i) (except in the case of a deemed request by Borrower Representative for a Revolver Loan as provided in Section 4.1.1(ii) or (iii) or Section 4.1.3(ii), in which event no Notice of Borrowing need be submitted), each Lender shall timely honor its Revolver Commitment by funding its Pro Rata share of each Borrowing of Revolver Loans that is properly requested and that Borrowers are entitled to receive under this Agreement. Agent shall endeavor to notify Lenders of each Notice of Borrowing (or deemed request for a Borrowing pursuant to Section 4.1.1(ii) or (iii)), by 1:00 p.m. on the proposed funding date (in the case of Base Rate Loans) or by 3:00 p.m. at least 2 Business Days before the proposed funding date (in the case of LIBOR Loans). Each Lender shall deposit with Agent an amount equal to its Pro Rata share of the Borrowing requested or deemed requested by Borrowers at Agent's designated bank in immediately available funds not later than 2:00 p.m. on the date of funding of such Borrowing, unless Agent's notice to Lenders is received after 1:00 p.m. on the proposed funding date of a Base Rate Loan, in which event Lenders shall deposit with Agent their respective Pro Rata shares of the requested Borrowing on or before 12:00 noon of the next Business Day. Subject to its receipt of such amounts from Lenders, Agent shall make the proceeds of the Revolver Loans received by it available to Borrowers by disbursing such proceeds in accordance with Borrower Representative's disbursement instructions set forth in the applicable Notice of Borrowing. Neither Agent nor any Lender shall have any liability on account of any delay by any bank or other depository institution in treating the proceeds of any Revolver Loan as collected funds or any delay in receipt, or any loss, of funds that constitute a Revolver Loan, the wire transfer of which was initiated by Agent in accordance with wiring instructions provided to Agent. Unless Agent shall have been notified in writing by a Lender prior to the proposed time of funding that such Lender does not intend to deposit with Agent an amount equal such Lender's Pro Rata share of the requested Borrowing (or deemed request for a Borrowing pursuant to clauses (ii) or (iii) of Section 4.1.1), Agent may assume that such Lender has deposited or promptly will deposit its share with Agent and Agent may in its discretion disburse a corresponding amount to Borrowers on the applicable funding date. If a Lender's Pro Rata share of such Borrowing is not in fact deposited with Agent, then, if Agent has disbursed to Borrowers an amount corresponding to such share, then such Lender agrees to pay, and in addition Borrowers agree to repay, to Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is disbursed by Agent to or for the benefit of Borrowers until the date such amount is paid or repaid to Agent, (a) in the case of Borrowers, at the interest rate applicable to such Borrowing and (b) in the case of such Lender, at the Federal Funds Rate. If such Lender repays to Agent such corresponding amount, such amount so repaid shall constitute a Revolver Loan, and if both such Lender and Borrowers shall have repaid such corresponding amount, Agent shall promptly return to Borrowers such corresponding amount in same day funds. A notice from Agent submitted to any Lender with respect to amounts owing under this Section 4.1.2 shall be conclusive, absent manifest error. 4.1.3.   Settlement and Swingline Loans. (i) In order to facilitate the administration of the Revolver Loans under this Agreement, Lenders and Agent agree (which agreement shall be solely between Lenders and Agent and shall not be for the benefit of or enforceable by any Borrower) that settlement among them with respect to the Revolver Loans may take place on a periodic basis on dates determined from time to time by Agent (each a "Settlement Date"), which may occur before or after the occurrence or during the continuance of a Default or Event of Default and whether or not all of the conditions set forth in Section 11 have been met. On each Settlement Date, payment shall be made by or to each Lender in the manner provided herein and in accordance with the Settlement Report delivered by Agent to Lenders with respect to such Settlement Date so that, as of each Settlement Date and after giving effect to the transaction to take place on such Settlement Date, each Lender shall hold its Pro Rata share of all Revolver Loans and participations in LC Obligations. (ii) Between Settlement Dates, Agent may request BofA to advance, and BofA may, but shall in no event be obligated to, advance to Borrowers out of BofA's own funds the entire principal amount of any Borrowing of Revolver Loans that are Base Rate Loans requested or deemed requested pursuant to this Agreement (any such Revolver Loan funded exclusively by BofA being referred to as a "Swingline Loan"). Each Swingline Loan shall constitute a Revolver Loan hereunder and shall be subject to all of the terms, conditions and security applicable to other Revolver Loans, except that all payments thereon shall be payable to BofA solely for its own account. The obligation of Borrowers to repay such Swingline Loans to BofA shall be evidenced by the records of BofA and need not be evidenced by any promissory note. Unless a funding is required by all Lenders pursuant to Sections 2.1.6 or 13.9.4, Agent shall not request BofA to make any Swingline Loan if (A) Agent shall have received written notice from any Lender that one or more of the applicable conditions precedent set forth in Section 11 will not be satisfied on the requested funding date for the applicable Borrowing and Agent has made a determination (without any liability to any Person) that such condition precedent will not be satisfied or (B) the requested Borrowing would exceed the amount of Availability on the funding date or (C) the aggregate principal amount of all Swingline Loans outstanding exceeds (or with the funding of the requested Swingline Loans, would exceed) $20,000,000 at any time. BofA shall not be required to determine whether the applicable conditions precedent set forth in Section 11 have been satisfied or the requested Borrowing would exceed the amount of Availability on the funding date applicable thereto prior to making, in its discretion, any Swingline Loan. On each Settlement Date, or, if earlier, on demand by Agent for payment thereof, the then outstanding Swingline Loans shall be immediately due and payable. As provided in Section 4.1.1(ii), Borrowers shall be deemed to have requested (without the necessity of submitting any Notice of Borrowing) Revolver Loans to be made on each Settlement Date in the amount of all outstanding Swingline Loans and to have Agent cause the proceeds of such Revolver Loans to be applied to the repayment of such Swingline Loans and interest accrued thereon. Agent shall notify the Lenders of the outstanding balance of Revolver Loans prior to 12:00 noon on each Settlement Date and each Lender (other than BofA) shall deposit with Agent (without setoff, counterclaim or reduction of any kind) an amount equal to its Pro Rata share of the amount of Revolver Loans deemed requested in immediately available funds not later than 2:00 p.m. on such Settlement Date. Each Lender's obligation to make such deposit with Agent shall be absolute and unconditional, without defense, offset, counterclaim or other defense, and without regard to whether any of the conditions precedent set forth in Section 11 are satisfied, any Out-of-Formula Condition exists or the Commitment Termination Date has occurred. If, as the result of the commencement by or against Borrowers of any Insolvency Proceeding or otherwise, any Swingline Loan may not be repaid by the funding by Lenders of Revolver Loans, then each Lender (other than BofA) shall be deemed to have purchased a participating interest in any unpaid Swingline Loan in an amount equal to such Lender's Pro Rata share of such Swingline Loan and shall transfer to BofA, in immediately available funds not later than the second Business Day after BofA's request therefor, the amount of such Lender's participation. The proceeds of Swingline Loans may be used solely for purposes for which Revolver Loans generally may be used in accordance with Section 2.1.3. If any amounts received by BofA in respect of any Swingline Loans are later required to be returned or repaid by BofA to Borrowers or any other Obligor or their respective representatives or successors-in-interest, whether by court order, settlement or otherwise, the other Lenders shall, on demand by BofA with notice to Agent, pay to Agent for the account of BofA, an amount equal to each other Lender's Pro Rata share of all such amounts required to be returned or repaid. 4.1.4.   Disbursement Authorization . Each Borrower hereby irrevocably authorizes Agent to disburse the proceeds of each Revolver Loan requested by any Borrower, or deemed to be requested pursuant to Section 4.1.1 or Section 4.1.3(ii), as follows: (i) the proceeds of each Revolver Loan requested under Section 4.1.1(i) shall be disbursed by Agent in accordance with the terms of the written disbursement letter from Borrowers in the case of the initial Borrowing, and, in the case of each subsequent Borrowing, by wire transfer to such bank account of Borrowers as may be agreed upon by Borrowers and Agent from time to time or elsewhere if pursuant to a written direction from any Borrower that is approved by Agent; and (ii) the proceeds of each Revolver Loan requested under Section 4.1.1(ii) or Section 4.1.3(ii) shall be disbursed by Agent by way of direct payment of the relevant interest or other Obligation. Any Loan proceeds received by any Borrower or in payment of any of the Obligations shall be deemed to have been received by all Borrowers. 4.1.5.   Telephonic Notices. Each Borrower authorizes Agent and Lenders to extend, convert or continue Loans, effect selections of Types of Loans and transfer funds to or on behalf of Borrowers based on telephonic notices or instructions from any individual whom Agent or any Lender in good faith believes to be acting on behalf of any Borrower. Borrowers shall confirm each such telephonic request for a Borrowing or conversion or continuation of Loans by prompt delivery to Agent of the required Notice of Borrowing or Notice of Conversion/Continuation, as applicable, duly executed by an authorized officer of Borrower Representative. If the written confirmation differs in any material respect from the action taken by Agent or Lenders, the records of Agent and Lenders shall govern. Neither Agent nor any Lender shall have any liability for any loss suffered by any Borrower as a result of Agent's or any Lender's acting upon its understanding of telephonic instructions or requests from a person believed in good faith by Agent or any Lender to be a Person authorized by a Borrower to give such instructions or to make such requests on Borrowers' behalf. 4.2.   Defaulting Lender . If any Lender shall, at any time, fail to make any payment to Agent or BofA that is required hereunder, Agent may, but shall not be required to, retain payments that would otherwise be made to such defaulting Lender hereunder and apply such payments to such defaulting Lender's defaulted obligations hereunder, at such time, and in such order, as Agent may elect in its discretion. With respect to the payment of any funds from Agent to a Lender or from a Lender to Agent, the party failing to make the full payment when due pursuant to the terms hereof shall, on demand by the other party, pay such amount together with interest on such amount at the Federal Funds Rate. The failure of any Lender to fund its portion of any Loan or payment in respect of an LC Obligation shall not relieve any other Lender of its obligation, if any, to fund its portion of the Revolver Loan or payment in respect of an LC Obligation on the date of Borrowing, but no Lender shall be responsible for the failure of any other Lender to make any Loan or payment in respect of an LC Obligation to be made by such Lender on the date of any Borrowing. Solely as among the Lenders and solely for purposes of voting or consenting to matters with respect to any of the Loan Documents, Collateral or any Obligations and determining a defaulting Lender's share of payments and proceeds of Collateral pending such defaulting Lender's cure of its defaults hereunder, a defaulting Lender shall not be deemed to be a "Lender" and such Lender's Commitment shall be deemed to be zero (0). The provisions of this Section 4.2 shall be solely for the benefit of Agent and Lenders and may not be enforced by Borrowers. 4.3.   Special Provisions Governing LIBOR Loans. 4.3.1.   Number of LIBOR Loans . In no event may the number of LIBOR Loans outstanding at any time to any Lender exceed 10. 4.3.2.   Minimum Amounts . Each Borrowing of LIBOR Loans pursuant to Section 4.1.1(i), and each continuation of or conversion to LIBOR Loans pursuant to Section 3.1.2, shall be in a minimum amount of $1,000,000 and integral multiples of $250,000 in excess of that amount. 4.3.3.   LIBOR Lending Office . Each Lender's initial LIBOR Lending Office is set forth opposite its name on the signature pages hereof. Each Lender shall have the right at any time and from time to time to designate a different office of itself or of any Affiliate as such Lender's LIBOR Lending Office, and to transfer any outstanding LIBOR Loans to such LIBOR Lending Office. No such designation or transfer shall result in any liability on the part of Borrowers for increased costs or expenses. Increased costs for expenses resulting from a change in Applicable Law occurring subsequent to any such designation or transfer shall be deemed not to result solely from such designation or transfer. 4.3.4.   Funding of LIBOR Loans . Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBOR Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBOR Loans; provided, however, that such LIBOR Loans shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of Borrowers to repay such LIBOR Loans shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. The calculation of all amounts payable to Lender under Sections 3.7 and 3.10 shall be made as if each Lender had actually funded or committed to fund its LIBOR Loan through the purchase of an underlying deposit in an amount equal to the amount of such LIBOR Loan and having a maturity comparable to the relevant Interest Period for such LIBOR Loans; provided, however, each Lender may fund its LIBOR Loans in any manner it deems fit and the foregoing presumption shall be utilized only for the calculation of amounts payable under Sections 3.7 and 3.10. 4.4.   Borrower Representative . Each Borrower hereby irrevocably appoints Parent and Parent agrees to act under this Agreement, as the agent and representative of itself and each other Borrower for all purposes under this Agreement (in such capacity, "Borrower Representative"), including requesting Borrowings, submitting LC Requests, selecting whether any Loan or portion thereof is to bear interest as a Base Rate Loan or a LIBOR Loan, and receiving account statements and other notices and communications to Borrowers (or any of them) from Agent. Agent may rely, and shall be fully protected in relying, on any Notice of Borrowing, Notice of Conversion/Continuation, LC Request, disbursement instructions, reports, information, Borrowing Base Certificate or any other notice or communication made or given by Borrower Representative, whether in its own name, on behalf of any Borrower or on behalf of "the Borrowers," and Agent shall have no obligation to make any inquiry or request any confirmation from or on behalf of any other Borrower as to the binding effect on such Borrower of any such Notice of Borrowing, Notice of Conversion/Continuation, LC Request, instruction, report, information, Borrowing Base Certificate or other notice or communication, nor shall the joint and several character of Borrowers' liability for the Obligations be affected, provided that the provisions of this Section 4.4 shall not be construed so as to preclude any Borrower from directly requesting Borrowings or taking other actions permitted to be taken by "a Borrower" hereunder. Agent may maintain a single Loan Account in the name of "Alpharma Inc." hereunder, and each Borrower expressly agrees to such arrangement and confirms that such arrangement shall have no effect on the joint and several character of such Borrower's liability for the Obligations. 4.5.   All Loans to Constitute One Obligation . The Loans and LC Obligations shall constitute one general obligation of Borrowers and (unless otherwise expressly provided in any Security Document) shall be secured by Agent's Lien upon all of the Collateral; provided, however, that Agent and each Lender shall be deemed to be a creditor of each Borrower and the holder of a separate claim against each Borrower to the extent of any Obligations jointly and severally owed by Borrowers to Agent or such Lender. section 5.     PAYMENTS 5.1.   General Payment Provisions . All payments (including all prepayments) of principal of and interest on the Loans, LC Obligations and other Obligations that are payable to Agent or any Lender shall be made to Agent in Dollars without any offset or counterclaim, and, with respect to payments made other than by application of balances in the Payment Account, in immediately available funds not later than 12:00 noon on the due date (and payment made after such time on the due date to be deemed to have been made on the next succeeding Business Day). Borrowers shall, at the time Borrowers make any payment under this Agreement, specify to Agent the Obligations to which such payment is to be applied and, if Borrowers fail so to specify or if the application specified by Borrowers would be inconsistent with the terms of this Agreement or if an Event of Default exists, Agent shall distribute such payment to Lenders for application to the Obligations then due and payable in such manner as Agent, subject to the provisions of this Agreement, may determine to be appropriate. All payments received by Agent shall be subject to the rights of offset that Agent may have as to amounts otherwise to be remitted to a particular Lender by reason of amounts due and payable to Agent from such Lender under any of the Loan Documents. 5.2.   Repayment of Revolver Loans. 5.2.1.   Payment of Principal . The outstanding principal amounts with respect to the Revolver Loans shall be repaid as follows: (i) Any portion of the Revolver Loans consisting of the principal amount of Base Rate Loans shall be paid by Borrowers to Agent, for the Pro Rata benefit of Lenders (or, in the case of Swingline Loans, for the sole benefit of BofA) unless timely converted to a LIBOR Loan in accordance with this Agreement, immediately upon (a) subject to Section 8.2.5, each receipt by Agent, any Lender or Borrowers of any proceeds of any of the Accounts or Inventory, to the extent of such proceeds, (b) the Commitment Termination Date, and (c) in the case of Swingline Loans, the earlier of BofA's demand for payment or on each Settlement Date with respect to all Swingline Loans outstanding on such date. (ii) Any portion of the Revolver Loans consisting of the principal amount of LIBOR Loans shall be paid by Borrowers to Agent, for the Pro Rata benefit of Lenders, unless converted to a Base Rate Loan or continued as a LIBOR Loan in accordance with the terms of this Agreement, immediately upon (a) the last day of the Interest Period applicable thereto and (b) the Commitment Termination Date. In no event shall Borrowers be authorized to make a voluntary prepayment with respect to any Revolver Loan outstanding as a LIBOR Loan prior to the last day of the Interest Period applicable thereto unless Borrowers pay to Agent, for the Pro Rata benefit of Lenders, concurrently with any prepayment of a LIBOR Loan, any amount due Agent and Lenders under Section 3.10 as a consequence of such prepayment. Notwithstanding the foregoing provisions of this Section 5.2.1(ii), if, on any date that Agent receives proceeds of any of the Accounts or Inventory, there are no Revolver Loans outstanding as Base Rate Loans, Agent may either hold such proceeds as cash security for the timely payment of the Obligations or apply such proceeds to any outstanding Revolver Loans bearing interest as LIBOR Loans as the same become due and payable (whether at the end of the applicable Interest Periods or on the Commitment Termination Date). (iii) Notwithstanding anything to the contrary contained elsewhere in this Agreement, if an Out-of-Formula Condition shall exist, Borrowers shall, on the sooner to occur of Agent's demand or the first Business Day after any Borrower has obtained knowledge of such Out-of-Formula Condition, repay the outstanding Revolver Loans that are Base Rate Loans in an amount sufficient to reduce the aggregate unpaid principal amount of all Revolver Loans by an amount equal to such excess; and, if such payment of Base Rate Loans is not sufficient to eliminate the Out-of-Formula Condition, then Borrowers shall immediately deposit with Agent, for the Pro Rata benefit of Lenders, for application to any outstanding Revolver Loans bearing interest as LIBOR Loans as the same become due and payable (whether at the end of the applicable Interest Periods or on the Commitment Termination Date) cash in an amount sufficient to eliminate such Out-of-Formula Condition, and Agent may (a) hold such deposit as cash security pending disbursement of same to Lenders for application to the Obligations, or (b) if an Event of Default exists, immediately apply such proceeds to the payment of the Obligations, including the Revolver Loans outstanding as LIBOR Loans (in which event Borrowers shall also pay to Agent for the Pro Rata benefit of Lenders any amounts required by Section 3.10 to be paid by reason of the prepayment of a LIBOR Loan prior to the last day of the Interest Period applicable thereto). 5.2.2.   Payment of Interest . Interest accrued on the Revolver Loans shall be due and payable (i) quarterly in arrears on the first day of each calendar quarter, with respect to any Revolver Loan that is a Base Rate Loan and (ii) the last day of the applicable Interest Period in the case of a LIBOR Loan and if such LIBOR Loan has an Interest Period of greater than ninety (90) days, also on the 90th day and the last day of such Interest Period; provided, however that if an Event of Default exists and the Default Rate is then in effect, interest shall be due and payable monthly, in arrears, on the first day of each calendar month and if such Revolver Loan is a LIBOR Loan, also at the end of each Interest Period. Accrued interest shall also be paid by Borrowers on the Commitment Termination Date. With respect to any Base Rate Loan converted into a LIBOR Loan pursuant to Section 3.1.2 on a day when interest would not otherwise have been payable with respect to such Base Rate Loan, accrued interest to the date of such conversion on the amount of such Base Rate Loan so converted shall be paid on the conversion date. 5.3.   Repayment of Term Loan Advances. 5.3.1.   Payment of Principal . The principal amount of each Term Note shall be paid in consecutive quarterly installments equal to the following amounts: Payment Dates Quarterly Payment Amounts 12/31/2005 $1,250,000 3/31/2006 $1,250,000 6/30/2006 $1,250,000 9/30/2006 $1,250,000 12/31/2006 $3,125,000 3/31/2007 $3,125,000 6/30/2007 $3,125,000 9/30/2007 $3,125,000 12/31/2007 $3,125,000 3/31/2008 $3,125,000 6/30/2008 $3,125,000 9/30/2008 $3,125,000 12/31/2008 $1,250,000 3/31/2009 $1,250,000 6/30/2009 $1,250,000 9/30/2009 $1,250,000 Each installment shall be paid to Agent for the account and Pro Rata benefit of each Lender. Each Term Loan Advance, if not sooner paid, shall be due and payable in full on the Commitment Termination Date. 5.3.2.   Payment of Interest . Interest accrued on each Term Loan Advance shall be due and payable (i) quarterly in arrears on the first day of each calendar quarter if the Term Loan Advance bears interest as a Base Rate Loan, (ii) the last day of the applicable Interest Period in the case of any portion of such Term Loan Advance that is a LIBOR Loan and, in addition, if such LIBOR Loan has an Interest Period of greater than ninety (90) days, on the 90th day and the last day of such Interest Period, (iii) the date of any prepayment of Term Loan Advances and (iv) the Commitment Termination Date; provided, however, that if an Event of Default exists and the Default Rate is then in effect, interest shall be due and payable on a monthly basis, in arrears, on the first day of each calendar month and if any portion of the Term Loan Advances consists of LIBOR Loans, also on the last day of the applicable Interest Period. With respect to any Base Rate Loan converted into a LIBOR Loan pursuant to Section 3.1.2 on a day when interest would not otherwise have been payable with respect to such Base Rate Loan, accrued interest to the date of such conversion on the amount of such Base Rate Loan so converted shall be paid on the conversion date. 5.3.3.   Mandatory Prepayments . In addition to Borrowers' obligation to pay the Obligations upon the Commitment Termination Date, Borrowers shall also be jointly and severally required to prepay the Obligations as follows: (i) Borrowers shall prepay the Obligations in accordance with Section 5.3.5 in the amount of Net Disposition Proceeds from Permitted Asset Dispositions of Equipment or Real Estate; (ii) Borrowers shall prepay the Obligations in accordance with Section 5.3.5 from the proceeds of insurance or condemnation awards paid in respect of any Equipment or Real Estate; and (iii) Concurrently with the consummation of a Portfolio Transaction, Agent shall receive the Net Disposition Proceeds thereof for application to the Obligations in accordance with Section 5.3.5. 5.3.4.   Optional Prepayments of Term Loan Advances . Borrowers may, at their option, prepay any portion of the Term Loan Advances consisting of Base Rate Loans in whole at any time or in part from time to time, in amounts aggregating $1,000,000 or any greater integral multiple of $250,000 by paying the principal amount to be prepaid together with interest accrued or unpaid thereon to the date of prepayment. Any portion of the Term Loan Advances consisting of LIBOR Loans may be prepaid, at Borrowers' option, at any time in whole or from time to time in part, in amounts aggregating $1,000,000 or any greater integral multiple of $250,000, together with any applicable charges pursuant to Section 3.10, interest accrued or unpaid thereon to the date of prepayment. Borrowers shall give written notice (or telephonic notice promptly confirmed in writing) to Agent of any intended prepayment not less than 1 Business Day prior to any prepayment of Base Rate Loans and not less than 2 Business Days prior to any prepayment of LIBOR Loans. Such notice, once given, shall be irrevocable and, upon receipt of any such notice of optional prepayment, Agent shall promptly notify each Lender of the contents thereof and of such Lender's share of the prepayment as provided in Section 5.3.5. 5.3.5.   Application of Prepayments (i) Except as otherwise provided in Section 5.6, each mandatory prepayment pursuant to Section 5.3.3 shall be remitted by Borrowers to Agent for application (i) first, to eliminate any Out-of-Formula Condition and repay all Out-of-Formula Loans (including any Excess Borrowing Base Amount) (provided, that nothing contained herein shall permit Borrowers to have any Out-of-Formula Condition or Out-of-Formula Loans); (ii) second, to the Fixed Asset Sublimit in the inverse order of the quarterly amortization amounts specified in the definition thereof to the extent of the Excess FAS Amount; (iii) third, to the principal due under the Term Notes, with such amounts applied to the principal installments under the Term Notes in the inverse order of maturities until Full Payment thereof; and (iv) fourth, to reduce the Fixed Asset Sublimit, in the inverse order of the quarterly amortization amounts specified in the definition thereof. (ii) Each optional prepayment of Term Loan Advances pursuant to Section 5.3.4 shall be remitted by Borrowers to Agent and distributed by Agent to Lenders to prepay installments of the Term Loan Notes, in the inverse order of their maturities, until Full Payment of the Term Notes. (iii) All distributions of prepayments by Agent to Lenders shall be on a Pro Rata basis. Each Lender shall apply the portion of a prepayment that is to be applied to principal installments first to outstanding Base Rate Loans and then to any outstanding LIBOR Loans with the shortest Interest Periods remaining; but if application to any LIBOR Loans would cause the same to be paid prior to the end of an applicable Interest Period, then, by prior written notice to Agent, Borrowers may elect as to such LIBOR Loan to deliver cash to Agent in the amount of the required prepayment, to be held by Agent as Cash Collateral until the end of the applicable Interest Period, at which time Agent shall disburse such Cash Collateral to the affected Lenders for application to such LIBOR Loans. 5.4.   Payment of Other Obligations . The balance of the Obligations requiring the payment of money, including LC Obligations and Extraordinary Expenses incurred by Agent or any Lender, shall be repaid by Borrowers to Agent for allocation among Agent and Lenders as provided in the Loan Documents, or, if no date of payment is otherwise specified in the Loan Documents, on demand. 5.5.   Marshaling; Payments Set Aside . None of Agent or Lenders shall be under any obligation to marshal any assets in favor of Borrowers or any other Obligor or against or in payment of any or all of the Obligations. To the extent that Borrowers make a payment to Agent or Lenders or Agent or any Lender receives payment from the proceeds of any Collateral or exercises its right of setoff, and such payment or the proceeds of such Collateral or setoff (or any part thereof) are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other Person, then to the extent of any loss by Agent or Lenders, the Obligations or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment or proceeds had not been made or received and any such enforcement or setoff had not occurred. The provisions of the immediately preceding sentence of this Section 5.5 shall survive any termination of the Commitments and Full Payment of the Obligations. 5.6.   Post Default Allocation of Payments. 5.6.1.   Allocation . For so long as an Event of Default exists, all monies to be applied to the Obligations, whether such monies represent voluntary or mandatory payments or prepayments by one or more Obligors or are received pursuant to demand for payment or realized from any disposition of Collateral and irrespective of any designation by Borrowers of the Obligations that are intended to be satisfied, shall be allocated among Agent and such of the Lenders as are entitled thereto (and, with respect to monies allocated to Lenders, on a Pro Rata basis unless otherwise provided herein): (i) first, to Agent to pay the amount of Extraordinary Expenses that have not been reimbursed to Agent by Borrowers or Lenders, together with interest accrued thereon at the rate applicable to Revolver Loans that are Base Rate Loans, until Full Payment of all such Obligations; (ii) second, to Agent to pay principal and accrued interest on any portion of the Loans (including Agent Advances) which Agent may have advanced on behalf of any Lender and for which Agent has not been reimbursed by such Lender or Borrowers, until Full Payment of all such Obligations; (iii) third, to BofA to pay the principal and accrued interest on any portion of the Swingline Loans outstanding, to be shared with Lenders that have acquired and paid for a participating interest in such Swingline Loans, until Full Payment of all such Obligations; (iv) fourth, to the extent that Issuing Bank has not received from any Participating Lender a payment as required by Section 2.3.2, to Issuing Bank to pay all such required payments from each Participating Lender, until Full Payment of all such Obligations; (v) fifth, to Agent to pay any Claims that have not been paid pursuant to any indemnity of Agent Indemnitees by any Obligor, or to pay amounts owing by Lenders to Agent Indemnitees pursuant to Section 13.6, in each case together with interest accrued thereon at the rate applicable to Revolver Loans that are Base Rate Loans, until Full Payment of all such Obligations; (vi) sixth, to Agent to pay any fees due and payable to Agent, until Full Payment of all such Obligations; (vii) seventh, to each Lender, ratably, for any Claims that such Lender has paid to Agent Indemnitees pursuant to its indemnity of Agent Indemnitees and any Extraordinary Expenses that such Lender has reimbursed to Agent or such Lender has incurred, to the extent that such Lender has not been reimbursed by Obligors therefor; (viii) eighth, to Issuing Bank to pay principal and interest with respect to LC Obligations (or to the extent any of the LC Obligations are contingent and an Event of Default then exists, deposited in the Cash Collateral Account to Cash Collateralize the LC Obligations), which payment shall be shared with the Participating Lenders in accordance with Section 2.3.2(iii); (ix) ninth, to Lenders in payment of the unpaid principal and accrued interest in respect of the Loans and other Obligations (excluding Banking Relationship Debt) then outstanding, in such order of application as shall be designated by Agent (acting at the direction or with the consent of the Required Lenders); and (x) tenth, to any Lender or any Affiliate of any Lender in payment of any Banking Relationship Debt owed to such Person and secured by the Collateral hereunder (subject to Section 13.19 hereof). The allocations set forth in this Section 5.6 are solely to determine the rights and priorities of Agent and Lenders as among themselves and may be changed by Agent and Lenders without notice to or the consent or approval of any Borrower or any other Person. 5.6.2.   Erroneous Allocation . Agent shall not be liable for any allocation or distribution of payments made by it in good faith and, if any such allocation or distribution is subsequently determined to have been made in error, the sole recourse of any Lender to which payment was due but not made shall be to recover from the other Lenders any payment in excess of the amount to which such other Lenders are determined to be entitled (and such other Lenders hereby agree to return to such Lender any such erroneous payments received by them). 5.7.   Application of Payments and Collateral Proceeds . All Payment Items received by Agent by 12:00 noon, on any Business Day shall be deemed received on that Business Day. All Payment Items received by Agent after 12:00 noon, on any Business Day shall be deemed received on the following Business Day. Each Borrower does hereby irrevocably agree that Agent shall have the continuing exclusive right to apply and reapply any and all such payments and Collateral proceeds (subject to Section 8.2.5 hereof) received at any time or times hereafter by Agent or its agent against the Obligations, in such manner as Agent may deem advisable, notwithstanding any entry by Agent upon any of its books and records; provided, however, that any payments or proceeds of Collateral received by Agent on any date that an Event of Default does not exist shall be applied in accordance with any provisions of this Agreement that govern the application of such payment or proceeds. If, as the result of Agent's collection of proceeds of Accounts and other Collateral as authorized by Section 8.2.6 a credit balance exists, such credit balance shall not accrue interest in favor of Borrowers, but shall be available to Borrowers at any time or times for so long as no Event of Default exists. Agent may apply such credit balance against any of the Obligations during the existence of an Event of Default in the manner specified in Section 5.6.1. 5.8.   Loan Accounts; the Register; Account Stated. 5.8.1.   Loan Accounts . Each Lender shall maintain in accordance with its usual and customary practices an account or accounts (a "Loan Account") evidencing the Debt of Borrowers to such Lender resulting from each Loan owing to such Lender from time to time, including the amount of principal and interest payable to such Lender from time to time hereunder and under each Note payable to such Lender. Any failure of a Lender to record in the Loan Account, or any error in doing so, shall not limit or otherwise affect the obligation of Borrowers hereunder (or under any Note) to pay any amount owing hereunder to such Lender. 5.8.2.   The Register . Agent shall maintain a register (the "Register"), which shall include a master account and a subsidiary account for each Lender and in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the Type of each Loan comprising such Borrowing and any Interest Period applicable thereto, (ii) the effective date and amount of each Assignment and Acceptance delivered to and accepted by it and the parties thereto, (iii) the amount of any principal or interest due and payable or to become due and payable from Borrowers to each Lender hereunder or under the Notes, and (iv) the amount of any sum received by Agent from Borrowers or any other Obligor and each Lender's Pro Rata share thereof. The Register shall be available for inspection by Borrowers or any Lender at the offices of Agent at any reasonable time and from time to time upon reasonable prior notice. Any failure of Agent to record in the Register, or any error in doing so, shall not limit or otherwise affect the obligation of Borrowers hereunder (or under any Note) to pay any amount owing with respect to the Loans or provide the basis for any claim against Agent. 5.8.3.   Entries Binding . The entries made in the Register and each Loan Account shall constitute rebuttably presumptive evidence of the information contained therein absent manifest error; provided, however, that if a copy of information contained in the Register or any Loan Account is provided to any Person, or any Person inspects the Register or any Loan Account, at any time or from time to time, then the information contained in the Register or the Loan Account, as applicable, shall be conclusive and binding on such Person for all purposes absent manifest error, unless such Person notifies Agent in writing within 30 days after such Person's receipt of such copy or such Person's inspection of the Register or Loan Account of its intention to dispute the information contained therein. 5.9.   Gross Up for Taxes . If Borrowers shall be required by Applicable Law to withhold or deduct any Taxes from or in respect of any sum payable under this Agreement or any of the other Loan Documents, (a) the sum payable to Agent or such Lender shall be increased as may be necessary so that, after making all required withholding or deductions, Agent or such Lender (as the case may be) receives an amount equal to the sum it would have received had no such withholding or deductions been made, (b) Borrowers shall make such withholding or deductions, and (c) Borrowers shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with Applicable Law. Borrowers shall not be required to indemnify any Foreign Lender or to pay any additional amounts to any Foreign Lender in respect of U.S. Federal withholding tax pursuant to this Section 5.9 to the extent that the obligation to pay such additional amounts would not have arisen but for a failure by such Foreign Lender to comply with the provisions of Section 5.10 below. If Agent or any Lender determines that it has received a refund, credit, or other reduction of taxes in respect of any Taxes paid by Borrowers pursuant to this Section 5.9, such Person shall within 30 days from the date of actual receipt of such refund or the filing of the tax return in which such credit or other reduction results in a lower tax payment, pay over such refund or the amount of such tax reduction to Borrowers (but only to the extent of Taxes paid by Borrowers pursuant to this Section 5.9), net of all out-of-pocket expenses of such Person, and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund). 5.10.   Withholding Tax Exemption . At least 5 (five) Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Foreign Lender, if such Foreign Lender is entitled to an exemption from or reduction in withholding tax, it shall deliver to Borrowers and the Agent two (2) copies of (i) either United States Internal Revenue Service Form W-8BEN or Form W-8ECI, or any subsequent versions thereof or successors thereto, or, (ii) in the case of a Foreign Lender claiming exemption from or reduction in U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest," a (A) Form W-8BEN, or any subsequent versions thereof or successors thereto and (B) a certificate representing that such Foreign Lender (1) is not a bank for purposes of Section 881(c) of the Code, (2) is not a 10 percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of any Obligor and (3) is not a controlled foreign corporation related to Obligors (within the meaning of Section 864(d)(4) of the Code), in all cases, properly completed and duly executed by such Foreign Lender claiming, as applicable, complete exemption from or reduced rate of, U.S. Federal withholding tax on payments by Obligors under this Agreement and the other Loan Documents, or in the case of a Foreign Lender claiming exemption for "portfolio interest" certifying that it is not a foreign corporation, partnership, estate or trust. In addition, each Foreign Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender and at such other times as may be reasonably requested by Agent or Borrower Representative. Notwithstanding any other provisions of this Section 5.10, a Foreign Lender shall not be required to deliver any form pursuant to this Section 5.10 that such Foreign Lender is not legally able to deliver. 5.11   Nature and Extent of Each Borrower's Liability. 5.11.1   Joint and Several Liability . Each Borrower shall be liable for, on a joint and several basis, and hereby guarantees the timely payment by all other Borrowers of, all of the Loans and other Obligations, regardless of which Borrower actually may have received the proceeds of any Loans or other extensions of credit hereunder or the amount of such Loans received or the manner in which Agent or any Lender accounts for such Loans or other extensions of credit on its books and records, it being acknowledged and agreed that Loans to any Borrower inure to the mutual benefit of all Borrowers and that Agent and Lenders are relying on the joint and several liability of Borrowers in extending the Loans and other financial accommodations hereunder. Each Borrower hereby unconditionally and irrevocably agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any principal of, or interest owed on, any of the Loans or other Obligations, such Borrower shall forthwith pay the same, without notice or demand. 5.11.2.   Unconditional Nature of Liability . Each Borrower's joint and several liability hereunder with respect to, and guaranty of, the Loans and other Obligations shall, to the fullest extent permitted by Applicable Law, be unconditional irrespective of (i) the validity, enforceability, avoidance or subordination of any of the Obligations or of any promissory note or other document evidencing all or any part of the Obligations, (ii) the absence of any attempt to collect any of the Obligations from any other Obligor or any Collateral or other security therefor, or the absence of any other action to enforce the same, (iii) the waiver, consent, extension, forbearance or granting of any indulgence by Agent or any Lender with respect to any provision of any instrument evidencing or securing the payment of any of the Obligations, or any other agreement now or hereafter executed by any other Borrower and delivered to Agent or any Lender, (iv) the failure by Agent to take any steps to perfect or maintain the perfected status of its security interest in or Lien upon, or to preserve its rights to, any of the Collateral or other security for the payment or performance of any of the Obligations or Agent's release of any Collateral or of its Liens upon any Collateral, (v) Agent's or Lenders' election, in any proceeding instituted under the Bankruptcy Code, for the application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or grant of a security interest by any other Borrower, as debtor-in-possession under Section 364 of the Bankruptcy Code, (vii) the release or compromise, in whole or in part, of the liability of any Obligor for the payment of any of the Obligations, (viii) any amendment or modification of any of the Loan Documents or any waiver of a Default or Event of Default, (ix) any increase in the amount of the Obligations beyond any limits imposed herein or in the amount of any interest, fees or other charges payable in connection therewith, or any decrease in the same, (x) the disallowance of all or any portion of Agent's or any Lender's claims against any other Obligor for the repayment of any of the Obligations under Section 502 of the Bankruptcy Code, or (xi) any other circumstance that might constitute a legal or equitable discharge or defense of any Obligor (other than Full Payment of the Obligations). After the occurrence and during the continuance of any Event of Default, Agent may proceed directly and at once, without notice to any Obligor, against any or all of Obligors to collect and recover all or any part of the Obligations, without first proceeding against any other Obligor or against any Collateral or other security for the payment or performance of any of the Obligations, and each Borrower waives any provision under Applicable Law to the fullest extent permitted by Applicable Law that might otherwise require Agent to pursue or exhaust its remedies against any Collateral or Obligor before pursuing another Obligor. Each Borrower consents and agrees that Agent shall be under no obligation to marshal any assets in favor of any Obligor or against or in payment of any or all of the Obligations. 5.11.3.   No Reduction in Liability for Obligations . No payment or payments made by an Obligor or received or collected by Agent from a Borrower or any other Person by virtue of any action or proceeding or any setoff or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Borrower under this Agreement, each of whom shall remain jointly and severally liable for the payment and performance of all Loans and other Obligations until Full Payment of the Obligations. 5.11.4.   Contribution . Each Borrower is unconditionally obligated to repay the Obligations as a joint and several obligor under this Agreement. If, as of any date, the aggregate amount of payments made by a Borrower on account of the Obligations and proceeds of such Borrower's Collateral that are applied to the Obligations exceeds the aggregate amount of Loan proceeds actually used by such Borrower in its business (such excess amount being referred to as an "Accommodation Payment"), then each of the other Borrowers (each such Borrower being referred to as a "Contributing Borrower") shall be obligated to make contribution to such Borrower (the "Paying Borrower") in an amount equal to (A) the product derived by multiplying the sum of each Accommodation Payment of each Borrower by the Allocable Percentage of the Borrower from whom contribution is sought less (B) the amount, if any, of the then outstanding Accommodation Payment of such Contributing Borrower (such last mentioned amount which is to be subtracted from the aforesaid product to be increased by any amounts theretofore paid by such Contributing Borrower by way of contribution hereunder, and to be decreased by any amounts theretofore received by such Contributing Borrower by way of contribution hereunder); provided, however, that a Paying Borrower's recovery of contribution hereunder from the other Borrowers shall be limited to that amount paid by the Paying Borrower in excess of its Allocable Percentage of all Accommodation Payments then outstanding of all Borrowers. As used herein, the term "Allocable Percentage" shall mean, on any date of determination thereof, a fraction the denominator of which shall be equal to the number of Borrowers who are parties to this Agreement on such date and the numerator of which shall be 1; provided, however, that such percentages shall be modified in the event that contribution from a Borrower is not possible by reason of insolvency, bankruptcy or otherwise by reducing such Borrower's Allocable Percentage equitably and by adjusting the Allocable Percentage of the other Borrowers proportionately so that the Allocable Percentages of all Borrowers at all times equals 100%. 5.11.5.   Subordination . Each Borrower hereby subordinates any claims, including any right of payment, subrogation, contribution and indemnity, that it may have from or against any other Obligor, and any successor or assign of any other Obligor, including any trustee, receiver or debtor-in-possession, howsoever arising, due or owing or whether heretofore, now or hereafter existing, to the Full Payment of all of the Obligations. section 6.   TERM AND TERMINATION OF COMMITMENTS 6.1.   Term of Commitments . Subject to each Lender's right to cease making Loans and other extensions of credit to Borrowers when any Default or Event of Default exists or upon termination of the Commitments as provided in Section 6.2, the Commitments shall be in effect for a period (the "Term") commencing on the date hereof and continuing until the close of business on October 26, 2010, unless sooner terminated as provided in Section 6.2. 6.2.   Termination. 6.2.1.   Termination by Agent . Agent may (and upon the direction of the Required Lenders, shall) terminate the Commitments without notice at any time that an Event of Default exists; provided, however, that the Commitments shall automatically terminate as provided in Section 12.2. 6.2.2.   Termination by Borrowers . Upon at least 10 days prior written notice to Agent (or upon at least 3 days prior written notice to Agent if a Permitted Portfolio Transaction is to occur concurrently with such termination), Borrowers may, at their option, terminate the Commitments; provided, however, no such termination by Borrowers shall be effective until Full Payment of the Obligations. Any notice of termination given by Borrowers shall be irrevocable unless Agent otherwise agrees in writing. Borrowers may elect to terminate the Commitments in their entirety only, provided that nothing contained herein shall affect Borrowers' right to voluntarily reduce the Revolver Commitments as provided in Section 2.1.5. No section of this Agreement, Type of Loan available hereunder or Commitment may be terminated by Borrowers singly. 6.2.3..   Reserved 6.2.4.   Effect of Termination . On the effective date of termination of the Commitments by Agent or by Borrowers, all of the Obligations shall be immediately due and payable, Lenders shall have no obligation to make any Loans, Issuing Bank shall have no obligation to issue any Letters of Credit, and BofA may terminate any Bank Products (including any services or products under Cash Management Agreements). Agent shall retain its Liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Full Payment of the Obligations. Notwithstanding the Full Payment of the Obligations, Agent shall not be required to terminate its Liens in any of the Collateral unless, with respect to any loss or damage Agent may incur as a result of the dishonor or return of any Payment Items applied to the Obligations, Agent shall have received either (i) a written agreement, executed by Borrowers and any Person deemed financially responsible by Agent whose loans or other advances to Borrowers are used in whole or in part to satisfy the Obligations, indemnifying Agent and Lenders from any such loss or damage for a period of no more than 60 days; or (ii) such monetary reserves and Liens on the Collateral for such period of time as Agent, in its reasonable discretion, may deem necessary to protect Agent from any such loss or damage. The provisions of Sections 3.4, 3.7, 3.8, 3.10, 5.5, 5.9 and this Section 6.2.4 and all obligations of Borrowers to indemnify Agent or any Lender pursuant to this Agreement or any of the other Loan Documents, shall in all events survive any termination of the Commitments and Full Payment of the Obligations. section 7.   COLLATERAL 7.1.   Grant of Security Interest . To secure the prompt payment and performance of all of the Obligations, each Borrower hereby grants to Agent, for the benefit of Secured Parties, a continuing security interest in and Lien upon all of such Borrower's right, title and interest in all of the following Property and interests in Property of such Borrower, whether now owned or existing or hereafter created, acquired or arising and wheresoever located: (i) all Accounts; (ii) all Supporting Obligations (iii) all Goods, including all Inventory and Equipment; (iv) all Instruments; (v) all Chattel Paper, including Electronic Chattel Paper; (vi) all Documents; (vii) all General Intangibles, including Payment Intangibles, Software and Intellectual Property; (viii) all Deposit Accounts; (ix) all Investment Property (but excluding any portion thereof that constitutes Margin Stock unless otherwise expressly provided in any Security Documents); (x) all Letter-of-Credit Rights; (xi) all monies now or at any time or times hereafter in the possession or under the control of Agent or a Lender or a bailee or Affiliate of Agent or a Lender, including any Cash Collateral in the Cash Collateral Account; (xii) all accessions to, substitutions for and all replacements, products and cash and non-cash proceeds of (i) through (xi) above, including proceeds of and unearned premiums with respect to insurance policies insuring any of the Collateral and claims against any Person for loss of, damage to or destruction of any of the Collateral; and (xiii) all books and records (including customer lists, files, correspondence, tapes, computer programs, print-outs, and other computer materials and records) of such Borrower pertaining to any of (i) through (xii) above. 7.2.   Lien on Deposit Accounts . As additional security for the payment and performance of the Obligations, each Borrower hereby grants to Agent, for the benefit of Secured Parties, a continuing security interest in and Lien upon all of such Borrower's right, title and interest in and to each Deposit Account of such Borrower and in and to any deposits or other sums at any time credited to each such Deposit Account, including any sums in any blocked account or any special lockbox account and in the accounts in which sums are deposited. In connection with the foregoing, each Borrower hereby authorizes and directs each such bank or other depository to pay or deliver to Agent upon its written demand therefor made at any time that an Event of Default exists and without further notice to such Borrower (such notice being hereby expressly waived), all balances in each Deposit Account maintained by such Borrower with such depository for application to the Obligations then outstanding, and the rights given Agent in this Section shall be cumulative with and in addition to Agent's other rights and remedies in regard to the foregoing Property as proceeds of Collateral. Each Borrower hereby irrevocably appoints Agent as such Borrower's attorney-in-fact to collect any and all such balances to the extent any such payment is not made to Agent by such bank or other depository after demand thereon is made by Agent pursuant hereto. 7.3.   Real Estate Collateral . The due and punctual payment and performance of the Obligations shall also be secured by the Lien created by the Mortgages upon the Real Estate described on Exhibit K hereto. The Mortgages shall be executed by Borrowers in favor of Agent (for the benefit of Secured Parties) on or before the Closing Date and shall be duly recorded, at Borrowers' expense, in each office where such recording is required to constitute a fully perfected Lien upon the Real Estate covered thereby. If any Borrower shall obtain any interest in any additional Real Estate after the Closing Date (the "After-Acquired Real Estate"), Borrowers shall execute and deliver to Agent, for the benefit of Secured Parties, an amendment to the Negative Pledge Agreements and such other documentation as Agent may reasonably request, pursuant to which Borrowers shall agree that they shall not consensually pledge, assign, transfer, encumber or grant any Lien in favor of any other Person in any such After-Acquired Real Estate or permit to exist any Lien thereon (other than a Permitted Lien) until the Full Payment of the Obligations. 7,4,   Other Collateral 7.4.1.   Cash Collateral. In addition to the items of Property referred to in Section 7.1 above, the Obligations shall also be secured by the Cash Collateral to the extent provided herein and all of the other items of Property from time to time described in any of the Security Documents as security for any of the Obligations. 7.4.2.   Commercial Tort Claims . Borrowers shall promptly notify Agent in writing upon any Borrower's obtaining a Commercial Tort Claim (other than, for so long as no Default or Event of Default exists, a Commercial Tort Claim that is less than $2,500,000) after the Closing Date against any Person and, upon Agent's written request, promptly execute such instruments or agreements and do such other acts or things deemed appropriate by Agent to confer upon Agent (for the benefit of Secured Parties) a security interest in each such Commercial Tort Claim. 7.4.3.   Certain After-Acquired Collateral . Borrowers shall promptly notify Agent in writing upon any Borrower's obtaining any Collateral after the Closing Date consisting of Deposit Accounts (other than any Deposit Account specifically and exclusively used for payroll taxes and other employee wage and benefit payments to or for the benefit of such Borrower's employees), or of any Investment Property, Letter-of-Credit Rights or Chattel Paper involving an amount in excess of $250,000 and, upon Agent's request, shall promptly execute such documents and do such other acts or things deemed necessary by Agent to confer upon Agent a duly perfected first priority Lien upon and (to the extent applicable for the perfection of a Lien) control with respect to such Collateral subject to the terms of and in accordance with the Loan Documents; and promptly notify Agent in writing upon any Borrower's obtaining any Collateral after the Closing Date consisting of Documents or Instruments involving an amount in excess of $250,000 and, upon Agent's request, shall promptly execute such documents and do such other acts or things deemed necessary by Agent to deliver to it possession of such Documents and such Instruments. 7.5.   No Assumption of Liability . The security interest granted pursuant to this Agreement is granted as security only and shall not subject Agent or any Lender to, or in any way alter or modify, any obligation or liability of Borrowers with respect to or arising out of the Collateral. 7.6.   Lien Perfection; Further Assurances . Promptly after Agent's request therefor, Borrowers shall execute or cause to be executed and deliver to Agent such instruments, assignments or other documents as are necessary under the UCC or other Applicable Law to perfect (or continue the perfection of) Agent's Lien upon the Collateral and shall take such other action as may be requested by Agent to give effect to or carry out the intent and purposes of this Agreement; provided, however, that Agent will not seek to perfect its Lien on any Collateral under any Applicable Law other than the laws of the United States (other than the Permitted Canadian Inventory) unless (i) a Restrictive Trigger Event has occurred and (ii) Agent elects to do so after the occurrence and during the continuance of a Restrictive Trigger Event. Unless prohibited by Applicable Law, each Borrower hereby irrevocably authorizes Agent to execute and file in any jurisdiction any financing statement or amendment thereto on such Borrower's behalf, including financing statements that indicate the Collateral (i) as all assets or all personal property of such Borrower or words to similar effect or (ii) as being of equal or lesser scope, or with greater or lesser detail, than as set forth in this Section 7. Each Borrower also hereby ratifies its authorization for Agent to have filed in any jurisdiction any like financing statement or amendment thereto if filed prior to the date hereof. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. 7.7   Foreign Subsidiary Stock . Notwithstanding anything to the contrary set forth in Section 7.1 above or in any other provision herein, the types or items of Collateral described in such Section shall include (i) no more than sixty-six percent (66%) of the Equity Interests of any direct Foreign Subsidiary (other than the Equity Interests in Alpharma Bermuda G.P. and, for the avoidance of doubt, any Foreign Subsidiary of Alpharma Bermuda G. P. none of which shall be pledged to the Secured Parties) and (ii) no more than sixty-six percent (66%) of the Equity Interests of any Domestic Subsidiary whose sole asset is the stock of Foreign Subsidiaries. 7.8.   Certain Exclusions (a) Notwithstanding anything to the contrary set forth in Section 7.1 above, the types or items of Collateral described in Section 7.1 shall not include any rights or interests in any contract if under the terms of such contract, or any Applicable Law with respect thereto, the valid grant of a security interest or other Lien therein to Agent is prohibited and such prohibition has not been or is not waived or the consent of the other party to such contract has not been or is not otherwise obtained or under Applicable Law such prohibition cannot be waived, provided that the foregoing exclusion shall in no way be construed (i) to apply if any such prohibition is ineffective or unenforceable under the UCC (including Sections 9-406, 9-407, 9-408 or 9-409) or any other Applicable Law or (ii) so as to limit, impair or otherwise affect Agent's unconditional continuing security interest in and Lien upon any rights or interests of Borrowers in or to monies due or to become due under any such contract (including any Accounts). If requested by Agent, Borrowers shall make a good faith and diligent effort to obtain the consent of any other party to a contract for the creation of a security interest in favor of Agent in each Borrower's rights under such contract. (b) Notwithstanding anything to the contrary set forth in Section 7.1 above, the types or items of Collateral described in Section 7.1 shall not include any rights or interests in any intent-to-use trademark applications ("ITUs") to the extent that the pledge or encumbrance of such ITUs would render them invalid. section 8.   COLLATERAL ADMINISTRATION 8.1   General Provisions. 8.1.1.   Location of Collateral . All tangible items of Collateral, other than Inventory in transit, shall at all times be kept by Borrowers at one or more of the business locations of Borrowers set forth in Schedule 8.1.1 hereto and shall not be moved therefrom, without the prior written approval of Agent, except that in the absence of an Event of Default and acceleration of the maturity of the Obligations in consequence thereof, Borrowers may (i) make sales or other dispositions of any Collateral to the extent authorized by Section 10.2.10 and (ii) move Inventory or Equipment or any record relating to any Collateral to a location in the United States or Canada other than those shown on Schedule 8.1.1 hereto so long as (a) Borrowers have given Agent at least 10 days prior written notice of such new location, (b) to the extent that any Equipment constitutes fixtures, a UCC fixture filing has been filed with respect to such Equipment, (c) if the location of such Collateral is not owned by a Borrower, then a Lien Waiver has been delivered to Agent or if Agent elects, a Rent Reserve has been established by Agent (provided, however, that no Lien Waiver shall be required if Agent elects to establish a Rent Reserve or alternatively, elects to not impose a Rent Reserve); provided, that if the book value of the Collateral is less than $250,000 and such Collateral is ineligible for purposes of the Borrowing Base then no Rent Reserve or Lien Waiver shall be required; and (d) Borrowers shall have executed and delivered to Agent or caused to be executed and delivered to Agent such other documentation as Agent may reasonably request to ensure Agent's first priority Lien in the Collateral. 8.1.2.   Insurance of Collateral; Condemnation Proceeds. (i) The Borrowers shall maintain and pay for insurance upon all Collateral, wherever located, covering casualty, hazard, public liability, theft, malicious mischief, and such other risks in such amounts and with such insurance companies as are reasonably satisfactory to Agent. Schedule 8.1.2 describes all insurance of Borrowers in effect on the date hereof. All proceeds payable under each such policy in respect of loss to Collateral (other than business interruption insurance, workers compensation, executive management coverages, and key man life insurance) shall be payable to Agent for application to the Obligations in accordance with this Agreement. Borrowers shall deliver certified copies of such policies to Agent with satisfactory lender's loss payable endorsements reasonably satisfactory to Agent naming Agent as sole lender's loss payee or additional insured, and mortgagee, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever and a clause specifying that the interest of Agent shall not be impaired or invalidated by any act or neglect of any Borrower or the owner of the Property or by the occupation of the premises for purposes more hazardous than are permitted by said policy. If Borrowers fail to provide and pay for such insurance, Agent may, at its option, but shall not be required to, procure the same and charge Borrowers therefor. At Agent's request, Borrowers agree to deliver to Agent, promptly as rendered, true copies of all loss runs and valuations. Borrowers shall have the right to settle, adjust and compromise any claim with respect to any insurance maintained by such Borrower provided that all proceeds thereof (other than business interruption insurance, workers compensation, executive management coverages, and key man life insurance) are applied in the manner specified in this Agreement, and Agent agrees promptly to provide any necessary endorsement to any checks or drafts issued in payment of any such claim. At any time that an Event of Default exists, Agent shall have the right to settle, adjust and compromise such claims in respect of loss to Collateral (other than business interruption insurance, workers compensation, executive management coverages, and key man life insurance), and Agent shall have all rights and remedies with respect to such policies of insurance as are provided for in this Agreement and the other Loan Documents. (ii) Any proceeds of insurance referred to in this Section 8.1.2 in respect of loss to Collateral (other than proceeds from any workers' compensation, executive management coverages insurance, key man or business interruption insurance) and any condemnation awards that are paid to Agent in connection with a condemnation of any of the Collateral shall be paid to Agent and applied (except to the extent otherwise provided in Section 5.3.3), first to the payment of the Revolver Loans, and then to any other Obligations outstanding; provided, however, that if an Event of Default exists on the date of Agent's receipt thereof, Agent may apply such proceeds to the Obligations in the order of application provided in Section 5.6.1. 8.1.3.   Protection of Collateral . All expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping any Collateral, all Taxes imposed under any Applicable Law on any of the Collateral or in respect of the sale thereof, and all other payments required to be made by Agent to any Person to realize upon any Collateral shall be borne and paid by Borrowers. Agent shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto (except for reasonable care in the custody thereof while any Collateral is in Agent's actual possession) or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency, or other Person whomsoever, but the same shall be at Borrowers' sole risk. 8.1.4.   Defense of Title to Collateral . Each Borrower shall at all times defend such Borrower's title to the Collateral and Agent's Liens therein against all Persons and all claims and demands whatsoever other than Permitted Liens. 8.2   Administration of Accounts. 8.2.1.   Records and Schedules of Accounts . Each Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Agent on such periodic basis as Agent shall request (but no more frequently than monthly unless an Event of Default exists) a sales and collections report for the preceding period, in form satisfactory to Agent. Each Borrower shall also provide to Agent on or before the 25th day of each month, a detailed aged trial balance of all Accounts existing as of the last day of the preceding month, specifying the names, addresses, face value, dates of invoices and due dates for each Account Debtor obligated on an Account so listed ("Schedule of Accounts"), and, upon Agent's request therefor, copies of proof of delivery and a copy of all documents, including repayment histories and present status reports relating to the Accounts so scheduled and such other matters and information relating to the status of then existing Accounts as Agent shall reasonably request. In addition, if Accounts in an aggregate face amount in excess of $2,500,000 either cease to be or become Eligible Accounts in whole or in part, Borrowers (x) shall notify Agent of such occurrence relating to Accounts ceasing to be Eligible Accounts promptly (and in any event within 3 Business Days) after any Borrower's having obtained actual knowledge of such occurrence and (y) may notify Agent of such occurrence relating to Accounts becoming Eligible Accounts and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. 8.2.2.   Discounts, Disputes and Returns . If any Borrower grants any material discounts, allowances or credits outside of the Ordinary Course of Business for the Account involved, such Borrower shall report such discounts, allowances or credits, as the case may be, to Agent as part of the next required Schedule of Accounts. If any amounts due and owing in excess of $2,500,000 are in dispute between any Borrower and any Account Debtor, such Borrower shall at the Agent's reasonable request provide Agent with written notice thereof at the time of submission of the next Schedule of Accounts, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. 8.2.3.   Taxes . If an Account of any Borrower includes a charge for any Taxes payable to any Governmental Authority, Agent is authorized, in its discretion, to pay the amount thereof to the proper taxing authority for the account of such Borrower and to charge Borrowers therefor; provided, however, that neither Agent nor Lenders shall be liable for any Taxes that may be due by Borrowers. 8.2.4.   Account Verification . Whether or not a Default or an Event of Default exists, Agent shall have the right at any time, in the name of Agent, any designee of Agent or any Borrower to verify the validity, amount or any other matter relating to any Accounts of such Borrower by mail, telephone, telegraph or otherwise. Borrowers shall cooperate fully with Agent in an effort to facilitate and promptly conclude any such verification process. 8.2.5.   Maintenance of Dominion Account. (i) Borrowers shall establish and maintain a Dominion Account pursuant to a lockbox or other arrangement acceptable to Agent with BofA or any of its Affiliates. Borrowers shall issue to each such lockbox bank an irrevocable letter of instruction directing such bank to deposit all payments or other remittances received in the lockbox to the Dominion Account. Borrowers shall enter into agreements, in form reasonably satisfactory to Agent, with each bank at which a Dominion Account is maintained regarding the transfer of monies from the Dominion Account to the Payment Account to the extent required by subparagraph (ii) below. All funds deposited in each Dominion Account shall be subject to Agent's Lien. Borrowers shall obtain the agreement (in favor of and in form and content reasonably satisfactory to Agent and Lenders) by each bank at which a Dominion Account is maintained to waive any offset rights against the funds deposited into such Dominion Account, except offset rights in respect of charges incurred in the administration of such Dominion Account. Neither Agent nor Lenders assume any responsibility to Borrowers for such lockbox arrangement or Dominion Account, including any claim of accord and satisfaction or release with respect to deposits accepted by any bank thereunder. (ii) If a Restrictive Trigger Event occurs, then all monies in the Dominion Account shall be deposited by Agent in the Payment Account and applied to the Obligations as determined by Agent. If after the occurrence of a Restrictive Trigger Event, Availability is at least $25,000,000 for 90 consecutive days and no Event of Default exists, then as soon as practicable but in any event within 10 Business Days thereafter (the "Dominion Spring-Back Date"), Agent will permit Borrowers to access the monies in the Dominion Account for use as provided in Section 2.1.3 hereof. If an Event of Default exists, Borrowers shall not be permitted to access any monies in the Dominion Account. If a Restrictive Trigger Event has occurred as a result of an Event of Default and not as a result of the failure by Borrowers to meet the Availability or Average Availability requirements, and Agent (or to the extent required by this Agreement, all Lenders or Required Lenders) waives the Event of Default in writing, then the Dominion Spring-Back Date shall occur on the 10th Business Day after the waiver of such Event of Default. 8.2.6.   Collection of Accounts and Proceeds of Collateral . To expedite collection of Accounts, each Borrower shall endeavor in the first instance to make collection of such Borrower's Accounts for Agent and Lenders. Borrowers shall request in writing and otherwise take such reasonable steps to ensure that all Account Debtors forward payment directly to such Dominion Account (or lockboxes related to the Dominion Account), and (ii) deposit and cause its Subsidiaries to deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all cash, checks, drafts or other similar items of payment relating to or constituting payments made in respect of any and all Collateral (whether or not otherwise delivered to a lockbox) into the Dominion Account. Borrowers shall issue to each such lockbox bank an irrevocable letter of instruction directing such bank to deposit all payments or other remittances received in the lockbox to the Dominion Account. All Payment Items received by any Borrower in respect of its Accounts, together with the proceeds of any other Collateral, shall be held by such Borrower as trustee of an express trust for Agent's and Lenders' benefit; Borrowers shall immediately deposit same in kind in the Dominion Account. Agent retains the right at all times that an Event of Default exists to notify Account Debtors of any Borrower that Accounts have been assigned to Agent, to collect Accounts directly in its own name (and, in connection therewith, to settle or adjust all disputes and claims directly with the Account Debtor and to compromise the amount or extend the time for payment of any Accounts upon such terms and conditions as Agent may deem advisable in its reasonable credit judgment and to charge to Borrowers the collection costs and expenses incurred by Agent, including reasonable attorneys' fees). 8.3   Administration of Inventory. 8.3.1.   Records and Reports of Inventory . Each Borrower shall keep accurate and complete records of its Inventory (including records showing the cost thereof and daily withdrawals therefrom and additions thereto) in all material respects and shall furnish Agent inventory report summaries respecting such Inventory in form and detail reasonably satisfactory to Agent at such times as Agent may reasonably request. Each Borrower shall, at its own expense, conduct a physical inventory no less frequently than annually (and on a more frequent basis if requested by Agent when an Event of Default exists) and periodic cycle counts consistent with such Borrower's historical practices and shall provide to Agent a report based on each such physical inventory and cycle count promptly after completion thereof, together with such supporting information as Agent shall reasonably request. Agent may participate in and observe each physical count of Inventory, which participation shall be at Borrowers' expense at any time that an Event of Default exists. 8.3.2.   Returns of Inventory . No Borrower shall return any of its Inventory to a supplier or vendor thereof, or any other Person, whether for cash, credit against future purchases or then existing payables, or otherwise, unless (i) such return is in the Ordinary Course of Business of such Borrower and such Person; (ii) no Default or Event of Default exists or would result therefrom; (iii) the return of such Inventory will not result in an Out-of-Formula Condition; (iv) such Borrower promptly notifies Agent thereof if the aggregate Value of all Inventory returned in any month exceeds $2,500,000. 8.3.3.   Acquisitions and Sale of Inventory . No Borrower shall acquire or accept any Inventory on consignment or approval and will use all reasonable efforts to insure that all Inventory that is produced in the United States of America will be produced in accordance with the FLSA. 8.3.4.   Maintenance of Inventory. Borrowers shall produce, use, store and maintain all Inventory with all reasonable care and caution in accordance with applicable standards of any insurance and in conformity with Applicable Law (including the requirements of the FLSA and the United States Food and Drug Administration). 8.4   Administration of Equipment. 8.4.1   Records and Schedules of Equipment . Each Borrower shall keep accurate records itemizing and describing the kind, type, quality, quantity and cost of its Equipment and all dispositions made in accordance with Section 8.4.2 in all material respects. So long as the Fixed Asset Sublimit and the Term Loan remain outstanding, at Agent's request, Borrowers shall furnish Agent with a current schedule containing the foregoing information (but no more frequently than annually unless an Event of Default exists). 8.4.2.   Dispositions of Equipment . No Borrower shall sell, lease or otherwise dispose of or transfer any of the Equipment or any part thereof, whether in a single transaction or a series of related transactions, without the prior written consent of Agent (acting at the direction of the Required Lenders), other than (i) a disposition of Equipment that qualifies as a Permitted Asset Disposition and (ii) disposition of Equipment that is substantially worn, damaged or obsolete, provided that any replacement Equipment shall be free and clear of Liens other than Permitted Liens. 8.4.3.   Condition of Equipment . The Equipment is in good operating condition and repair, and all necessary replacements of and repairs thereto shall be made so that the value and operating efficiency of the Equipment shall be maintained and preserved, reasonable wear and tear excepted. No Borrower shall permit any of the Eligible Equipment or Equipment having a book value in excess of $1,000,000 to become affixed to any real Property leased to such Borrower so that an interest arises therein under the real estate laws of the applicable jurisdiction unless the landlord of such real Property has executed a Lien Waiver in favor of and in form acceptable to Agent or if Agent elects, a Rent Reserve has been established by Agent (provided, that no Lien Waiver shall be required if Agent elects to establish a Rent Reserve or alternatively, elects not to impose a Rent Reserve), and no Borrower will permit any of the Eligible Equipment or Equipment having a book value in excess of $1,000,000 to become an accession to any personal Property that is subject to a Lien unless the Lien is a Permitted Lien. 8.5   Administration of Deposit Accounts Each Borrower represents that, as of the closing date, Schedule 8.5 (as the same may be amended or supplemented from time to time) sets forth all of the Deposit Accounts maintained by each Borrower, including Deposit Accounts into which all Payment Items relating to any Collateral will be deposited; each Borrower is the sole account holder of each such Deposit Account and is not aware of any Person (other than Agent) having either dominion or control (within the meaning of Section 9-104 of the UCC) over any such Deposit Account or any property deposited therein (other than any such control that has been released or terminated on or before the Closing Date and control arising by operation of law in favor the depository bank in which such Deposit Account is maintained); and on or before November 30, 2005, each Borrower shall take all actions required to establish Agent's "control" (within the meaning of Section 9-104 of the UCC) over all Deposit Accounts (other than any Deposit Accounts specially and exclusively used for payroll taxes and other employee wage and benefit payments to or for the benefit of such Borrower's employees). Each Borrower shall promptly notify Agent of any additional Deposit Account opened and any Deposit Account that is closed (other than any Deposit Accounts specifically and exclusively used for payroll tax and other employee wage and benefit payments to or for the benefit of such Borrower's employees), and such notice will amend Schedule 8.5 to reflect such addition or deletion. 8.6.   Borrowing Base Certificates . On the Closing Date and on or before the 25th day after the last day of each month thereafter, Borrowers shall deliver to Agent (and Agent shall, on request from a Lender, promptly deliver to such Lender) a Borrowing Base Certificate prepared as of the close of business of the previous month, and at such other times as Agent may request. All calculations of Availability in connection with any Borrowing Base Certificate shall originally be made by Borrowers and certified by a Senior Officer to Agent, provided that Agent shall have the right to review and adjust, in the exercise of its reasonable credit judgment, any such calculation to the extent that such calculation is not in accordance with this Agreement or does not accurately reflect the amount of the Availability Reserve. section 9.   REPRESENTATIONS AND WARRANTIES 9.1   General Representations and Warranties . To induce Agent and Lenders to enter into this Agreement and to make available the Commitments, each Borrower warrants and represents to Agent and Lenders that: 9.1.1.   Organization and Qualification . Each Borrower and each of its Domestic Subsidiaries is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each Borrower and each of its Domestic Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each state or jurisdiction listed on Schedule 9.1.1 hereto and in all other states and jurisdictions in which the failure of such Borrower or any of such Domestic Subsidiaries to be so qualified would have a Material Adverse Effect. 9.1.2.   Power and Authority . Each Borrower and each of its Domestic Subsidiaries is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each of the other Loan Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of any of the holders of the Equity Interests of any Borrower or any of its Domestic Subsidiaries other than those obtained on or prior to the date hereof; (ii) contravene the Organic Documents of any Borrower or any of its Domestic Subsidiaries; (iii) violate, or cause any Borrower or any of its Domestic Subsidiaries to be in default under, any provision of any Applicable Law, order, writ, judgment, injunction, decree, determination or award in effect having applicability to any Borrower or any of its Domestic Subsidiaries except to the extent such violation or default could not reasonably be expected to result in a Material Adverse Effect; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which any Borrower or any of its Domestic Subsidiaries is a party or by which it or its Properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties now owned or hereafter acquired by any Borrower or any of its Domestic Subsidiaries. 9.1.3.   Legally Enforceable Agreement . This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, a legal, valid and binding obligation of each  Borrower and each of its Domestic Subsidiaries signatories thereto enforceable against them in accordance with the respective terms of such Loan Documents, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. 9.1.4.   Capital Structure . As of the date hereof, Schedule 9.1.4 hereto states (i) the correct name of each Borrower, its jurisdiction of incorporation and except for Parent, the percentage of its Equity Interests having voting powers owned by each Person, (ii) the name of each Borrower's Subsidiaries and (iii) the number of authorized and issued Equity Interests (and treasury shares) of each Borrower (other than Parent) and its Subsidiaries. Each Borrower has good title to all of the shares it purports to own of the Equity Interests of each of its Domestic Subsidiaries and any Foreign Subsidiary subject to a Pledge Agreement, free and clear in each case of any Lien other than Permitted Liens. All such Equity Interests have been duly issued and are fully paid and non-assessable. As of the date hereof, since the date of the financial statements of Borrowers referred to in Section 9.1.9, Borrowers have not made, or obligated themselves to make, any Distribution. Except as set forth in Schedule 9.1.4, as of the date hereof, there are no outstanding options to purchase, or any rights or warrants to subscribe for, or any commitments or agreements to issue or sell, or any Equity Interests or obligations convertible into, or any powers of attorney relating to, shares of the capital stock of any Borrower or any of its Domestic Subsidiaries and any Foreign Subsidiary subject to a Pledge Agreement. Except as set forth on Schedule 9.1.4 hereto, as of the date hereof there are no outstanding agreements or instruments binding upon the holders of any Borrower's Equity Interests relating to the ownership of its Equity Interests. 9.1.5.   Corporate Names . During the 4-year period preceding the date of this Agreement, no Borrower nor any of its Domestic Subsidiaries has been known as or used any corporate, fictitious or trade names except those listed on Schedule 9.1.5 hereto. During the 4-year period preceding the date of this Agreement, except as set forth on Schedule 9.1.5, no Borrower nor any of its Domestic Subsidiaries has been the surviving corporation of a merger or consolidation or acquired all or substantially all of the assets of any Person other than another Borrower or Subsidiary. 9.1.6.   Business Locations; Agent for Process . As of the date hereof, the chief executive office and other places of business of each Borrower and its Domestic Subsidiaries are as listed on Schedule 8.1.1 hereto. During the 4-year period preceding the date of this Agreement, no Borrower nor any of its Domestic Subsidiaries has had an office or place of business at which Inventory or Equipment having a book value of $1,000,000 or more was located other than as listed on Schedule 8.1.1. Except as shown on Schedule 8.1.1 on the date hereof, no Inventory of any Borrower or any of its Domestic Subsidiaries is stored with a bailee, warehouseman or similar Person, nor is any Inventory consigned to any Person other than IVS Animal Health, Inc. 9.1.7.   Title to Properties; Priority of Liens . Each Borrower and each of its Domestic Subsidiaries has good and marketable title to and fee simple ownership of, or valid and subsisting leasehold interests in, all of its Eligible Real Estate, and good title to all of its personal Property, including all Property reflected in the financial statements referred to in Section 9.1.9 or delivered pursuant to Section 10.1.3, in each case free and clear of all Liens except Permitted Liens. Each Borrower has paid or discharged, or will timely pay or discharge, and has caused each of its Domestic Subsidiaries to pay and discharge or will cause them to timely pay or discharge, all lawful claims which, if unpaid, could become a Lien against any Properties of such Borrower or any such Subsidiary that is not a Permitted Lien. The Liens granted to Agent pursuant to this Agreement and the other Security Documents are duly perfected Liens. 9.1.8.   Accounts . Agent may rely, in determining which Accounts are Eligible Accounts, on all statements and representations made by Borrowers with respect to any Account. Unless otherwise indicated in writing to Agent or specifically excluded by Borrowers in their calculation of the Borrowing Base in any Borrowing Base Certificate, with respect to each Eligible Account, each Borrower warrants that: (i) It is genuine and in all respects what it purports to be, and it is not evidenced by a judgment; (ii) It arises out of a completed, bona fide sale and delivery of goods by a Borrower in the Ordinary Course of Business and substantially in accordance with the terms and conditions of all purchase orders, contracts or other documents relating thereto and forming a part of the contract between a Borrower and the Account Debtor; (iii) It is for a sum certain (subject to the adjustments contemplated in the contract giving rise to such Account) maturing as stated in the duplicate invoice covering such sale or the contract giving rise to such Account, a copy of which has been furnished or is available to Agent on request; (iv) Such Account, and Agent's security interest therein, is not subject to any offset, Lien, deduction, defense, dispute, counterclaim or any other adverse condition except for disputes resulting in returned goods where the amount in controversy is immaterial, and except for offsets, deductions, rebates or returns contemplated by the invoice or the contract giving rise to such Account or evidencing an Account or arising in the Ordinary Course of Business, each such Account is absolutely owing to a Borrower and is not contingent in any respect or for any reason; (v) Such Borrower has not made any agreement with any Account Debtor thereunder for any extension, compromise, settlement or modification of any such Account or any deduction therefrom, except discounts or allowances which are granted by a Borrower in the Ordinary Course of Business; and (vi) To the best of such Borrower's knowledge, there are no facts, events or occurrences which are reasonably likely to impair the collectibility, validity or enforceability of such Account or reduce the amount payable thereunder from the face amount of the invoice as may be adjusted pursuant to the related contract and statements delivered to Agent with respect thereto. 9.1.9.   Financial Statements; Fiscal Year . The Consolidated and consolidating balance sheets of Parent and its Subsidiaries as of December 31, 2004, and the related statements of income, changes in stockholder's equity, and changes in financial position for the periods ended on such dates, have been prepared in accordance with GAAP and present fairly in all material respects the financial positions of Parent's and its Subsidiaries', including Borrowers' at such dates and the results of Parent's and its Subsidiaries', including Borrowers' operations for such periods. Since December 31, 2004, there has been no Material Adverse Effect. 9.1.10.   Full Disclosure . The financial statements referred to in Section 9.1.9 do not contain any untrue statement of a material fact and no written statement concerning the Consolidated Group furnished by or on behalf of Borrowers under this Agreement to Agent or any Lender contains or omits any material fact necessary, when taken as a whole, as of the date hereof to make the statements contained herein or therein not materially misleading; provided, that, with respect to projected financial information Borrowers represent only that such information was prepared in good faith based upon assumptions believed in good faith to be reasonable at the time made. There is no fact or circumstances in existence on the date hereof which any Borrower has failed to disclose to Agent in writing that could reasonably be expected to have a Material Adverse Effect. 9.1.11.   Solvent Financial Condition . The Consolidated Group, taken as a whole, is now Solvent and, after giving effect to the Loans to be made hereunder, the LC Obligations to be incurred in connection herewith and the consummation of the other transactions described in the Loan Documents, will be Solvent. 9.1.12.   Surety Obligations . As of the date hereof, except as set forth on Schedule 9.1.12 on the date hereof, no Borrower nor any of its Domestic Subsidiaries is obligated as surety or indemnitor under any surety or similar bond or other contract issued or entered into any agreement to assure payment, performance or completion of performance of any undertaking or obligation of any Person. 9.1.13.   Taxes . The FEIN and organizational identification number of each Borrower and each of its Domestic Subsidiaries is as shown on Schedule 9.1.13. Each Borrower and each of its Domestic Subsidiaries has filed all federal, state and local material tax returns and other material tax reports it is required by law to file and has paid, or made provision for the payment of, all Taxes upon it, its income and Properties as and when such Taxes are due and payable, except to the extent being Properly Contested or to the extent in an amount less than $2,500,000. 9.1.14.   Brokers . There are no claims against any Borrower for brokerage commissions, finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement or any of the other Loan Documents. 9.1.15.   Intellectual Property . Each Borrower and each of its Domestic Subsidiaries owns or has the lawful right to use all Intellectual Property necessary for the present and planned future conduct of its business without, to Borrowers' knowledge, any conflict with the rights of others that Borrowers believe would be reasonably likely to be determined adversely to Borrowers and if determined adversely would have a Material Adverse Effect; except as may be disclosed on Schedule 9.1.15, no Borrower has received any written notice of any objection to, and there is no pending (or, to any Borrower's knowledge, threatened) Intellectual Property Claim with respect to, any Borrower's or any of its Domestic Subsidiaries' right to use any such Intellectual Property which Borrowers believe is reasonably likely to be determined adversely to such Borrower and if determined adversely to any Borrower, would reasonably be expected to have a Material Adverse Effect; and, except as may be disclosed on Schedule 9.1.15, as of the date hereof, no Borrower nor any of its Domestic Subsidiaries pays any royalty or other compensation to any Person for the right to use any Intellectual Property material to any Borrower's or any Domestic Subsidiary's business. All patents, trademarks, service marks, trade names, copyrights, and License Agreements owned or used by each Borrower and each Domestic Subsidiary as of the date hereof are listed on Schedule 9.1.15 hereto, to the extent they are registered under any Applicable Law or are otherwise material to any Borrower's or any of its Domestic Subsidiaries' business. 9.1.16.   Governmental Approvals . Each Borrower and each of its Domestic Subsidiaries has all Governmental Approvals (excluding under any Food and Drug Laws, which compliance is addressed in Section 9.1.29 hereof) necessary to continue to conduct its business as heretofore or proposed to be conducted by it and to sell its Inventory and to own or lease and operate its Properties as now owned or leased by it except, in each case, to the extent failure to receive such approval is not reasonably likely to have a Material Adverse Effect. 9.1.17.   Compliance with Laws . Each Borrower and each of its Domestic Subsidiaries has duly complied with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all Applicable Law (excluding all Food and Drug Laws which compliance is addressed in Section 9.1.29 hereof and all Environmental Laws which compliance is addressed in the Environmental Agreement) (except to the extent that any such non-compliance could not reasonably be expected to result in a Material Adverse Effect) and there have been no material citations, notices or orders of noncompliance issued to any Borrower or any of its Domestic Subsidiaries under any such law, rule or regulation with respect to any matter that could reasonably be expected to have a Material Adverse Effect. No Inventory has been produced in violation of the FLSA. With respect to matters arising under any Environmental Laws, the representations and warranties contained in the Environmental Agreement are true and correct on the date hereof. 9.1.18.   Burdensome Contracts . No Borrower nor any of its Domestic Subsidiaries is a party or subject to any Restrictive Agreements, except as permitted under Section 10.2.16, none of which prohibit the execution or delivery of any of the Loan Documents by any Obligor or the performance by any Obligor of its obligations under any of the Loan Documents to which it is a party, in accordance with the terms of such Loan Documents. 9.1.19.   Litigation . Except as set forth on Schedule 9.1.19, there are no actions, suits, proceedings or investigations pending or, to the knowledge of any Borrower, threatened on the date hereof against or affecting any Borrower, or any of its Domestic Subsidiaries or the business, operations, Properties, or financial condition of any Borrower or any of its Domestic Subsidiaries, (i) which relate to any of the Loan Documents or any of the transactions contemplated thereby or (ii) which, is reasonably likely to be adversely determined and if so determined to any Borrower or any of its Domestic Subsidiaries, is reasonably likely to have a Material Adverse Effect. To the knowledge of each Borrower, no Borrower nor any of its Domestic Subsidiaries is in default on the date hereof with respect to any court or arbitration board order, injunction, or judgment. 9.1.20.   No Defaults . No Borrower nor any of its Domestic Subsidiaries is in default, and no event has occurred and no condition exists which constitutes or which with the passage of time or the giving of notice or both would constitute a default, under any Material Contract or in the payment of any Debt of a Borrower or a Domestic Subsidiary to any Person for Money Borrowed, which default, in each case, could be reasonably likely to result in a Material Adverse Effect. 9.1.21.   Leases . Schedule 9.1.21 hereto is a complete listing of each lease of Real Property by each Borrower with annual rent in excess of $1,000,000 or with respect to a location at which more than $1,000,000 of Inventory or Equipment is located as of the date hereof. 9.1.22.   ERISA . Except as disclosed on Schedule 9.1.22 hereto, no Borrower nor any of its Subsidiaries has any Multiemployer Plan on the date hereof. Each Borrower and each of its Subsidiaries is in full compliance in all material respects with the requirements of ERISA and the regulations promulgated thereunder with respect to each Multiemployer Plan. No fact or situation that is reasonably likely to result in a Material Adverse Effect exists in connection with any Multiemployer Plan. No Borrower nor any of its Subsidiaries has incurred any withdrawal liability in connection with a Multiemployer Plan. 9.1.23.   Trade Relations . There exists no actual or threatened termination, cancellation or limitation of, or any materially adverse modification or change in, the business relationship between any Borrower and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of such Borrower, or with any material supplier or group of suppliers, which is reasonably likely to have a Material Adverse Effect. 9.1.24.   Labor Relations . Except as described on Schedule 9.1.24 hereto, no Borrower nor any of its Domestic Subsidiaries is on the date hereof a party to or bound by any collective bargaining agreement. On the date hereof, there are no material grievances, disputes or controversies with any union or any other organization of any Borrower's or any Domestic Subsidiary's employees, or, to any Borrower's knowledge, any threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization which are reasonably likely to result in a Material Adverse Effect. 9.1.25.   Not a Regulated Entity . No Borrower nor any of its Domestic Subsidiaries is (i) an "investment company" or a "person directly or indirectly controlled by or acting on behalf of an investment company" within the meaning of the Investment Company Act of 1940; (ii) a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935; or (iii) subject to regulation under the Federal Power Act or the Interstate Commerce Act. 9.1.26.   Margin Stock . No Borrower nor any of its Domestic Subsidiaries 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. 9.1.27.   Anti-Terrorism Laws None of Borrowers and their Affiliates is in violation of any Anti-Terrorism Law, or engages in or conspires to engage in any transaction that attempts to violate, or otherwise evades or avoids (or has the purpose of evading or avoiding) any prohibitions set forth in any Anti-Terrorism Law. None of Borrowers and their Affiliates (a) is a Blocked Person; (b) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person; (c) has any of its assets in a Blocked Person; (d) deals in, or otherwise engages in any transaction relating to, any Property blocked pursuant to Executive Order No. 13224; or (e) derives any of its operating income from investments in or transactions with a Blocked Person. 9.1.28.   Not the Holder of Plan Assets. No Borrower is an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section2510.3-101 of an "employee benefit plan" (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA or any "plan" (within the meaning of Section 4975 of the Internal Revenue Code) (collectively, a "Plan Assets Entity"), and based on the representation that no Lender is a Plan Assets Entity, neither the execution of this Agreement nor the funding of any Loans gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code. 9.1.29   Food and Drug Laws. (i)   Except as otherwise disclosed on Schedule 9.1.29, each Borrower and each Domestic Subsidiary has been and is in compliance in all material respects with all applicable Food and Drug Laws, including federal and state laws, statutes, rules and regulations that relate to the manufacture, handling, transport, management, disposal or sale of pharmaceutical and drug products, including those relating to (i) "good manufacturing practices," "good laboratory practices," "good clinical practices," labeling, record keeping, or filing of reports, or (ii) obligations for products under an Investigational New Drug Application ("INDA"), a New Drug Application ("NDA") or an ANDA except, in each case, to the extent such failure is not reasonably likely to result in a Material Adverse Effect. (ii)   Except as otherwise disclosed on Schedule 9.1.29, each Borrower has all material licenses, permits, designations, applications and approvals necessary or required under applicable Food and Drug Laws for the conduct of the business of Borrowers and the Domestic Subsidiaries taken as a whole in its present form, and no material licenses, permits, designations, applications and approvals have been terminated, suspended or revoked, and there are presently no termination, suspension or revocation proceedings, actual, pending, or threatened, in respect thereof, in each case, except to the extent any such termination, suspension or revocation of such material licenses, permits, designations, applications and approvals, individually or in the aggregate, could not reasonably be likely to result in a Material Adverse Effect. (iii)   Except as disclosed on Schedule 9.1.29, no Borrower nor any Domestic Subsidiary is the subject of any current or pending investigations, enforcement action or orders, qui tam actions, consent decrees, corporate integrity agreements, settlements, recalls or other extraordinary examinations or review by any Governmental Authority under Food and Drug Laws, that Borrowers believe are reasonably likely to be determined adversely to Borrowers and that if adversely determined to Borrowers would have a Material Adverse Effect. Subject to Section 10.1.13, each Borrower has provided to the Agent true, complete and correct copies of all material notices from the FDA relating to actual investigations, violations or any instances of alleged non-compliance with applicable Food and Drug Laws to the extent Borrowers believe are reasonably likely to be determined adversely to Borrowers and if adversely determined could reasonably result in a Material Adverse Effect. 9.2.   Reaffirmation of Representations and Warranties . Each representation and warranty contained in this Agreement and the other Loan Documents shall be deemed to be made on the Closing Date and reaffirmed by each Borrower on each day that Borrowers request or are deemed to have requested any Loan, Letter of Credit or other extension of credit hereunder, except for changes in the nature of a Borrower's or, if applicable, any Domestic Subsidiary's business or operations that may occur after the date hereof in the Ordinary Course of Business so long as Agent has consented to such changes or such changes are not violative of any provision of this Agreement. Notwithstanding the foregoing, representations and warranties which by their terms are applicable only as of a specific date shall be deemed made only at and as of such date. 9.3.   Survival of Representations and Warranties . All representations and warranties of Borrowers contained in this Agreement or any of the other Loan Documents shall survive the execution, delivery and acceptance thereof by Agent, Lenders and the parties thereto and the closing of the transactions described therein or related thereto. SECTION 10.   COVENANTS AND CONTINUING AGREEMENTS 10.1   Affirmative Covenants . For so long as there are any Commitments outstanding and thereafter until Full Payment of the Obligations, each Borrower covenants that it shall and shall cause each Domestic Subsidiary to: 10.1.1   Visits and Inspections . Permit representatives of Agent from time to time, as often as may be reasonably requested, but only during normal business hours and upon reasonable prior notice to a Borrower, to visit and inspect the Properties of such Borrower and each of its Subsidiaries, inspect, audit and make extracts from such Borrower's and each Subsidiary's books and records, and discuss with its officers and its independent accountants (so long as, unless an Event of Default exists, a Borrower is afforded an opportunity to be present), such Borrower's and each Domestic Subsidiary's business, financial condition, business prospects and results of operations. Representatives of each Lender shall be authorized to accompany Agent on each such visit and inspection and to participate with Agent therein, but at their own expense (unless an Event of Default exists, in which event Borrowers shall promptly reimburse reasonable expenses of Agent in connection with such inspection). Neither Agent nor any Lender shall have any duty to make any such inspection and shall not incur any liability by reason of its failure to conduct or delay in conducting any such inspection. 10.1.2.   Notices . Notify Agent and Lenders in writing, promptly after a Borrower's obtaining actual knowledge thereof, (i) of the commencement of any litigation affecting any Consolidated Group Member and of the institution of any administrative proceeding against a Consolidated Group Member, in each case, to the extent that such litigation or proceeding, if determined adversely to such Consolidated Group Member, could reasonably be expected to have a Material Adverse Effect; (ii) of any material labor dispute to which any Consolidated Group Member may become a party, any pending or threatened strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which it is a party or by which it is bound; (iii) of any material default by any Obligor under any note, indenture, loan agreement, mortgage, lease, deed, guaranty or other similar agreement relating to any Debt of such Obligor exceeding $5,000,000; (iv) of the existence of any Default or Event of Default; (v) of any judgment against any Consolidated Group Member in an amount exceeding $5,000,000; (vi) of the assertion by any Person of any Intellectual Property Claim, the adverse resolution of which could reasonably be expected to have a Material Adverse Effect; (vii) of any violation or asserted violation by any Consolidated Group Member of any Applicable Law (including ERISA, OSHA, FLSA, and Food and Drug Law), the adverse resolution of which could reasonably be expected to have a Material Adverse Effect; and (viii) of the discharge of Borrowers' independent accountants or any withdrawal of resignation by such independent accountants from their acting in such capacity. In addition, Borrowers shall give Agent at least 10 days prior written notice of any Consolidated Group Member's opening of any new office or place of business at which any Collateral having a book value of $250,000 or more or any books and records of a Borrower or constituting Eligible Inventory or Eligible Equipment is located. Furthermore, Borrowers shall notify Agent promptly upon any Consolidated Group Member (i) being required to file reports under Section 15(b) of the Securities Exchange Act of 1934, (ii) registering securities under Section 12 of the Securities Exchange Act of 1934 or (iii) filing a registration statement under the Securities Act of 1933. 10.1.3.   Financial and Other Information . Keep adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions; and cause to be prepared and furnished to Agent the following (all to be prepared in accordance with GAAP applied on a consistent basis subject to Section 1.2 hereof): (i) as soon as available, and in any event within 75 days after the close of each Fiscal Year audited balance sheets of Parent and its Subsidiaries as of the end of such Fiscal Year and the related statements of income, shareholders' equity and cash flow, on a Consolidated and consolidating basis, certified without an Impermissible Qualification by BDO Seidman, LLP or other firm of independent certified public accountants of recognized national standing selected by Borrowers but reasonably acceptable to Agent and setting forth in each case in comparative form the corresponding Consolidated and consolidating figures for the preceding Fiscal Year (provided, that for purposes of this subsection 10.1.3(i), so long as Parent and its Subsidiaries are subject to SEC reporting requirements, the 10K of Parent for such period shall satisfy the requirement with respect to audited annual financial statements but, in any event, included in such financial statements shall be a footnote containing Consolidated and consolidating balance sheet, income statement, and statement of cash flow, and related intercompany eliminations and previous year comparison, for the Consolidated Group), and Borrowers also shall provide to Agent a separate unaudited footnote or schedule containing Consolidated and consolidating balance sheet, income statement and statement of cash flow for the Consolidated Group, for the fourth Fiscal Quarter of such Fiscal Year; (ii) if a Restrictive Trigger Event occurs, as soon as available, and in any event within 30 days after the end of each Fiscal Month commencing with the first Fiscal Month to end after such Restrictive Trigger Event occurs, (x) if on or before June 30, 2006, internally generated segment profit and loss statements of the Consolidated Group, and (y) if after June 30, 2006, unaudited balance sheets of the Consolidated Group as of the end of such Fiscal Month and the related unaudited statements of income and cash flow for such Fiscal Month and for the portion of Parent's Fiscal Year then elapsed, on a Consolidated and consolidating basis, setting forth in each case in comparative form the corresponding figures for the preceding Fiscal Year and certified by the principal financial officer of Parent as prepared in accordance with GAAP and fairly presenting in all material respects the Consolidated financial position and results of operations of the Consolidated Group for such Fiscal Month and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes. If after the occurrence of a Restrictive Trigger Event, Availability is at least $35,000,000 for 60 consecutive days and no Event of Default exists, then as soon as practicable but in any event within 1 Business Day thereafter (the "Reporting Spring-Back Date"), Agent will not require that Borrowers provide monthly financial statements as provided above unless another Restrictive Trigger Event occurs. If a Restrictive Trigger Event has occurred as a result of an Event of Default and not as a result of the failure by Borrowers to meet the Availability or Average Availability requirements, and Agent (or to the extent required by this Agreement, all Lenders or Required Lenders) waive the Event of Default in writing, then the Reporting Spring-Back Date shall occur on the date of the waiver in writing of such Event of Default. (iii) as soon as available, and in any event within 45 days after the end of each of the first three Fiscal Quarters hereafter in any Fiscal Year, unaudited balance sheets of Parent and its Subsidiaries as of the end of such Fiscal Quarter and the related unaudited Consolidated statements of income and cash flow for such Fiscal Quarter and for the portion of Parent's Fiscal Year then elapsed, on a Consolidated and consolidating basis, setting forth in each case in comparative form the corresponding figures for the preceding Fiscal Year and certified by the principal financial officer of Parent as prepared in accordance with GAAP and fairly presenting in all material respects the Consolidated financial position and results of operations of Parent and its Subsidiaries for such Fiscal Quarter and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes (provided, that for purposes of this subsection 10.1.3(iii), so long as Parent and its Subsidiaries are subject to SEC reporting requirements, the 10Q of Parent for such period shall satisfy the requirement with respect to unaudited financial statements but, in any event, included in such financial statements shall be a footnote containing Consolidated and consolidating balance sheet, income statement, and statement of cash flow, and related intercompany eliminations and previous year comparison, for the Consolidated Group); (iv) not later than 25 days after each Fiscal Month, a summary of all of each Borrower's trade payables as of the last Business Day of such month, in form acceptable to Agent; (v) promptly after the sending or filing thereof, as the case may be, (a) copies of any proxy statements, financial statements or material reports which any Borrower has made generally available to its shareholders (unless Agent receives notice of any such filings from the SEC); (b) copies of any material regular and periodic reports or registration statements or prospectuses which any Borrower files with the SEC or any Governmental Authority which may be substituted therefor, or any national securities exchange (unless Agent receives notice of any such filings from the SEC); and (c) copies of any press releases or other statements made available by a Borrower to the public concerning material changes to or developments in the business of such Borrower; and (vi) promptly after the sending or filing thereof, copies of any annual report to be filed in accordance with ERISA in connection with each Plan and such other data and information (financial or otherwise) as Agent, from time to time, may request, bearing upon or related to the Collateral or any Consolidated Group Member's financial condition or results of operations. Concurrently with the delivery of the financial statements described in clause (i) of this Section 10.1.3, Borrowers shall deliver to Agent a copy of the accountants' letter to Borrowers' management that is prepared in connection with such financial statements and also shall cause to be prepared and shall deliver to Agent a certificate of the aforesaid certified public accountants stating to Agent and Lenders that, based upon such accountants' audit of the Consolidated financial statements of Parent and its Subsidiaries performed in connection with their examination of said financial statements, nothing came to their attention that caused them to believe that Borrowers were not in compliance with Sections 10.2 or 10.3, or, if they are aware of such noncompliance, specifying the nature thereof. Concurrently with the delivery of the financial statements described in clauses (i), (ii) and (iii) of this Section 10.1.3, or more frequently if requested by Agent during any period that a Default or Event of Default exists and in any event within five (5) Business Days after the occurrence of a Restrictive Trigger Event (based upon the most current financial statements received by Agent prior to such Restrictive Trigger Event in accordance with this Agreement), Borrowers shall cause to be prepared and furnished to Agent a Compliance Certificate executed by the chief financial officer of Borrowers, which Compliance Certificate shall include the calculation of the Fixed Charge Coverage Ratio for such prior 12 month period (if it is then being tested under Section 10.3.1). 10.1.4.   Landlord and Storage Agreements . Within 30 days after execution thereof, unless requested more frequently by Agent, provide Agent with copies of all future agreements, between any Borrower and any landlord, warehouseman or bailee which owns any premises at which any (i) Eligible Inventory, (ii) Eligible Equipment, (iii) books and records or (iv) other Collateral having a book value of $250,000 or more may, from time to time, be kept. 10.1.5.   Projections . No later than 30 days after the end of each Fiscal Year of Borrowers, deliver to Agent the Projections of Borrowers for the forthcoming Fiscal Year, on a quarterly basis. 10.1.6.   Taxes. Pay and discharge all Taxes prior to the date on which such Taxes become delinquent or penalties attach thereto, except and to the extent only that such Taxes are being Properly Contested or such Taxes do not exceed $2,500,000 in the aggregate at any time. 10.1.7.   Compliance with Laws . Comply with all Applicable Law (excluding all Food and Drug Laws and Environmental Laws, the compliance with which is addressed in Section 10.1.13 hereof and in the Environmental Agreement, respectively), including ERISA, FLSA, OSHA, Anti-Terrorism Laws and all laws, statutes, regulations and ordinances regarding the collection, payment and deposit of Taxes, and obtain and keep in force any and all Governmental Approvals necessary to the ownership of its Properties or to the conduct of its business, in each case to the extent that any such failure to comply, obtain or keep in force could be reasonably expected to have a Material Adverse Effect. 10.1.8.   Insurance . In addition to the insurance required herein with respect to the Collateral, maintain with its current insurers or with other financially sound and reputable insurers having a rating of at least A- or better and being in a size category of "vii" or better by Best's Ratings, a publication of A.M. Best Company, insurance with respect to its Properties and business against such casualties and contingencies of such type (including product liability, workers' compensation, larceny, business insurance, embezzlement, or other criminal misappropriation insurance) and in such amounts and with such coverages, limits and deductibles as is customary in the business of the Borrowers and their Domestic Subsidiaries. 10.1.9.   Intellectual Property . Together with each Compliance Certificate delivered pursuant to Section 10.1.3, notify Agent of any registered Intellectual Property acquired or applied for by Borrowers or any Domestic Subsidiary during the Fiscal Quarter for which such Compliance Certificate is being delivered (or at Agent's request from time to time, such non-registered Intellectual Property) and, upon the request of Agent, deliver to Agent, in form and substance reasonably acceptable to Agent and in recordable form, all documents necessary for Agent to obtain and perfect a first priority Lien on such Intellectual Property (subject to the provisions of Section 7.6 with respect to perfection under the laws of a jurisdiction other than the United States). 10.1.10.   License Agreements . Keep each License Agreement relating to Intellectual Property or Eligible Inventory in full force and effect for so long as any Borrower or any Domestic Subsidiary has any Inventory, the manufacture, sale or distribution of which is in any manner governed by or subject to such License Agreement; promptly notify Agent of any proposed material amendments to any License Agreement; pay all Royalties under each License Agreement as and when the same become due and payable to the extent not being Properly Contested; and notify Agent of any default or breach asserted by any party to have occurred under such License Agreement. 10.1.11.   Convertible Notes . Cause the Convertible Notes to be refinanced or defeased in their entirety or an Approved Escrow established at least 60 days prior to their scheduled maturity date of June 1, 2006 (provided, that if proceeds of the Loans are used, no Default or Event of Default shall exist at the time or result therefrom and Availability shall be at least $35,000,000 at the time of and after giving effect thereto), unless the Convertible Note Reserve has been established by Agent in its sole discretion. 10.1.12.   Depository Relationships . Maintain Borrowers' and their Domestic Subsidiaries' principal depository, operating and cash management accounts at BofA. 10.1.13.   Food and Drug Laws. (i)   Each Borrower and each Domestic Subsidiary shall conduct its business in compliance in all material respects with all Food and Drug Laws applicable to it, including those relating to the manufacture, sale, disposal and transport of pharmaceutical, drug and biological products, except as could not reasonably be expected to have a Material Adverse Effect. (ii)   Any notices or allegations of non-compliance under Food and Drug Laws, constituting a request or order to recall a product or to curtail manufacturing at its facilities or loss of eligibility for new product approval or other notice of non-compliance outside the Ordinary Course of Business, provided to any Borrower or any Domestic Subsidiary shall be forwarded to Agent or any Lender as soon as possible but no later than thirty (30) days after receipt by a Borrower. Upon the reasonable request of Agent or Lenders, Borrowers shall forward all material communications to any Borrower or any of its Domestic Subsidiaries with any Governmental Authority regarding the alleged violation or non-compliance with Food and Drug Laws. Upon receipt of notice from the FDA that any of Borrowers' facilities must curtail manufacturing or is no longer eligible to receive new product approval, Borrowers shall, at Agent's or Required Lenders' reasonable request and at Borrowers' expense, (i) retain an independent contractor reasonably acceptable to Agent to evaluate the operations and the alleged violations (excluding alleged violations with respect to products that have not been launched) (it being understood that so long as no Default or Event of Default has occurred and is continuing, any such evaluation of operations shall be limited to the operations that are the subject of the alleged violations), and (ii) prepare and deliver to Agent, in sufficient quantity for distribution by Agent to Lenders, a report setting forth the results of such evaluation, a proposed plan for responding to any potential liabilities described therein, and an estimate of the costs thereof. (iii)   Upon receipt of notice by any Borrower or any of its Domestic Subsidiaries from the FDA with respect to an alleged violation or non-compliance with Food and Drug Laws in all material respects (excluding alleged violations with respect to products that have not been launched) or at any time that a Default or Event of Default has occurred and is continuing, the Agent or its representatives or independent contractors shall have the right at any reasonable time to enter and visit any real estate currently owned and/or leased by any Borrower or any Domestic Subsidiary for the purposes of observing and reviewing the operations of Borrowers and their Domestic Subsidiaries with respect to their compliance with Food and Drug Laws. Agent is under no duty, however, to undertake such visits, and any such acts by Agent will be solely for the purposes of protecting Agent's Liens and preserving Agent and Lenders' rights under the Loan Documents. No site visit, observation or testing by Agent and Lenders will result in a waiver of any Default of Borrowers or impose any liability on Agent or Lenders. In no event shall any such site visit or reports therefrom be a representation that any Borrower or any Domestic Subsidiary is in compliance or non-compliance with any Food and Drug Laws. No Borrower, any Domestic Subsidiary nor any other party is entitled to rely on any site visit, observation or testing by Agent. 10.1.14.   Dissolution of Restrictive Subsidiaries (a) Within sixty (60) days after the Closing Date, cause to be filed with the appropriate Governmental Authority articles of dissolution for Alpharma N.W. Inc., Barre Parent Corporation and A.L. Specialty Chemicals, Inc.; and (b) Upon receipt by Borrowers of tax clearance letters or other determination letters from the applicable Governmental Authority or the winding up or termination by Borrowers of any employee benefit plan in accordance with Applicable Law (but no later than 360 days after the Closing Date without the consent of Agent), cause to be filed with the appropriate Governmental Authority, articles of dissolution for each of Alpharma (Barbados) SRL, Danz Nutritional Limited, NMC Laboratories and Wynco LLC. 10.2   Negative Covenants . For so long as there are any Commitments outstanding and thereafter until Full Payment of the Obligations, each Borrower covenants that it shall not and shall not permit any Domestic Subsidiary to: 10.2.1.   Fundamental Changes . (a) Merge, reorganize, consolidate or amalgamate with any Person, or liquidate, wind up its affairs or dissolve itself, in each case whether in a single transaction or in a series of related transactions, except for (i) mergers, amalgamations, liquidations, dissolutions, or consolidations of any Consolidated Group Member with or into another Consolidated Group Member (other than a Borrower into a Restrictive Subsidiary or an Excluded Subsidiary), (ii) Permitted Acquisitions and Permitted Asset Dispositions; and (iii) dissolutions, liquidations or winding up of any of the Restrictive Subsidiaries as provided in Section 10.1.14; (b) change a Borrower's or any Domestic Subsidiaries name or conduct business under any new fictitious name without providing Agent with 30 days prior written notice and subject to the recordation of all necessary UCC financing statements or amendments; or (c) change a Borrower's or any Domestic Subsidiary's FEIN, organizational identification number or state of organization without providing Agent with 30 days prior written notice and subject to the recordation of all necessary UCC financing statements or amendments. 10.2.2.   Loans . Make any loans or other advances of money to any Person other than: (i) to an officer or employee of a Borrower or a Domestic Subsidiary for salary, travel advances, advances against commissions and other similar advances in the Ordinary Course of Business, (ii) investments permitted under Section 10.2.12, and (iii) so long Availability at the time of and after giving effect thereto is not less than $35,000,000 if the Term Loan is outstanding (and not less than $25,000,000 if the Term Loan is not outstanding) and no Default or Event of Default exists or would result therefrom, loans to a Subsidiary that is not a Borrower. 10.2.3.   Permitted Debt . Create, incur, assume, guarantee or suffer to exist any Debt, except: (i) the Obligations; (ii) accrued expenses and accounts payable by such Borrower or a Domestic Subsidiary, in each case incurred in the Ordinary Course of Business; (iii) Permitted Purchase Money Debt; (iv) Debt for accrued payroll, Taxes and other operating expenses (other than for Money Borrowed) incurred in the Ordinary Course of Business of such Borrower or such Domestic Subsidiary, including Cash Management Obligations, in each case so long as payment thereof is not past due and payable unless, in the case of Taxes, such Taxes are being Properly Contested or do not exceed $2,500,000 in the aggregate at any time; (v) Debt for Money Borrowed by such Borrower (other than the Obligations, Permitted Purchase Money Debt and Subordinated Debt permitted herein), but only to the extent that such Debt is outstanding on the date of this Agreement and is not to be satisfied on or about the Closing Date from the proceeds of the initial Loans and any refinancings, modifications or extensions thereof so long as the Refinancing Conditions are satisfied; (vi) Permitted Contingent Obligations; (vii) Refinancing Debt so long as each of the Refinancing Conditions is met with respect thereto; (viii) the Senior Notes and the Convertible Notes and refinancings thereof so long as the Refinancing Conditions are satisfied; (ix) unsecured Debt of any Borrower acquired pursuant to a Permitted Acquisition (or Debt assumed at the time and as a result of a Permitted Acquisition); provided, that in each case such Debt was not incurred in connection with, or in anticipation or contemplation of, such Permitted Acquisition and in no event shall such Debt constitute working capital Debt or revolving credit Debt; (x) secured Debt of any Borrower acquired pursuant to a Permitted Acquisition (or assumed at the time and as a result of a Permitted Acquisition) consisting of Permitted Purchase Money Debt and in no event shall such Debt constitute working capital Debt or revolving credit Debt; (xi) Debt relating to surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the Ordinary Course of Business; (xii) unsecured Debt with respect to the deferred purchase price for any Permitted Acquisition, provided that such Debt does not required the payment in cash of principal (other than in respect of working capital adjustments) prior to the Commitment Termination Date; (xiii) intercompany Debt owing or payable by a Consolidated Group Member to another Consolidated Group Member; (xiv) unsecured intercompany Debt owing or payable by a Consolidated Group Member to a Subsidiary that is not a Consolidated Group Member; (xv) any unsecured Debt owing by any Subsidiary of Parent that is not an Obligor to any Obligor consisting of intercompany accounts receivable of Obligor representing in each case the bona fide sale and delivery of product inventory to such Subsidiary in the Ordinary Course of Business, and which receivables have been reclassified as Debt owing to such Obligor in accordance with GAAP consistent with prior practice; (xvi) unsecured Debt constituting the obligation to make purchase price adjustments and indemnities in connection with Permitted Acquisitions; (xvii) Debt that is not included in any of the preceding paragraphs of this Section 10.2.3, is not secured by a Lien, has a stated maturity that is longer than the Term, and does not exceed at any time, in the aggregate, the sum of $200,000,000 as to all Borrowers and their Domestic Subsidiaries; (xviii) without duplication of any other Debt, non-cash accruals of interest, accretion or amortization of original issue discount and/or pay-in-kind interest in connection with the Senior Notes or Convertible Notes or any refinancing thereof. 10.2.4.   Affiliate Transactions . Enter into, or be a party to any transaction with any Affiliate, except: (i) the transactions contemplated by the Loan Documents; (ii) payment of reasonable compensation to officers, directors, consultants and employees for services actually rendered to such Borrower or its Subsidiaries; (iii) payment of customary directors' fees and indemnities; (iv) transactions with Affiliates that were consummated prior to the date hereof and have been disclosed to Agent prior to the Closing Date; (v) transactions among Consolidated Group Members in the Ordinary Course of Business and consistent with past practices; (vi) payments that are expressly permitted under Section 10.2.7; and (vii) transactions with Affiliates pursuant to the reasonable requirements of such Borrower's or such Subsidiary's business and upon fair and reasonable terms that, if requested by Agent, are fully disclosed to Agent and are no less favorable to such Borrower or such Subsidiary than such Borrower or such Subsidiary would obtain in a comparable arm's length transaction with a Person not an Affiliate of such Borrower or such Subsidiary (it being understood that the transactions specified in Sections 10.2.1, 10.2.2, 10.2.3, 10.2.5, 10.2.6, 10.2.10, 10.2.12, 10.2.13, 10.2.18 or 10.2.19 to the extent such provisions relate to Affiliates shall be permitted to be made in accordance with this Section, and provided that nothing in this Section 10.2.4 shall prohibit Borrower's or their Domestic Subsidiaries from engaging in the following transactions; (x) the performance of any Borrower's or any Domestic Subsidiary's obligations under any employment contract, collective bargaining agreement, employee benefit plan, related trust agreement or any other similar arrangement heretofore or hereafter entered into in the Ordinary Course of Business or (y) the maintenance of benefit programs or arrangements for employees, officers or directors, including, vacation plans, health and life insurance plans, deferred compensation plans, and retirement or savings plans and similar plans, in each case, in the Ordinary Course of Business. 10.2.5.   Limitation on Liens . Create or suffer to exist any Lien upon any of its Property, income or profits, whether now owned or hereafter acquired, except the following (collectively, "Permitted Liens"): (i)   Liens at any time granted in favor of Agent; (ii)   Liens for Taxes (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due or being Properly Contested or in an amount not in excess of $2,500,000 in the aggregate at any time; (iii)   statutory Liens (excluding any Lien for Taxes, including any Lien imposed pursuant to any of the provisions of ERISA) arising in the Ordinary Course of Business of a Borrower or a Domestic Subsidiary, but only if and for so long as (x) payment in respect of any such Lien is not at the time delinquent or the Debt secured by any such Liens is being Properly Contested or is in an amount not in excess of $2,500,000 in the aggregate at any time and (y) such Liens do not materially detract from the value of the Property of such Borrower or such Domestic Subsidiary and do not materially impair the use thereof in the operation of such Borrower's or such Domestic Subsidiary's business; (iv)   Purchase Money Liens securing Permitted Purchase Money Debt; (v)   Liens securing Debt of a Domestic Subsidiary of a Borrower to another Borrower or to another such Domestic Subsidiary; (vi)   Liens arising by virtue of the rendition, entry or issuance against such Borrower or any of its Domestic Subsidiaries, or any Property of such Borrower or any of its Domestic Subsidiaries, of any judgment, writ, order, or decree for so long as each such Lien (a) is in existence for less than 20 consecutive days after it first arises or is being Properly Contested and (b) is at all times junior in priority to any Liens in favor of Agent; (vii)   Liens incurred or deposits made in the Ordinary Course of Business to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Money Borrowed), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts, provided that, to the extent any such Liens in an aggregate amount in excess of $1,000,000 attach to any of the Collateral (other than a cash deposit for such specific project), such Liens are at all times subordinate and junior to the Liens upon the Collateral in favor of Agent; (viii)   easements, rights-of-way, restrictions, covenants, conditions or other agreements of record and other similar charges or encumbrances affecting title to real Property of such Borrower or any of its Domestic Subsidiaries that do not secure any monetary obligation and do not materially interfere with the ordinary conduct of the business of such Borrower or such Domestic Subsidiary and such other minor title defects, or survey matters that are disclosed by current surveys, but that, in each case, in the reasonable opinion of Agent, do not interfere with the current use of the real Property in any material respect; (ix)   normal and customary rights of setoff upon deposits of cash in favor of banks and other depository institutions and Liens of a collecting bank arising under the UCC on checks and other items of payment in the course of collection; (x)   Liens in existence immediately prior to the Closing Date that are satisfied in full and released on the Closing Date as a result of the application of such Borrower's cash on hand at the Closing Date or the proceeds of Loans to be made on the Closing Date; (xi)   such other Liens as appear on Schedule 10.2.5, to the extent provided therein; (xii)   pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (xiii)   landlords' and lessors' Liens in respect of rent not in default for more than sixty (60) days and for which a Rent Reserve has been established if required by Agent or a Lien Waiver has been delivered (except to the extent otherwise provided in Section 8.1.1 hereof); (xiv)   Liens attaching solely to cash earnest money deposits in connection with any letter of intent or purchase agreement in connection with a Permitted Acquisition; (xv)   Liens arising from precautionary UCC filings regarding "true" operating leases or the consignment of goods to a Obligor, to the extent such lease or consignment is not otherwise violative of this Agreement; (xvi)   Purchase Money Liens on Equipment or real Property in existence at the time such Equipment or real Property is acquired pursuant to a Permitted Acquisition or on Equipment or real Property of a Subsidiary of a Borrower in existence at the time such Subsidiary is acquired pursuant to a Permitted Acquisition; provided, that such Liens are not incurred in connection with or in anticipation of such Permitted Acquisition and do not attach to any other assets of any Consolidated Group Member; (xvii)   any title or interest of a licensor, sublicensor, lessor or sublessor under any license or operating or true lease agreement, to the extent such license or lease agreement (including any licenses of Intellectual Property) is not violative of this Agreement; (xviii)   zoning, building codes, and other land use laws regulating the use or occupancy of real Property of such Borrower or any of its Domestic Subsidiaries or the activities conducted thereon which are imposed by any Governmental Authority having jurisdiction over such real Property which are not violated by the current use or occupancy of such real Property or the operation of such Borrower's or such Domestic Subsidiary's business conducted thereon; (xix)   matters disclosed on current surveys of the real Property owned by such Borrower and any of its Domestic Subsidiaries and delivered on or before the Closing Date; (xx)   any retention of title reserved by any supplier of goods pursuant to such supplier's standard terms and conditions, but only to the extent (a) contained in such supplier's form response to purchase orders that are not executed by any Consolidated Group Member and (b) such Lien does not have priority over any Liens in favor of Agent, (except that if such Lien would have priority over the Lien of Agent such Lien shall only constitute a Permitted Lien if Agent has either elected to put an Availability Reserve in place with respect thereto (and such Availability Reserve does not create an Out-of-Formula Condition) or has elected not to require any such Availability Reserve); and (xxi)   such other Liens as Agent and the Required Lenders in their discretion may hereafter approve in writing. provided, however, that, except as provided in any of the clauses above, the term "Permitted Liens" shall not include any Lien securing Debt for Money Borrowed. The designation of a Lien as a Permitted Lien shall not limit or restrict the ability of the Agent to establish any Reserve relating thereto. The foregoing negative pledge shall not apply to any Margin Stock to the extent that the application of such negative pledge to such Margin Stock would require filings or other actions by any Lender under Regulation U or other regulations of the Board of Governors, or otherwise result in a violation of any such regulations. 10.2.6.   Restrictions on Payment of Certain Debt. Make any payments of or in respect of principal or interest on, or on account of the purchase, redemption, retirement or satisfaction of any: (i) Subordinated Debt other than (a) payment of regularly scheduled installments of principal and interest and fees and other charges when required to be paid by any instrument or agreement evidencing such Subordinated Debt, but in each case only to the extent that payment thereof is not violative of any subordination agreement or subordination provisions expressly contained therein relating to such Subordinated Debt; (b) payments in equity securities (as long as no Change in Control would result therefrom) and payments of interest in-kind; (c) prepayment in whole or in part with the proceeds of any equity securities issued or capital contributions received by any Borrower or any Domestic Subsidiary for the purpose of making such payment or prepayment; (d) refinancings of Debt to the extent permitted under Section 10.2.3(vii); (e) any payments or prepayments of Debt that is owing by an Obligor to another Obligor unless an Event of Default exists and Agent has commenced any Enforcement Action; and (f) any prepayments, repurchase, defeasance, retirement, satisfaction or redemption of the Convertible Notes so long as, if such payment is made with proceeds of the Loans, the provisions of Section 10.1.11 are satisfied; or (ii) Funded Debt (including the Senior Notes but excluding the Obligations) prior to the date on which any such payment is required to be made pursuant to any instrument or agreement evidencing such Funded Debt, including any voluntary prepayment, redemption, defeasance or other acquisition for value of any such Funded Debt unless each of the Permitted Payment Conditions are satisfied, and other than (a) payments in equity securities (as long as no Change in Control would result therefrom); (b) payments of interest in-kind; (c) prepayment in whole or in part with the proceeds of any equity securities issued or capital contributions received by any Borrower or any Domestic Subsidiary for the purpose of making such payment or prepayment; (d) refinancings of Debt to the extent permitted under Section 10.2.3(vii); (e) payments, prepayments, repurchase, defeasance, retirement, satisfaction or redemption of the Convertible Notes so long as, if such payment is made with proceeds of the Loans, the provisions of Section 10.1.11 are satisfied; (f) prepayments, repurchase, defeasance, retirement, satisfaction or redemption of the Senior Notes so long as each of the Permitted Payment Conditions is satisfied; and (g) payments permitted under Section 10.2.6(i). 10.2.7.   Distributions . Declare or make any Distributions, except for (i) Upstream Payments, (ii) Distributions to a Borrower, (iii) so long as no Event of Default exists or would result therefrom and the aggregate amount of all such Distributions do not exceed $12,000,000 during any Fiscal Year, Distributions by Parent to shareholders of Parent, and (iv) Distribution of net proceeds of a Portfolio Transaction so long as (a) the Fixed Asset Sublimit has been reduced to zero, (b) the Term Loan has been Paid in Full, (c) no Event of Default exists or would result therefrom and (d) at the time of and after giving effect to any such Distribution, Availability is not less than $25,000,000. 10.2.8.   Upstream Payments . Create or suffer to exist any encumbrance or restriction on the ability of a Domestic Subsidiary to make any Upstream Payment, except for encumbrances or restrictions (i) pursuant to the Loan Documents, (ii) existing under Applicable Law (iii) identified and fully disclosed in Schedule 10.2.8, (iv) under any documents relating to joint ventures of any Obligor to the extent that such joint ventures are not prohibited hereunder, (v) the foregoing shall not apply to any restrictions in existence prior to the time any such Person became a Subsidiary and not created in contemplation of any such acquisition, (vi) under any agreement relating to the Convertible Notes, Senior Notes, or any refinancing or replacement thereof, and (vii) under any agreement relating to Debt incurred under Section 10.2.3(xvii) to the extent not more restrictive than those existing on the date hereof. 10.2.9.   Capital Expenditures . Make Capital Expenditures (including expenditures by way of capitalized leases) which in the aggregate, as to all Borrowers and their Domestic Subsidiaries, exceed $60,000,000 (excluding any Capital Expenditures made with condemnation or insurance proceeds or Revolver Loan proceeds to the extent such condemnation or insurance proceeds are used to pay down the Revolver Loans) during the period from the date of this Agreement through December 31, 2006 or during any Fiscal Year thereafter; provided that if, for any Fiscal Year set forth above, the amount specified above for such Fiscal Year (as increased pursuant to this proviso) exceeds the aggregate amount of Capital Expenditures made by Borrowers and their Domestic Subsidiaries during such Fiscal Year (the amount of such excess being the "Excess Amount"), Borrowers shall be entitled to make additional Capital Expenditures in the immediately succeeding Fiscal Year in an amount (such amount being referred to herein as the "Carryover Amount") equal to the lesser of (i) the Excess Amount and (ii) 50% of the amount specified above for such immediately preceding Fiscal Year (as increased pursuant to this proviso). 10.2.10.   Disposition of Assets . Make any Asset Disposition other than a Permitted Asset Disposition. 10.2.11.   Subsidiaries . Form or acquire any Domestic Subsidiary after the Closing Date, except to the extent constituting a Permitted Subsidiary or except to the extent formed or acquired in connection with a Permitted Acquisition or a Permitted Investment or permit any existing Domestic Subsidiary to issue any additional Equity Interests except director's qualifying shares. 10.2.12.   Restricted Investments . Make or have any Restricted Investment. 10.2.13.   Tax Consolidation . File or consent to the filing of any consolidated income tax return with any Person other than a Subsidiary. 10.2.14.   Accounting Changes; Change of Fiscal Year . Make any significant change in accounting treatment or reporting practices, except as may be required by GAAP, or establish a fiscal year different from the Fiscal Year. 10.2.15.   Organic Documents . Amend, modify or otherwise change any of the terms or provisions in any of its Organic Documents, except for changes that do not affect (i) such Borrower's or any of its Domestic Subsidiaries' right and authority to enter into and perform the Loan Documents to which it is a party, (ii) the perfection of Agent's Liens in any Collateral, or (iii) the authority or obligation of an Obligor to pay or perform any of the Obligations for which it is liable pursuant to the Loan Documents. 10.2.16.   Restrictive Agreements . Permit any Domestic Subsidiary to enter into or become a party to any Restrictive Agreement, provided that the foregoing shall not apply to any agreement permitted under Section 10.2.8. 10.2.17.   Hedging Agreements . Enter into any Hedging Agreement, other than Hedging Agreements entered into in the Ordinary Course of Business to hedge or mitigate risks to which any Borrower or any Domestic Subsidiary is exposed in the conduct of its business or the management of its liabilities and not for any speculative purpose. 10.2.18.   Compromise of Claims . Discount, forgive, waive or otherwise compromise any claim or Debt owing to it (other than unsecured intercompany claims among the Consolidated Group in the Ordinary Course of Business), except for reasonable consideration negotiated on an arms-length basis and in the Ordinary Course of Business. 10.2.19.   Anti-Terrorism Laws. Conduct any business or engage in any transaction or dealing with any Blocked Person, including the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person; deal in, or otherwise engage in any transaction relating to, any Property or interests in Property blocked pursuant to Executive Order No. 13224; or engage in on conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or the USA Patriot Act. Borrowers shall deliver to Agent and Lenders any certification or other evidence requested from time to time by Agent or any Lender, in its reasonable discretion, confirming each Borrower's and each of its Subsidiaries' compliance with this Section 10.2.19. 10.2.20.   Conduct of Business . Engage in any business other than the business engaged in by it on the Closing Date and any business or activities which are substantially similar, related or incidental thereto. 10.2.21.   Amendments to Indentures . Amend, modify or supplement, or permit any Subsidiary to amend, modify or supplement (or consent to any amendment, modification or supplement of) any of the Convertible Note Documents or Senior Note Documents (or any replacements or substitutions or renewals thereof), or pursuant to which the Senior Notes or the Convertible Notes are issued or extended, except in connection with any refinancing thereof permitted under Section 10.2.3, if such amendment, modification or supplement provides for any of the following or has any of the following effects: (i) increases the overall principal amount of any Debt evidenced by any of the Senior Notes or Convertible Notes; (ii) shortens the final maturity date of such Debt; (iii) amends, modifies or adds any financial or negative covenants in a manner which when taken as a whole is more onerous or more restrictive in any material respect to Borrowers and their Domestic Subsidiaries taken as a whole or that is otherwise materially adverse to Borrowers and their Domestic Subsidiaries taken as a whole or Lenders; or (iv) results in any of the Loan Documents, or any of the credit facilities evidenced hereby, not constituting a permitted credit facility under the Senior Note Documents or Convertible Note Documents. 10.3.   Financial Covenants . For so long as there are any Commitments outstanding and thereafter until Full Payment of the Obligations, Borrowers covenant that they shall: 10.3.1.   Fixed Charge Coverage Ratio. If a Restrictive Trigger Event occurs, then the Fixed Charge Coverage Ratio for the Consolidated Group shall not be less than 1.0 to 1.0 and shall be tested immediately as follows: (i)   if the Restrictive Trigger Event occurs during the first full twelve Fiscal Months after the Closing Date, such calculation shall be made for the period beginning with the Fiscal Month of November 2005 through the Fiscal Month for which Borrowers have delivered financial statements to Agent under Section 10.1.3 (whether such financial statements are delivered under Section 10.1.3(i), (ii) or (iii)), on a cumulative basis, and (ii)   if the Restrictive Trigger Event occurs after the first full twelve Fiscal Months from the Closing Date, such calculation shall be based upon the immediately preceding twelve Fiscal Month period for which Borrowers have delivered financial statements to Agent under Section 10.1.3 (whether such financial statements are delivered under Section 10.1.3(i), (ii) or (iii)), and thereafter, such calculation shall be based upon each Fiscal Month. Within five (5) Business Days after the occurrence of a Restrictive Trigger Event, Borrowers shall cause to be prepared and furnished to Agent a Compliance Certificate executed by the chief financial officer of Borrowers, which Compliance Certificate shall include the calculation of the Fixed Charge Coverage Ratio for the prior 12 month period based upon the most current financial statements received by Agent prior to such Restrictive Trigger Event. If after the occurrence of a Restrictive Trigger Event, Availability is at least $25,000,000 if the Term Loan is not outstanding (and $35,000,000 if the Term Loan is outstanding) for 60 consecutive days and no Event of Default exists, then on the 61st consecutive day (the "Covenant Spring-Back Date"), Agent thereafter will not require that Borrowers comply with the covenant referenced above unless another Restrictive Trigger Event occurs. If a Restrictive Trigger Event has occurred as a result of an Event of Default and not as a result of the failure by Borrowers to meet the Availability or Average Availability requirements, and Agent (or to the extent required by this Agreement, all Lenders or Required Lenders) waive the Event of Default in writing, then the Covenant Spring-Back Date shall occur on the date of the waiver in writing of such Event of Default. SECTION 11.   CONDITIONS PRECEDENT 11.1   Conditions Precedent to Initial Credit Extensions . Initial Lender shall not be required to fund any requested Loan, issue any Letter of Credit, or otherwise extend credit to Borrowers, unless, on or before October 26, 2005, each of the following conditions has been satisfied (unless otherwise waived or extended in writing by Agent in its sole discretion): 11.1.1.   Loan Documents . Each of the Loan Documents shall have been duly executed and delivered to Agent by each of the signatories thereto and accepted by Agent and each Borrower and each Consolidated Group Member shall be in compliance with all of the terms thereof. 11.1.2.   Availability . Agent shall have determined, and Initial Lender shall be satisfied, that, immediately after Initial Lender has made the initial Revolver Loans to be made on the Closing Date, Issuing Bank has issued the Letters of Credit to be issued on the Closing Date (if any), and Borrowers have paid (or made provision for payment of) all fees and closing costs incurred in connection with the Commitments and payable on the Closing Date, and after increasing the Availability Reserve in the amount of any payables of Borrowers that are stretched beyond Borrowers' customary payment practices, Availability is not less than $50,000,000. 11.1.3.   Evidence of Perfection and Priority of Liens . Agent shall have received copies of all filing receipts or acknowledgments issued by any Governmental Authority to evidence any filing or recordation necessary to perfect the Liens of Agent in the Collateral to the extent required by the Loan Documents and evidence in form satisfactory to Agent and Initial Lender that such Liens constitute valid and perfected Liens, and that there are no other Liens upon any Collateral except for Permitted Liens. 11.1.4.   Organic Documents . Agent shall have received copies of the Organic Documents of each Borrower and each Domestic Subsidiary, and all amendments thereto, certified by the Secretary of State or other appropriate officials of the jurisdiction of each Borrower's and each other Domestic Subsidiaries' states of organization. 11.1.5.   Good Standing Certificates . Agent shall have received good standing certificates for each Borrower and each Domestic Subsidiary, issued by the Secretary of State or other appropriate official of such Borrower's or such Domestic Subsidiary's jurisdiction of organization and each jurisdiction where the conduct of such Borrower's or such Domestic Subsidiary's business activities or ownership of its Property necessitates qualification except where failure to be so qualified would not have a Material Adverse Effect. 11.1.6.   Opinion Letters . Agent and Initial Lender shall have received a favorable, written opinion of Kirkland & Ellis LLP and the respective local counsel to Borrowers and their Domestic Subsidiaries and Agent, covering, to Agent's reasonable satisfaction, the matters set forth on Exhibit G attached hereto. 11.1.7.   Insurance . Agent shall have received certified copies of the property and casualty insurance policies of Borrowers and their Domestic Subsidiaries with respect to the Collateral, or certificates of insurance with respect to such policies in form acceptable to Agent, and loss payable endorsements on Agent's standard form of loss payee endorsement naming Agent as lender's loss payee and mortgagee with respect to each such policy and certified copies of Borrowers' and their Domestic Subsidiaries liability insurance policies, including product liability policies, together with endorsements naming Agent as an additional insured, all as required by the Loan Documents. 11.1.8.   Solvency Certificates . Agent and Initial Lender shall have received certificates satisfactory to them from one or more knowledgeable Senior Officers of Borrowers that, after giving effect to the financing under this Agreement and the issuance of the Letters of Credit, the Consolidated Group, taken as a whole, is Solvent. 11.1.9.    No Labor Disputes . Agent shall have received assurances satisfactory to it that there are no threats of strikes or work stoppages by any employees, or organization of employees, of any Consolidated Group Member which could reasonably be expected to have a Material Adverse Effect. 11.1.10.   Compliance with Laws and Other Agreements . Agent shall have determined or received assurances satisfactory to it that none of the Loan Documents or any of the transactions contemplated thereby violate any Applicable Law, court order or agreement binding upon any Consolidated Group Member. 11.1.11.   No Material Adverse Change . No material adverse change in the financial condition of the Consolidated Group taken as a whole or in the quality, quantity or value of the Collateral (taken as a whole) shall have occurred since December 31, 2004. 11.1.12.   Accounts Payable . Agent shall have reviewed and found acceptable Borrowers' accounts payable practices and vendor arrangements. 11.1.13.   Payment of Fees . Borrowers shall have paid, or made provision for the payment on the Closing Date of, all fees and expenses to be paid hereunder to Agent on the Closing Date. 11.1.14.   Due Diligence . Agent shall have completed its business and legal due diligence, including a roll forward of its previous Collateral audit, with results acceptable to Agent, and the receipt of Inventory, Equipment and Real Estate appraisals acceptable to Agent in all respects. 11.1.15.   LC Conditions . With respect to the issuance of any Letter of Credit on the Closing Date, each of the LC Conditions is satisfied. 11.1.16.   Title Insurance Policies . Agent shall have received, had at least 5 days to review and found acceptable fully paid mortgagee title insurance policies (or binding commitments to issue title insurance policies, marked to Agent's satisfaction to evidence the form of such policies to be delivered after the Closing Date), for each parcel of Real Estate listed on Exhibit K attached hereto in standard ALTA form, issued by a title insurance company satisfactory to Agent, each in an amount equal to not less than the fair market value of such Real Estate or leasehold interest, as the case may be, subject to the Mortgages, insuring the Mortgages to create a valid Lien on such Real Estate or valid Liens on such leasehold interest described therein with no exceptions which Agent shall not have approved in writing, which policies (and commitments therefor) shall have acceptable zoning endorsements. 11.1.17.   Surveys . Agent shall have received, had at least 5 days to review and, found acceptable a current, as-built survey with respect to each parcel of the Real Estate listed on Exhibit K attached hereto comprising a part of the Collateral, which survey shall indicate the following: (i) an accurate metes and bounds or lot, block and parcel description of such Real Estate; (ii) the correct location of all buildings, structures and other improvements on such Real Estate, including all streets, easements, rights of way and utility lines; (iii) the location of ingress and egress from such Real Estate, and the location of any set-back or other building lines affecting such Real Estate; and (iv) a certification by a registered land surveyor in form and substance acceptable to Agent, certifying to the accuracy and completeness of such survey and to such other matters relating to such Real Estate and survey as Agent shall require. 11.1.18.   Environmental Matters . Agent shall have received, reviewed and found satisfactory the representations, warranties and disclosures in the Environmental Agreement and environmental audits of the Real Estate as requested by Agent and conducted by an environmental consulting firm reasonably acceptable to Agent. 11.1.19.   Capital Structure. Agent shall have determined that the capital structure of each of (i) Parent (for Parent's consolidated domestic operations) and (ii) Parent and its Domestic Subsidiaries and Foreign Subsidiaries, including the terms of any additional debt capital that is to be arranged concurrently with or prior to the Closing Date and the legal documentation related thereto are reasonably satisfactory to Agent. 11.2.   Conditions Precedent to All Credit Extensions . The obligations of the Lenders to fund any Loans or otherwise extend any credit to or for the benefit of Borrowers and of the Issuing Bank to issue each Letter of Credit is subject to the following conditions precedent: 11.2.1.   No Defaults . No Default or Event of Default exists at the time, or would result from the funding, of any Loan or other extension of credit hereunder. 11.2.2.   Representations and Warranties. Each of the representations and warranties by an Obligor in any of the Loan Documents (including any representations and warranties in any certificate furnished at any time in connection herewith) are true and correct in all material respects on and as of the date of each extension of credit hereunder (except for those representations or warranties which expressly relate to an earlier date). 11.2.3.   No Litigation . No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of, this Agreement or any of the other Loan Documents or the consummation of the transactions contemplated hereby or thereby. 11.2.4.   No Material Adverse Effect . No event shall have occurred and no condition shall exist which has or could be reasonably expected to have a Material Adverse Effect since December 31, 2004. 11.2.5.   Borrowing Base Certificate . Agent shall have received the Borrowing Base Certificate then required to be delivered pursuant to Section 8.6, including, with respect to the initial Borrowing made on the Closing Date only, a Borrowing Base Certificate dated as of the most recent week-end preceding the Closing Date. 11.2.6.   LC Conditions . With respect to the issuance of any Letter of Credit after the Closing Date, each of the LC Conditions is satisfied. 11.3   Inapplicability of Conditions . None of the conditions precedent set forth in Sections 11.1 or 11.2 shall be conditions to the obligation of (i) each Participating Lender to make payments to Issuing Bank pursuant to Section 2.3.2, (ii) each Lender to deposit with Agent such Lender's Pro Rata share of a Borrowing in accordance with Section 4.1.2, (iii) each Lender to fund its Pro Rata share of a Revolver Loan to repay outstanding Swingline Loans to BofA as provided in Section 4.1.3(ii), (iv) each Lender to pay any amount payable to Agent or any other Lender pursuant to this Agreement or (v) Agent to pay any amount payable to any Lender pursuant to this Agreement. 11.4   Limited Waiver of Conditions Precedent . If Lenders shall make any Loan or otherwise extend any credit to Borrowers under this Agreement at a time when any of the foregoing conditions precedent are not satisfied (regardless of whether the failure of satisfaction of any such conditions precedent was known or unknown to Agent or Lenders) unless Agent, with the prior written consent of the Required Lenders, in writing waives the satisfaction of any condition precedent, in which event such waiver shall only be applicable for the specific instance given and only to the extent and for the period of time expressly stated in such written waiver, the funding of such Loan or other extension of credit shall not operate as a waiver of the right of Agent and Lenders to insist upon the satisfaction of all conditions precedent with respect to each subsequent Borrowing requested by Borrowers. section 12.   EVENTS OF DEFAULT; REMEDIES ON DEFAULT 12.1.   Events of Default . The occurrence or existence of any one or more of the following events or conditions shall constitute an "Event of Default" (each of which Events of Default shall be deemed to exist unless and until waived by Agent and Lenders in accordance with the provisions of Section 13.9): 12.1.1.   Payment of Obligations . Borrowers shall (i) fail to pay any principal on any Loan or LC Obligation on the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise), or (ii) fail to pay any interest on any Loan or LC Obligation within 3 Business Days after the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise), or (iii) within 5 Business Days after the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise), fail to pay any other Obligations. 12.1.2.   Misrepresentations . Any representation, warranty or other written statement to Agent or any Lender by or on behalf of any Obligor, whether made in or furnished in compliance with or in reference to any of the Loan Documents (including any representation made in any Borrowing Base Certificate), proves to have been incorrect in any material respect when made or furnished or when reaffirmed pursuant to Section 9.2. 12.1.3.   Breach of Specific Covenants . Any Borrower shall fail or neglect to perform, keep or observe any covenant contained in (i) Sections 7.6, 8.1.1, 8.1.2, 8.2.4, 8.2.5, 8.2.6, 10.1.1, 10.1.6, 10.1.11, 10.2 or 10.3 on the date that such Borrower is required to perform, keep or observe such covenant, or (ii) Section 8.6 with respect to Borrowers' obligation to deliver Borrowing Base Certificates under Section 8.6 and Sections 10.1.3(i) through (iv) and Section 10.1.5 with respect to Borrowers' obligation to deliver financial information under Sections 10.1.3(i) through (iv) and Section 10.1.5, and such failure under clause (ii) hereof shall remain unremedied (a) with respect to Section 8.6 (during any period in which Borrowing Base Certificates are deliverable daily), 1 Business Day after Agent shall have given Borrower Representative notice thereof, on more than 3 occasions during any 30 day period and (b) with respect to Section 8.6 (during a period in which Borrowing Base Certificates are deliverable less frequently) and Sections 10.1.3(i) through (iv) and Section 10.1.5, 3 Business Days after Agent shall have given Borrower Representative notice thereof. 12.1.4.   Breach of Other Covenants . Any Borrower shall fail or neglect to perform, keep or observe any covenant contained in this Agreement or any other Loan Document (other than a covenant which is dealt with specifically elsewhere in Section 12.1) and the breach of such other covenant is not cured to Agent's and the Required Lender's satisfaction within 30 days after Agent shall have given Borrower Representative notice thereof. 12.1.5.   Other Defaults . (i) There shall occur any default or event of default on the part of any Obligor under any agreement, document or instrument to which such Obligor is a party or by which such Obligor or any of its Properties is bound, creating or relating to any Debt (including the Convertible Notes but excluding the Obligations and the Senior Notes) in excess of $10,000,000 if (after giving effect to the expiration of any grace period set forth therein) the payment or maturity of such Debt may be accelerated in consequence of such default or event of default or demand for payment of such Debt may be made; or (ii) the Senior Notes shall not have been paid in full (but an Approved Escrow shall have been established) and any holder of the Senior Notes shall have commenced an enforcement action against any Consolidated Group Member; or (iii) the Senior Notes shall not have been paid in full (and no Approved Escrow shall have been established) and a default shall occur under the Senior Notes (after giving effect to the expiration of any grace period set forth therein). 12.1.6.   Insolvency Proceeding . Any Insolvency Proceeding shall be voluntarily commenced by any Obligor; in connection with any such Insolvency Proceeding an interim trustee is appointed to take possession all or a substantial portion of the Properties of such Obligor or to operate all or any substantial portion of the business of such Obligor or an order for relief shall have been issued or entered in connection with such Insolvency Proceeding; or any Obligor shall make a general assignment for the benefit of creditors. 12.1.7.   Involuntary Insolvency Proceeding . Any Insolvency Proceeding is commenced against any Obligor and any of the following events occur: such Obligor takes corporate action to consent to the institution of the Insolvency Proceeding against it, the petition commencing the Insolvency Proceeding is not timely controverted by such Obligor, the petition commencing the Insolvency Proceeding is not dismissed within 60 days after the date of the filing thereof (provided that, in any event, during the pendency of any such period, Lenders shall be relieved from their obligation to make Loans or otherwise extend credit to or for the benefit of Borrowers hereunder). 12.1.8.   Business Disruption; Condemnation . There shall occur a cessation of a substantial part of the business of any one or more Obligors for a period which may be reasonably expected to have a Material Adverse Effect; or any substantial portion of the Collateral shall be taken through condemnation or the value of such Property shall be materially impaired through condemnation. 12.1.9.   ERISA . A Reportable Event shall occur which Agent, in its reasonable discretion, shall determine constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if any Borrower, any Subsidiary or any Obligor is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from such Borrower's, such Subsidiary's or such Obligor's complete or partial withdrawal from such Multiemployer Plan, and, with respect to any of the events described above, in the reasonable judgment of Agent, has a Material Adverse Effect. 12.1.10.   Challenge to or Insufficiency of Loan Documents . (i) Any Obligor or any of its Affiliates shall challenge or contest (or support the challenge or contest of others) in any action, suit or proceeding the validity or enforceability of any of the Loan Documents, the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Agent, or (ii) any of the Loan Documents ceases to be in full force or effect for any reason other than releases by Agent of Liens in certain Collateral to the extent expressly authorized by this Agreement or a full or partial waiver or release by Agent and Lenders in accordance with the terms thereof. 12.1.11.   Judgment . One or more judgments or orders for the payment of money in an amount that exceeds, individually or in the aggregate, $5,000,000 shall be entered against any Borrower or any other Obligor and (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect or (iii) results in the creation or imposition of a Lien upon any of the Collateral that is not a Permitted Lien. 12.1.12.   Repudiation of or Default Under Guaranty . Any Guarantor shall revoke or attempt to revoke the Guaranty signed by such Guarantor, or shall repudiate such Guarantor's liability thereunder. 12.1.13.   Criminal Forfeiture . Any Obligor (or any of its Senior Officers) is criminally indicted or convicted for (i) a felony committed in the conducted of the business of such Obligor or (ii) any state or federal law (including the Controlled Substances Act, the Money Laundering Control Act of 1986, and the Illegal Exportation of War Materials Act) that could lead to a forfeiture of any material (as determined by Agent in the exercise of its discretion) Collateral. 12.1.14.   Change of Control. A Change of Control shall occur. 12.2.   Acceleration of Obligations; Termination of Commitments . Without in any way limiting the right of Agent to demand payment of any portion of the Obligations payable on demand in accordance with this Agreement upon or at any time after the occurrence of an Event of Default (other than pursuant to Sections 12.1.6 and Section 12.1.7) and for so long as such Event of Default shall exist, Agent may with the consent of the Required Lenders or upon receipt of written instructions to do so from the Required Lenders, shall (a) declare the principal of and any accrued interest on the Loans and all other Obligations owing under any of the Loan Documents to be, whereupon the same shall become without further notice or demand (all of which notice and demand each Borrower expressly waives), forthwith due and payable and Borrowers shall forthwith pay to Agent the entire principal of and accrued and unpaid interest on the Loans and other Obligations plus reasonable attorneys' fees and court costs if such principal and interest are collected by or through an attorney-at-law and (b) terminate the Revolver Commitments; provided, however, that upon the occurrence of an Event of Default specified in Section 12.1.6, all of the Obligations shall become automatically due and payable without declaration, notice or demand by Agent to or upon any Borrower or any other Obligor and the Revolver Commitments shall automatically terminate as if terminated by Agent pursuant to Section 6.2.1 and with the effects specified in Section 6.2.4. 12.3.   Other Remedies . Upon and after the occurrence of an Event of Default and for so long as such Event of Default shall exist, Agent may in its discretion (and, upon receipt of written direction of the Required Lenders, shall) institute any Enforcement Action and exercise from time to time the following rights and remedies: 12.3.1.   All of the rights and remedies of a secured party under the UCC or under other Applicable Law, and all other legal and equitable rights to which Agent may be entitled under any of the Loan Documents, all of which rights and remedies shall be cumulative and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents, and none of which shall be exclusive. 12.3.2.   The right to collect all amounts at any time payable to a Borrower from any Account Debtor or other Person at any time indebted to such Borrower. 12.3.3.   The right to take immediate possession of any of the Collateral, and to (i) require Borrowers to assemble the Collateral, at Borrowers' expense, and make it available to Agent at a place designated by Agent which is reasonably convenient to both parties, and (ii) enter any premises where any of the Collateral shall be located and to keep and store the Collateral on said premises until sold (and if said premises be owned or leased by a Borrower, then such Borrower agrees not to charge Agent for storage of any Collateral therein). 12.3.4.   The right to sell or otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by Applicable Law, in lots or in bulk, for cash or on credit, all as Agent, in its discretion, may deem advisable. Each Borrower agrees that any requirement of notice to any Borrower or any other Obligor of any proposed public or private sale or other disposition of Collateral by Agent shall be deemed reasonable notice thereof if given at least 10 days prior thereto, and such sale may be at such locations as Agent may designate in said notice. Agent shall have the right to conduct such sales on any Borrower's or any other Obligor's premises, without charge therefor, and such sales may be adjourned from time to time in accordance with Applicable Law. Agent shall have the right to sell, lease or otherwise dispose of the Collateral, or any part thereof, for cash, credit or any combination thereof, and Agent may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. The proceeds realized from the sale or other disposition of any Collateral may be applied, after allowing 2 Business Days for collection, first to any Extraordinary Expenses incurred by Agent and then to the remainder of the Obligations as specified in Section 5.6.1. 12.3.5.   The right to obtain the appointment of a receiver, without notice of any kind whatsoever, to take possession of the Collateral and to exercise such rights and powers as the court appointing such receiver shall confer upon such receiver. 12.3.6.   The right to exercise all of Agent's remedies under the Mortgages with respect to any Real Estate. 12.3.7.   The right to require Borrowers to Cash Collateralize outstanding Letters of Credit, and, if Borrowers fail promptly to make such deposit, Lenders may (and shall upon the direction of the Required Lenders) advance such amount as a Revolver Loan (whether or not an Out-of-Formula Condition exists or is created thereby or the Commitments have been terminated). Any such deposit or advance shall be held by Agent in the Cash Collateral Account to fund future payments on any Letter of Credit. When all Letters of Credit have been drawn upon or expired, any amounts remaining in the Cash Collateral Account shall be applied against any outstanding Obligations, or, after Full Payment of all Obligations, returned to Borrowers. 12.3.8.   Upon and after the occurrence of an Event of Default and for so long as such Event of Default shall exist, the right of Agent to exercise any option to purchase the building, improvements and Equipment that are leased by Parent from the Pleasants County Development Authority in Willow Island, West Virginia (to the extent that such Collateral is a component of the Borrowing Base). Agent is hereby granted a non-exclusive license or other right to use, license or sub-license (exercisable without payment of royalty or other compensation to any Obligor or any other Person) any or all of each Borrower's Intellectual Property and all of each Borrower's computer hardware and software trade secrets, brochures, customer lists, promotional and advertising materials, labels, and packaging materials, and any Property of a similar nature, in advertising for sale, marketing, selling and collecting and in completing the manufacturing of any Collateral, and each Borrower's rights under all licenses and all franchise agreements shall inure to Agent's benefit so long as such Event of Default shall exist. 12.4   Setoff . In addition to any Liens granted under any of the Loan Documents and any rights now or hereafter available under Applicable Law, Agent and each Lender (and each of their respective Affiliates) is hereby authorized by Borrowers at any time that an Event of Default exists, without notice to Borrowers or any other Person (any such notice being hereby expressly waived), to set off and to appropriate and apply any and all deposits, general or special (including certificates of deposit whether matured or unmatured (but not including trust accounts)) and any other Debt at any time held or owing by such Lender or any of their Affiliates to or for the credit or the account of any Borrower against and on account of the Obligations of Borrowers arising under the Loan Documents to Agent, such Lender or any of their Affiliates, including all Loans and LC Obligations and all claims of any nature or description arising out of or in connection with this Agreement, irrespective of whether or not (i) Agent or such Lender shall have made any demand hereunder, (ii) Agent, at the request or with the consent of the Required Lenders, shall have declared the principal of and interest on the Loans and other amounts due hereunder to be due and payable as permitted by this Agreement and even though such Obligations may be contingent or unmatured or (iii) the Collateral for the Obligations is adequate. Notwithstanding the foregoing, each of Agent and Lenders agree with each other that it shall not, without the express consent of the Required Lenders, and that it shall (to the extent that it is lawfully entitled to do so) upon the request of the Required Lenders, exercise its setoff rights hereunder against any accounts of any Borrower now or hereafter maintained with Agent, such Lender or any Affiliate of any of them, but no Borrower shall have any claim or cause of action against Agent or any Lender for any setoff made without the consent of the Required Lenders and the validity of any such setoff shall not be impaired by the absence of such consent. If any party (or its Affiliate) exercises the right of setoff provided for hereunder, such party shall be obligated to share any such setoff in the manner and to the extent required by Section 13.5. 12.5   Remedies Cumulative; No Waiver. 12.5.1.   All covenants, conditions, provisions, warranties, guaranties, indemnities, and other undertakings of Borrowers contained in this Agreement, the other Loan Documents, or any other agreement between Agent or any Lender and any Obligor, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements of Borrowers herein contained. The rights and remedies of Agent and Lenders under this Agreement and the other Loan Documents shall be cumulative and not exclusive of any rights or remedies that Agent or any Lender would otherwise have. 12.5.2.   The failure or delay of Agent or any Lender to require strict performance by Borrowers of any provision of any of the Loan Documents or to exercise or enforce any rights, Liens, powers or remedies under any of the Loan Documents or with respect to any Collateral shall not operate as a waiver of such performance, Liens, rights, powers and remedies, but all such requirements, Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and all other Obligations owing or to become owing from Borrowers to Agent and Lenders shall have been fully satisfied. None of the undertakings, agreements, warranties, covenants and representations of Borrowers contained in this Agreement or any of the other Loan Documents and no Event of Default shall be deemed to have been suspended or waived by Agent or any Lender, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Agent or such Lender and directed to Borrowers. 12.5.3.   If Agent or any Lender shall accept performance by a Borrower, in whole or in part, of any obligation that such Borrower is required by any of the Loan Documents to perform only when a Default or Event of Default exists, or if Agent or any Lender shall exercise any right or remedy under any of the Loan Documents that may not be exercised other than when a Default or Event of Default exists, Agent's or Lender's acceptance of such performance by a Borrower or Agent's or Lender's exercise of any such right or remedy shall not operate to waive any such Event of Default or to preclude the exercise by Agent or any Lender of any other right or remedy, unless otherwise expressly agreed in writing by Agent or such Lender, as the case may be. section 13   AGENT 13.1   Appointment, Authority and Duties of Agent. 13.1.1.   Each Lender hereby irrevocably appoints and designates BofA as Agent to act as herein specified. Agent may, and each Lender by its acceptance of a Note and becoming a party to this Agreement shall be deemed irrevocably to have authorized Agent to, enter into all Loan Documents to which Agent is or is intended to be a party and all amendments hereto and all Security Documents at any time executed by any Obligor, for its benefit and the Pro Rata benefit of Lenders and, except as otherwise provided in this Section 13, to exercise such rights and powers under this Agreement and the other Loan Documents as are specifically delegated to Agent by the terms hereof and thereof, together with such other rights and powers as are reasonably incidental thereto. Each Lender agrees that any action taken by Agent or the Required Lenders in accordance with the provisions of this Agreement or the other Loan Documents, and the exercise by Agent or the Required Lenders of any of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all Lenders. Without limiting the generality of the foregoing, Agent shall have the sole and exclusive right and authority to (a) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection with this Agreement and the other Loan Documents; (b) execute and deliver as Agent each Loan Document and accept delivery of each such agreement by any Obligor or any other Person; (c) act as collateral agent for Secured Parties for purposes of the perfection of all security interests and Liens created by this Agreement or the Security Documents and, subject to the direction of the Required Lenders, for all other purposes stated therein, provided that Agent hereby appoints, authorizes and directs each Lender to act as a collateral sub-agent for Agent and the other Lenders for purposes of the perfection of all security interests and Liens with respect to a Borrower's Deposit Accounts maintained with, and all cash and Cash Equivalents held by, such Lender; (d) subject to the direction of the Required Lenders, manage, supervise or otherwise deal with the Collateral; and (e) except as may be otherwise specifically restricted by the terms of this Agreement and subject to the direction of the Required Lenders, exercise all remedies given to Agent with respect to any of the Collateral under the Loan Documents relating thereto and Applicable Law. The duties of Agent shall be ministerial and administrative in nature, and Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship with any Lender (or any Lender's participants). Unless and until its authority to do so is revoked in writing by Required Lenders, Agent alone shall be authorized to determine whether any Accounts or Inventory constitute Eligible Accounts or Eligible Inventory (basing such determination in each case upon the meanings given to such terms in Section 1), or whether to impose or release any reserve, and to exercise its own credit judgment in connection therewith, which determinations and judgments, if exercised in good faith, shall exonerate Agent from any liability to Lenders or any other Person for any errors in judgment. 13.1.2.   Agent (which term, as used in this sentence, shall include reference to Agent's officers, directors, employees, attorneys, agents and Affiliates and to the officers, directors, employees, attorneys and agents of Agent's Affiliates) shall not: (a) have any duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents or (b) be required to take, initiate or conduct any Enforcement Action (including any litigation, foreclosure or collection proceedings hereunder or under any of the other Loan Documents) except to the extent directed to do so by the Required Lenders during the continuance of any Event of Default. The conferral upon Agent of any right hereunder shall not imply a duty on Agent's part to exercise any such right unless instructed to do so by the Required Lenders in accordance with this Agreement. 13.1.3.   Agent may perform any of its duties by or through its agents and employees and may employ one or more Agent Professionals and shall not be responsible for the negligence or misconduct of any such Agent Professionals selected by it with reasonable care. Each Lender agrees promptly to pay to Agent, on demand, such Lender's Pro Rata share of any such reimbursement for expenses (including Extraordinary Expenses) that is not timely made by Borrowers to Agent. 13.1.4.   The rights, remedies, powers and privileges conferred upon Agent hereunder and under the other Loan Documents may be exercised by Agent without the necessity of the joinder of any other parties unless otherwise required by Applicable Law. If Agent shall request instructions from the Required Lenders with respect to any act or action (including the failure to act) in connection with this Agreement or any of the other Loan Documents, Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from the Required Lenders; and Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting hereunder or under any of the Loan Documents pursuant to or in accordance with the instructions of the Required Lenders except for Agent's own gross negligence or willful misconduct in connection with any action taken by it. Notwithstanding anything to the contrary contained in this Agreement, Agent shall not be required to take any action that is in its opinion contrary to Applicable Law or the terms of any of the Loan Documents or that would in its reasonable opinion subject it or any of its officers, employees or directors to personal liability. 13.1.5.   Agent shall promptly, upon receipt thereof, forward to each Lender (i) copies of any significant written notices, reports, certificates and other information received by Agent from any Obligor and (ii) copies of the results of any field audits or other examinations made or prepared by or on behalf of Agent in accordance with Section 10.1.1 with respect to Borrowers or the Collateral (each, a "Report" and collectively, "Reports"). 13.2   Agreements Regarding Collateral and Examination Reports. 13.2.1.   Lenders hereby irrevocably authorize Agent to release any Lien with respect to any Collateral (i) upon the termination of the Commitments and Full Payment of the Obligations, (ii) that is the subject of an Asset Disposition which Borrower Representative certifies in writing to Agent is a Permitted Asset Disposition (and Agent may rely conclusively on any such certificate without further inquiry), (iii) other releases of Collateral the fair market value of which does not exceed, as to all such Collateral, the lesser of $10,000,000 or ten percent of the aggregate Commitments on such date, in the aggregate during any Fiscal Year, and (iv) with the written consent of all Lenders. Agent agrees to take action reasonably requested by Borrowers to evidence the release of its Lien on any assets sold or transferred pursuant to a Permitted Asset Disposition. Agent shall have no obligation whatsoever to any of the Lenders to assure that any of the Collateral exists or is owned by a Borrower or is cared for, protected or insured or has been encumbered, or that Agent's Liens have been properly, sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority or to exercise any duty of care with respect to any of the Collateral. 13.2.2.   Agent and Lenders each hereby appoints each other Lender as agent for the purpose of perfecting Liens (for the benefit of Secured Parties) in any Collateral that, in accordance with the UCC or any other Applicable Law, can be perfected only by possession. Should any Lender obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor, shall deliver such Collateral to Agent or otherwise deal with such Collateral in accordance with Agent's instructions. 13.2.3.   Each Lender agrees that neither BofA nor Agent makes any representation or warranty as to the accuracy or completeness of any Report and shall not be liable for any information contained in or omitted from any such Report; agrees that the Reports are not intended to be comprehensive audits or examinations and that BofA or Agent or any other Person performing any audit or examination will inspect only specific information regarding Obligations or the Collateral and will rely significantly upon Borrowers' books and records as well as upon representations of Borrowers' officers and employees; agrees to keep all Reports confidential and strictly for its internal use and not to distribute the Reports (or the contents thereof) to any Person (except to its Participants, attorneys, accountants and other Persons with whom such Lender has a confidential relationship) or use any Report in any other manner; and, without limiting the generality of any other indemnification contained herein, agrees to hold Agent and any other Person preparing a Report harmless from any action that the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any Loans or other credit accommodations that the indemnifying Lender has made or may make to Borrowers, or the indemnifying Lender's participation in, or its purchase of, a loan or loans of any Obligor, and to pay and protect, and indemnify, defend and hold Agent and each other such Person preparing a Report harmless from and against all claims, actions, proceedings, damages, costs, expenses and other amounts (including attorneys' fees) incurred by Agent and any such other Person preparing a Report as the direct or indirect result of any third parties who might obtain all or any part of any Report through the indemnifying Lender. 13.3.   Reliance By Agent . Agent shall be entitled to rely, and shall be fully protected in so relying, upon any certification, notice or other communication (including any thereof by telephone, telex, telegram, telecopier message or cable) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of Agent Professionals selected by Agent. Without limiting the generality of the foregoing, Agent may rely upon any Notice of Borrowing, LC Request, Notice of Conversion/Continuation or any similar notice or request believed by Agent to be genuine. As to any matters not expressly provided for by this Agreement or any of the other Loan Documents, Agent shall in all cases be fully protected in acting or refraining from acting hereunder and thereunder in accordance with the instructions of the Required Lenders, and such instructions of the Required Lenders and any action taken or failure to act pursuant thereto shall be binding upon Lenders. 13.4.   Action Upon Default . Agent shall not be deemed to have knowledge of the occurrence of a Default or an Event of Default unless it has received written notice from a Lender or any or all Borrowers specifying the occurrence and nature of such Default or Event of Default. If Agent shall receive such a notice of a Default or an Event of Default or shall otherwise acquire actual knowledge of any Default or Event of Default, Agent shall promptly notify Lenders in writing and Agent shall take such action and assert such rights under this Agreement and the other Loan Documents, or shall refrain from taking such action and asserting such rights, as the Required Lenders shall direct from time to time. If any Lender shall receive a notice of a Default or an Event of Default or shall otherwise acquire actual knowledge of any Default or Event of Default, such Lender shall promptly notify Agent and the other Lenders in writing. As provided in Section 13.3, Agent shall not be subject to any liability by reason of acting or refraining to act pursuant to any request of the Required Lenders except for its own willful misconduct or gross negligence in connection with any action taken by it. Before directing Agent to take or refrain from taking any action or asserting any rights or remedies under this Agreement and the other Loan Documents on account of any Event of Default, the Required Lenders shall consult with and seek the advice of (but without having to obtain the consent of) each other Lender, and promptly after directing Agent to take or refrain from taking any such action or asserting any such rights, the Required Lenders will so advise each other Lender of the action taken or refrained from being taken and, upon request of any Lender, will supply information concerning actions taken or not taken. In no event shall the Required Lenders, without the prior written consent of each Lender, direct Agent to accelerate and demand payment of the Loans held by one Lender without accelerating and demanding payment of all other Loans or to terminate the Commitments of one or more Lenders without terminating the Commitments of all Lenders. Each Lender agrees that, except as otherwise provided in any of the Loan Documents or with the written consent of Agent and the Required Lenders, it will not take any legal action or institute any action or proceeding against any Obligor with respect to any of the Obligations or Collateral or accelerate or otherwise enforce its portion of the Obligations. Without limiting the generality of the foregoing, none of Lenders may exercise any right that it might otherwise have under Applicable Law to credit bid at foreclosure sales, UCC sales or other similar sales or dispositions of any of the Collateral except as authorized by Agent and the Required Lenders. Notwithstanding anything to the contrary set forth in this Section 13.4 or elsewhere in this Agreement, each Lender shall be authorized to take such action to preserve or enforce its rights against any Obligor where a deadline or limitation period is otherwise applicable and would, absent the taken of specified action, bar the enforcement of Obligations held by such Lender against such Obligor, including the filing of proofs of claim in any Insolvency Proceeding. 13.5   Ratable Sharing . If any Lender shall obtain any payment or reduction (including any amounts received as adequate protection of a bank account deposit treated as cash collateral under the Bankruptcy Code) of any Obligation of Borrowers (whether voluntary, involuntary, through the exercise of any right of set-off or otherwise) in excess of its Pro Rata share of payments or reductions on account of such Obligations obtained by all of the Lenders, such Lender shall forthwith (i) notify the other Lenders and Agent of such receipt and (ii) purchase from the other Lenders such participations in the affected Obligations as shall be necessary to cause such purchasing Lender to share the excess payment or reduction, net of costs incurred in connection therewith, on a Pro Rata basis, provided that if all or any portion of such excess payment or reduction is thereafter recovered from such purchasing Lender or additional costs are incurred, the purchase shall be rescinded and the purchase price restored to the extent of such recovery or such additional costs, but without interest. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 13.5 may, to the fullest extent permitted by Applicable Law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Borrowers in the amount of such participation. 13.6.   Indemnification of Agent Indemnitees. 13.6.1.   Each Lender agrees to indemnify and defend the Agent Indemnitees (to the extent not reimbursed by Borrowers, but without limiting the indemnification obligations of Obligors under any of the Loan Documents), on a Pro Rata basis, and to hold each of the Agent Indemnitees harmless from and against, any and all Claims which may be imposed on, incurred by or asserted against any of the Agent Indemnitees in any way related to or arising out of any of the Loan Documents or referred to herein or therein or the transactions contemplated thereby (including the costs and expenses which Borrowers are obligated to pay under Section 15.2 or amounts Agent may be called upon to pay in connection with any lockbox or Dominion Account arrangement contemplated hereby or under any indemnity, guaranty or other assurance of payment or performance given by Agent pursuant to Section 3.4.2 or the enforcement of any of the terms of any Loan Documents. 13.6.2.   Without limiting the generality of the foregoing provisions of this Section 13.6, if Agent should be sued by any receiver, trustee in bankruptcy, debtor-in-possession or other Person on account of any alleged preference or fraudulent transfer received or alleged to have been received from any Borrower or any other Obligor as the result of any transaction under the Loan Documents, then in such event any monies paid by Agent in settlement or satisfaction of such suit, together with all Extraordinary Expenses incurred by Agent in the defense of same, shall be promptly reimbursed to Agent by Lenders to the extent of each Lender's Pro Rata share. 13.6.3.   Without limiting the generality of the foregoing provisions of this Section 13.6, if at any time (whether prior to or after the Commitment Termination Date) any action or proceeding shall be brought against any of the Agent Indemnitees by an Obligor or by any other Person claiming by, through or under an Obligor, to recover damages for any act taken or omitted by Agent under any of the Loan Documents or in the performance of any rights, powers or remedies of Agent against any Obligor, any Account Debtor, the Collateral or with respect to any Loans, or to obtain any other relief of any kind on account of any transaction involving any Agent Indemnitees under or in relation to any of the Loan Documents, each Lender agrees to indemnify, defend and hold the Agent Indemnitees harmless with respect thereto and to pay to the Agent Indemnitees such Lender's Pro Rata share of such amount as any of the Agent Indemnitees shall be required to pay by reason of a judgment, decree, or other order entered in such action or proceeding or by reason of any compromise or settlement agreed to by the Agent Indemnitees, including all interest and costs assessed against any of the Agent Indemnitees in defending or compromising such action, together with attorneys' fees and other legal expenses paid or incurred by the Agent Indemnitees in connection therewith; provided, however, that no Lender shall be liable to any Agent Indemnitee for any of the foregoing to the extent that they arise solely from the willful misconduct or gross negligence of such Agent Indemnitee. In Agent's discretion, Agent may also reserve for or satisfy any such judgment, decree or order from proceeds of Collateral prior to any distributions therefrom to or for the account of Lenders. 13.7   Limitation on Responsibilities of Agent . Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall have received further assurances to its satisfaction from Lenders of their indemnification obligations under Section 13.6 against any and all indemnified Claims which may be incurred by Agent by reason of taking or continuing to take any such action. Agent shall not be liable to Lenders for any action taken or omitted to be taken under or in connection with this Agreement or the other Loan Documents except as a result and to the extent of losses caused by the Agent's actual gross negligence or willful misconduct. Agent does not assume any responsibility for any failure or delay in performance or breach by any Obligor or any Lender of its obligations under this Agreement or any of the other Loan Documents. Agent does not make to Lenders, and no Lender makes to Agent or the other Lenders, any express or implied warranty, representation or guarantee with respect to the Obligations, the Collateral, the Loan Documents or any Obligor. Neither Agent nor any of its officers, directors, employees, attorneys or agents shall be responsible to Lenders, and no Lender nor any of its agents, attorneys or employees shall be responsible to Agent or the other Lenders, for: (i) any recitals, statements, information, representations or warranties contained in any of the Loan Documents or in any certificate or other document furnished pursuant to the terms hereof; (ii) the execution, validity, genuineness, effectiveness or enforceability of any of the Loan Documents; (iii) the genuineness, enforceability, collectibility, value, sufficiency, location or existence of any Collateral, or the validity, extent, perfection or priority of any Lien therein; (iv) the validity, enforceability or collectibility of any the Obligations; or (v) the assets, liabilities, financial condition, results of operations, business, creditworthiness or legal status of any Obligor or any Account Debtor. Neither Agent nor any of its officers, directors, employees, attorneys or agents shall have any obligation to any Lender to ascertain or inquire into the existence of any Default or Event of Default, the observance or performance by any Obligor of any of the duties or agreements of such Obligor under any of the Loan Documents or the satisfaction of any conditions precedent contained in any of the Loan Documents. Agent may consult with and employ legal counsel, accountants and other experts and shall be entitled to act upon, and shall be fully protected in any action taken in good faith reliance upon, any advice given by such experts. 13.8.   Successor Agent and Co-Agents. 13.8.1.   Subject to the appointment and acceptance of a successor Agent as provided below, Agent may resign at any time by giving at least 30 days written notice thereof to each Lender and Borrowers. Upon receipt of any notice of such resignation, the Required Lenders, after prior consultation with (but without having to obtain consent of) each Lender, shall have the right to appoint a successor Agent which shall be (i) a Lender, (ii) a United States based Affiliate of a Lender, or (iii) a commercial bank that is organized under the laws of the United States or of any State thereof and has a combined capital surplus of at least $200,000,000 and, provided no Event of Default then exists, is reasonably acceptable to Borrowers (and for purposes hereof, any successor to BofA shall be deemed acceptable to Borrowers). If no successor agent is appointed prior to the effective date of the resignation of Agent, then Agent may appoint, after consultation with Lenders and Borrower Representative, a successor agent from among Lenders. Upon the acceptance by a successor Agent of an appointment to serve as Agent hereunder, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent without further act, deed or conveyance, and the retiring Agent shall be discharged from its duties and obligations hereunder but shall continue to enjoy the benefits of the indemnification set forth in Sections 13.6 and 15.2. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 13 (including the provisions of Section 13.6) shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. Notwithstanding anything to the contrary contained in this Agreement, any successor by merger or acquisition of the stock or assets of BofA shall continue to be Agent hereunder without further act on the part of the parties hereto unless such successor shall resign in accordance with the provisions hereof. 13.8.2.   It is the intent of the parties that there shall be no violation of any Applicable Law denying or restricting the right of financial institutions to transact business as agent or otherwise in any jurisdiction. In case of litigation under any of the Loan Documents, or in case Agent deems that by reason of present or future laws of any jurisdiction Agent might be prohibited from exercising any of the powers, rights or remedies granted to Agent or Lenders hereunder or under any of the Loan Documents or from holding title to or a Lien upon any Collateral or from taking any other action which may be necessary hereunder or under any of the Loan Documents, Agent may appoint an additional Person as a separate collateral agent or co-collateral agent which is not so prohibited from taking any of such actions or exercising any of such powers, rights or remedies. If Agent shall appoint an additional Person as a separate collateral agent or co-collateral agent as provided above, each and every remedy, power, right, claim, demand or cause of action intended by any of the Loan Documents to be exercised by or vested in or conveyed to Agent with respect thereto shall be exercisable by and vested in such separate collateral agent or co-collateral agent, but only to the extent necessary to enable such separate collateral agent or co-collateral agent to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate collateral agent or co-collateral agent shall run to and be enforceable by either of them. Should any instrument from Lenders be required by the separate collateral agent or co-collateral agent so appointed by Agent in order more fully and certainly to vest in and confirm to him or it such rights, powers, duties and obligations, any and all of such instruments shall, on request, be executed, acknowledged and delivered by Lenders whether or not a Default or Event of Default then exists. In case any separate collateral agent or co-collateral agent, or a successor to either, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, duties and obligations of such separate collateral agent or co-collateral agent, so far as permitted by Applicable Law, shall vest in and be exercised by the Agent until the appointment of a new collateral agent or successor to such separate collateral agent or co-collateral agent. 13.9.   Consents, Amendments and Waivers; Out-of-Formula Loans. 13.9.1.   No amendment or modification of any provision of this Agreement or any of the other Loan Documents, nor any waiver of any Default or Event of Default, shall be effective without the prior written agreement or consent of the Required Lenders; provided, however, that (i) without the prior written consent of Agent, no amendment or waiver shall be effective with respect to any provision in any of the Loan Documents (including Section 3.4 and this Section 13) to the extent such provision relates to the rights, duties, immunities, exculpation, indemnification or discretion of Agent; (ii) without the prior written consent of Issuing Bank, no amendment or waiver with respect to any of the LC Obligations or the provisions of Sections 2.3, 4.1.3 or 11.2.6 shall be effective; (iii) without the prior written consent of all Lenders (except a defaulting Lender as provided in Section 4.2) no amendment or waiver shall be effective that would: (a) release Collateral not required or permitted by Section 13.2.1 or any other Loan Document to be released; (b) extend the final maturity date of any Loan or the scheduled payment date of any installment of any Loan; (c) reduce the rate or extend the time of payment of interest thereon, or change the method of calculating interest thereon (other than any waiver of the Default Rate), or reduce or extend the time of payment of any fee payable to the Lenders hereunder; (d) reduce the principal amount of, or increase the amount of any Lender's Commitment; (e) amend, modify or waive any provision of this Section 13.9; (f) amend the Loan Agreement to increase the percentages set forth in the definition of "Borrowing Base" or change any of the definitions contained in the definition of "Borrowing Base"; (g) (i) subordinate the payment or performance of the Loans to any other Debt or (ii) subordinate the Lien of Agent in the Collateral to any other Lien in favor of another Person (except for those Permitted Liens that have priority as a matter of law or are permitted under Section 10.2.5(iv), (vii), (xiv) or (xvi)); and (h) amend the definitions of "Pro Rata" or "Required Lenders." The making of any Loans hereunder by any Lender during the existence of a Default or Event of Default shall not be deemed to constitute a waiver of such Default or Event of Default. Any waiver or consent granted by Lenders hereunder shall be effective only if in writing and then only in the specific instance and for the specific purpose for which it was given. 13.9.2.   No Borrower will, directly or indirectly, pay or cause to be paid any remuneration or other thing of value, whether by way of supplemental or additional interest, fee or otherwise, to any Lender (in its capacity as a Lender hereunder) as consideration for or as an inducement to the consent to or agreement by such Lender with any waiver or amendment of any of the terms and provisions of this Agreement or any of the other Loan Documents, unless such remuneration or thing of value is concurrently paid, on the same terms, on a Pro Rata or other mutually agreed upon basis to all Lenders; provided, however, that Borrowers may contract to pay a fee only to those Lenders who actually vote in writing to approve any waiver or amendment of the terms and provisions of this Agreement or any of the other Loan Documents to the extent that such waiver or amendment may be implemented by vote of the Required Lenders and such waiver or amendment is in fact approved. 13.9.3.   Any request, authority or consent of any Person who, at the time of making such request or giving such a authority or consent, is a Lender, shall be conclusive and binding upon any Transferee of such Lender. 13.9.4.   Unless otherwise directed in writing by the Required Lenders, Agent may require Lenders to honor requests by Borrowers for Out-of-Formula Loans (in which event, and notwithstanding anything to the contrary set forth in Section 2.1.1 or elsewhere in this Agreement, Lenders shall continue to make Revolver Loans up to their Pro Rata share of the Commitments) and to forbear from requiring Borrowers to cure an Out-of-Formula Condition, (1) when no Event of Default exists (or if an Event of Default exists, when the existence of such Event of Default is not known by Agent), if and for so long as (i) such Out-of-Formula Condition does not continue for a period of more than 15 consecutive days, following which no Out-of-Formula Condition exists for at least 15 consecutive days before another Out-of-Formula Condition exists (provided, however, that there shall not be more than 4 of such 15-day Out-of-Formula Condition periods during any single Loan Year), (ii) the amount of the Revolver Loans outstanding at any time does not exceed the aggregate of the Commitments at such time, and (iii) the Out-of-Formula Condition is not known by Agent at the time in question to exceed $10,000,000; and (2) regardless of whether or not an Event of Default exists, if Agent discovers the existence of an Out-of-Formula Condition not previously known by it to exist, but Lenders shall be obligated to continue making such Revolver Loans as directed by Agent only (A) if the amount of the Out-of-Formula Condition is not increased by more than $5,000,000 above the amount determined by Agent to exist on the date of discovery thereof and (B) for a period not to exceed 5 Business Days. In no event shall any Borrower or any other Obligor be deemed to be a beneficiary of this Section 13.9.4 or authorized to enforce any of the provisions of this Section 13.9.4. 13.10.   Due Diligence and Non-Reliance . Each Lender hereby acknowledges and represents that it has, independently and without reliance upon Agent or the other Lenders, and based upon such documents, information and analyses as it has deemed appropriate, made its own credit analysis of each Obligor and its own decision to enter into this Agreement and to fund the Loans to be made by it hereunder, issue Letters of Credit and purchase participations in the LC Obligations pursuant to Section 2.3.2, and each Lender has made such inquiries concerning the Loan Documents, the Collateral and each Obligor as such Lender feels necessary and appropriate, and has taken such care on its own behalf as would have been the case had it entered into the other Loan Documents without the intervention or participation of the other Lenders or Agent. Each Lender hereby further acknowledges and represents that the other Lenders and Agent have not made any representations or warranties to it concerning any Obligor, any of the Collateral or the legality, validity, sufficiency or enforceability of any of the Loan Documents. Each Lender also hereby acknowledges that it will, independently and without reliance upon the other Lenders or Agent, and based upon such financial statements, documents and information as it deems appropriate at the time, continue to make and rely upon its own credit decisions in making Loans and in taking or refraining to take any other action under this Agreement or any of the other Loan Documents. Except for notices, reports and other information expressly required to be furnished to Lenders by Agent hereunder, Agent shall not have any duty or responsibility to provide any Lender with any notices, reports or certificates furnished to Agent by any Obligor or any credit or other information concerning the affairs, financial condition, business or Properties of any Obligor (or any of its Affiliates) which may come into possession of Agent or any of Agent's Affiliates. 13.11   Representations and Warranties of Lenders. Each Lender represents and warrants to each Borrower, Agent and the other Lenders that it has the power to enter into and perform its obligations under this Agreement and the other Loan Documents, and that it has taken all necessary and appropriate action to authorize its execution and performance of this Agreement and the other Loan Documents to which it is a party, each of which will be binding upon it and the obligations imposed upon it herein or therein will be enforceable against it in accordance with the respective terms of such documents; and none of the consideration used by it to make or fund its Loans or to participate in any other transactions under this Agreement constitutes for any purpose of ERISA or Section 4975 of the Internal Revenue Code assets of any "plan" as defined in Section 3(3) of ERISA or Section 4975 of the Internal Revenue Code and the rights and interests of such Lender in and under the Loan Documents shall not constitute plan assets under ERISA. 13.12   The Required Lenders . As to any provisions of this Agreement or the other Loan Documents under which action may or is required to be taken upon direction or approval of the Required Lenders, the direction or approval of the Required Lenders shall be binding upon each Lender to the same extent and with the same effect as if each Lender joined therein. Notwithstanding anything to the contrary contained in this Agreement, Borrowers shall not be deemed to be a beneficiary of, or be entitled to enforce, sue upon or assert as a defense to any of the Obligations, any provisions of this Agreement that requires Agent or any Lender to act, or conditions their authority to act, upon the direction or consent of the Required Lenders; and any action taken by Agent or any Lender that requires the consent or direction of the Required Lenders as a condition to taking such action shall, insofar as Borrowers are concerned, be presumed to have been taken with the requisite consent or direction of the Required Lenders. 13.13.   Several Obligations . The obligations and Commitment of each Lender under this Agreement and the other Loan Documents are several and neither Agent nor any Lender shall be responsible for the performance by the other Lenders of its obligations or Commitment hereunder or thereunder. Notwithstanding any liability of Lenders stated to be joint and several to third Persons under any of the Loan Documents, such liability shall be shared, as among Lenders, Pro Rata. 13.14.   Agent in its Individual Capacity . With respect to its obligation to lend under this Agreement, the Loans made by it and each Note issued to it, Agent shall have the same rights and powers hereunder and under the other Loan Documents as any other Lender or holder of a Note and may exercise the same as though it were not performing the duties specified herein; and the terms "Lenders," "Required Lenders," or any similar term shall, unless the context clearly otherwise indicates, include Agent in its capacity as a Lender. Agent and its Affiliates may each accept deposits from, maintain deposits or credit balances for, invest in, lend money to, act as trustee under indentures of, serve as financial advisor to, and generally engage in any kind of business with any Borrower or any other Obligor, or any Affiliate of any Borrower or any other Obligor, as if it were any other bank and without any duty to account therefor (or for any fees or other consideration received in connection therewith) to the other Lenders. BofA or its Affiliates may receive information regarding any Borrower or any of such Borrower's Affiliates and Account Debtors (including information that may be subject to confidentiality obligations in favor of Borrowers or any of their Affiliates) and Lenders acknowledge that neither Agent nor BofA shall be under any obligation to provide such information to Lenders to the extent acquired by BofA in its individual capacity and not as Agent hereunder. 13.15.   No Third Party Beneficiaries . This Section 13 (except Sections 13.2.1 and 13.9) is not intended to confer any rights or benefits upon Borrowers or any other Person except Lenders and Agent, and no Person (including any Borrower) other than Lenders and Agent shall have any right to enforce any of the provisions of this Section 13 (except Sections 13.2.1 and 13.9) except as expressly provided in Section 13.17. As between Borrowers and Agent, any action that Agent may take or purport to take on behalf of Lenders under any of the Loan Documents shall be conclusively presumed to have been authorized and approved by Lenders as herein provided. 13.16.   Notice of Transfer . Agent may deem and treat a Lender party to this Agreement as the owner of such Lender's portion of the Revolver Loans for all purposes, unless and until a written notice of the assignment or transfer thereof executed by such Lender has been received by Agent. 13.17.   Replacement of Certain Lenders . If a Lender ("Affected Lender") shall have (i) failed to fund its Pro Rata share of any Loan requested (or deemed requested) by Borrowers which such Lender is obligated to fund under the terms of this Agreement and which such failure has not been cured, (ii) requested compensation from Borrowers under Section 3.7 to recover increased costs incurred by such Lender (or its parent or holding company) which are not being incurred generally by the other Lenders (or their respective parents or holding companies), (iii) delivered a notice pursuant to Section 3.6 claiming that such Lender is unable to extend LIBOR Loans to Borrowers for reasons not generally applicable to the other Lenders, (iv) defaulted in paying or performing any of its obligations to Agent, or (v) failed or refused to give its consent to any amendment, waiver or action for which consent of all of the Lenders is required and in respect of which the Required Lenders have consented, then, in any such case and in addition to any other rights and remedies that Agent, any other Lender or any Borrower may have against such Affected Lender, any Borrower or Agent may make written demand on such Affected Lender (with a copy to Agent in the case of a demand by Borrowers and a copy to Borrowers in the case of a demand by Agent) for the Affected Lender to assign, and such Affected Lender shall assign pursuant to one or more duly executed Assignment and Acceptances within 5 Business Days after the date of such demand, to one or more Lenders willing to accept such assignment or assignments, or to one or more Eligible Assignees designated by Agent, all of such Affected Lender's rights and obligations under this Agreement (including its Commitment and all Loans owing to it) in accordance with Section 14. Agent is hereby irrevocably authorized to execute one or more Assignment and Acceptances as attorney-in-fact for any Affected Lender which fails or refuses to execute and deliver the same within 5 Business Days after the date of such demand. The Affected Lender shall be entitled to receive, in cash and concurrently with execution and delivery of each such Assignment and Acceptance, all amounts owed to the Affected Lender hereunder or under any other Loan Document, including the aggregate outstanding principal amount of the Loans owed to such Lender, together with accrued interest thereon through the date of such assignment (but excluding any prepayment penalty or termination charge). Upon the replacement of any Affected Lender pursuant to this Section 13.17, such Affected Lender shall cease to have any participation in, entitlement to, or other right to share in the Liens of Agent in any Collateral and such Affected Lender shall have no further liability to Agent, any Lender or any other Person under any of the Loan Documents (except as provided in Section 13.6 as to events or transactions which occur prior to the replacement of such Affected Lender), including any commitment to make Loans or purchase participations in LC Obligations. Agent shall have the right at any time, but shall not be obligated to, upon written notice to any Lender and with the consent of such Lender (which may be granted or withheld in such Lender's discretion), to purchase for Agent's own account all of such Lender's right, title and interest in and to this Agreement, the other Loan Documents and the Obligations (together with such Lender's interest in the Commitments), for the face amount of the Obligations owed to such Lender (or such greater or lesser amount as Agent and such Lender may mutually agree upon). 13.18.   Remittance of Payments and Collections. 13.18.1.   All payments by any Lender to Agent shall be made not later than the time set forth elsewhere in this Agreement on the Business Day such payment is due; provided, however, that if such payment is due on demand by Agent and such demand is made on the paying Lender after 11:00 a.m. on such Business Day, then payment shall be made by 11:00 a.m. on the next Business Day. Payment by Agent to any Lender shall be made by wire transfer, promptly following Agent's receipt of funds for the account of such Lender and in the type of funds received by Agent; provided, however, that if Agent receives such funds at or prior to 12:00 noon, Agent shall pay such funds to such Lender by 2:00 p.m. on such Business Day, but if Agent receives such funds after 12:00 noon, Agent shall pay such funds to such Lender by 2:00 p.m. on the next Business Day. 13.18.2.   With respect to the payment of any funds from Agent to a Lender or from a Lender to Agent, the party failing to make full payment when due pursuant to the terms hereof shall, on demand by the other party, pay such amount together with interest thereon at the Federal Funds Rate. In no event shall Borrowers be entitled to receive any credit for any interest paid by Agent to any Lender, or by any Lender to Agent, at the Federal Funds Rate as provided herein. 13.18.3.   If Agent pays any amount to a Lender in the belief or expectation that a related payment has been or will be received by Agent from an Obligor and such related payment is not received by Agent, then Agent shall be entitled to recover such amount from each Lender that receives such amount. If Agent determines at any time that any amount received by it under this Agreement or any of the other Loan Documents must be returned to an Obligor or paid to any other Person pursuant to any Applicable Law, court order or otherwise, then, notwithstanding any other term or condition of this Agreement or any of the other Loan Documents, Agent shall not be required to distribute such amount to any Lender. 13.19.   Hedging Arrangements . Each Lender shall notify Agent if such Lender or any of its Affiliates enters into a Hedging Agreement with any Borrower within 5 Business Days after consummation of such transaction, and at Agent's request from time to time, shall provide such information as Agent may request regarding such Hedging Agreement, including a mark to market value on each hedging arrangement. If any Lender shall fail to notify Agent of its Hedging Agreement or if requested by Agent, its mark to market value on such hedging arrangement, then amounts owing to such Lender or its Affiliate under such Hedging Agreement shall be paid last in order under Section 5.6.1. SECTION 14.   BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS 14.1.   Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of Borrowers, Agent and Lenders and their respective successors and permitted assigns (which, in the case of Agent, shall include any successor Agent appointed pursuant to Section 13.8), except that (i) no Borrower shall  have the right to assign its rights or delegate performance of any of its obligations under any of the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 14.3. Agent may treat the Person which made any Loan or holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 14.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with Agent. Any assignee or transferee of any rights with respect to any Note or Loan agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of a Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 14.2.   Participations. 14.2.1.   Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with Applicable Law, at any time sell to one or more banks or other financial institutions (each a "Participant") a participating interest in any of the Obligations owing to such Lender, any Commitment of such Lender or any other interest of such Lender under any of the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of its Loans and Commitments for all purposes under the Loan Documents, all amounts payable by Borrowers under this Agreement and any of the Notes shall be determined as if such Lender had not sold such participating interests, and Borrowers and Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. If a Lender sells a participation to a Person other than an Affiliate of such Lender, then such Lender shall give prompt written notice thereof to Borrowers and Agent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 5.9 unless Borrowers consents to the participation sold to Participant and such Participant agrees, for the benefit of Borrowers, to comply with Section 5.10 as though such Participant were a Lender. 14.2.2.   Voting Rights . Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than an amendment, modification or waiver with respect to any Loans or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the stated interest rate or the stated rates at which fees are payable with respect to any such Loan or Commitment, postpones the Commitment Termination Date, or any date fixed for any regularly scheduled payment of interest or fees on such Loan or Commitment, or releases all or substantially all of the Collateral other than pursuant to a Permitted Asset Disposition or other transaction permitted under this Agreement. 14.2.3.   Benefit of Set-Off . Each Borrower agrees that each Participant shall be deemed to have the right of set-off provided in Section 12.4 in respect of its participating interest in amounts owing under the Loan Documents to the same extent and subject to the same requirements under this Agreement (including Section 13.5) as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of set-off provided in Section 12.4 with respect to the amount of participating interests sold to each Participant. Lenders agree to share with each Participant, and each Participant by exercising the right of set-off provided in Section 12.4 agrees to share with each Lender, any amount received pursuant to the exercise of its right of set-off, such amounts to be shared in accordance with Section 13.5 as if each Participant were a Lender. 14.2.4.   Notices . Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent that any such notice may be required, and neither Agent nor any other Lender shall have any obligation, duty or liability to any Participant of any other Lender. Without limiting the generality of the foregoing, neither Agent nor any Lender shall have any obligation to give notices or to provide documents or information to a Participant of another Lender. 14.3.   Assignments. 14.3.1.   Permitted Assignments . Subject to its compliance with Section 14.3.2, a Lender may, in accordance with Applicable Law, at any time assign to any Eligible Assignee all or any part of its rights and obligations under the Loan Documents, so long as (i) each assignment is of a constant, and not a varying, ratable percentage of all of the transferor Lender's rights and obligations under the Loan Documents with respect to the Loans and the LC Obligations and, in the case of a partial assignment, is in a minimum principal amount of $5,000,000 (unless otherwise agreed by Agent in its discretion) and integral multiples of $1,000,000in excess of that amount; (ii) except in the case of an assignment in whole of a Lender's rights and obligations under the Loan Documents or an assignment by one original signatory to this Agreement to another such signatory, immediately after giving effect to any assignment, the aggregate amount of the Commitments retained by the transferor Lender shall in no event be less than $5,000,000 (unless otherwise agreed by Agent in its discretion); and (iii) the parties to each such assignment shall execute and deliver to Agent, for its acceptance and recording, an Assignment and Acceptance. Nothing contained herein shall limit in any way the right of a Lender to pledge or assign all or any portion of its rights under this Agreement or with respect to any of the Obligations to (x) any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors and any Operating Circular issued by such Federal Reserve Bank, (y) direct or indirect contractual counterparties in swap agreements relating to the Loans, provided that any payment by Borrowers to the assigning Lender in respect of any assigned Obligations in accordance with the terms of this Agreement shall satisfy Borrowers' obligations hereunder in respect of such assigned Obligations to the extent of such payment, and no such assignment or pledge shall release the assigning Lender from its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party thereto. 14.3.2.   Effect; Effective Date. Upon (i) delivery to Agent of a notice of assignment substantially in the form attached as Exhibit I hereto, together with any consents required by Section 14.3.1, and (ii) payment of a $2,500 fee to the Agent for processing any assignment to an Eligible Assignee that is not an Affiliate of the transferor Lender, such assignment shall become effective on the effective date specified in such notice of assignment. The Assignment and Acceptance shall contain a representation and warranty by the Eligible Assignee that the assignment evidenced thereby will not result in a non-exempt "prohibited transaction" under Section 406 of ERISA. On and after the effective date of such assignment, such Eligible Assignee shall for all purposes be a Lender party to this Agreement and the other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents to the same extent as if it were an original party thereto, and no further consent or action by Borrowers, Lenders or Agent shall be required to release the transferor Lender with respect to the Commitment (or portion thereof) of such Lender and Obligations assigned to such Eligible Assignee. Without limiting the generality of the foregoing, such Eligible Assignee shall be subject to and bound by all of the Loan Documents. Upon the consummation of any assignment to an Eligible Assignee pursuant to this Section 14.3, the transferor Lender, Agent and Borrowers shall make appropriate arrangements so that replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Eligible Assignee, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. If the transferor Lender shall have assigned all of its interests, rights and obligations under this Agreement pursuant to Section 14.3.1, then (i) such transferor Lender shall no longer have any obligation to indemnify Agent with respect to any transactions, events or occurrences that transpire after the effective date of such assignment, (ii) each Eligible Assignee to which such transferor Lender shall make an assignment shall be responsible to Agent to indemnify Agent in accordance with this Agreement with respect to transactions, events and occurrences transpiring on and after the effective date of such assignment to it, and (iii) the transferor Lender shall continue to be entitled to the benefits of those provisions of the Loan Documents (including indemnities from Obligors) that survive Full Payment of the Obligations. 14.3.3.   Dissemination of Information . Each Borrower authorizes each Lender and Agent to disclose to any Participant, any Eligible Assignee or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee"), and any prospective Transferee, any and all information in Agent's or such Lender's possession concerning each Borrower, the Subsidiaries of each Borrower or the Collateral, subject to appropriate confidentiality undertakings on the part of such Transferee. 14.4.   Tax Treatment . If any interest in any Loan Document is transferred to any Transferee that is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 5.10. SECTION 15.   MISCELLANEOUS 15.1.   Power of Attorney . Each Borrower hereby irrevocably designates, makes, constitutes and appoints Agent (and all Persons designated by Agent) as such Borrower's true and lawful attorney (and agent-in-fact) and Agent, or Agent's designee, may, without notice to such Borrower and in either such Borrower's or Agent's name, but at the cost and expense of Borrowers: 15.1.1.   At such time or times as Agent or said designee, in its discretion, may determine, endorse such Borrower's name on any Payment Item or other proceeds of the Collateral (including proceeds of insurance) which come into the possession of Agent or under Agent's control. 15.1.2.   At any time that an Event of Default exists: (i) demand payment of the Accounts from the Account Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and generally exercise all of such Borrower's rights and remedies with respect to the collection of the Accounts; (ii) settle, adjust, compromise, discharge or release any of the Accounts or other Collateral or any legal proceedings brought to collect any of the Accounts or other Collateral; (iii) sell or assign any of the Accounts and other Collateral upon such terms, for such amounts and at such time or times as Agent deems advisable; (iv) take control, in any manner, of any item of payment or proceeds relating to any Collateral; (v) prepare, file and sign such Borrower's name to a proof of claim in bankruptcy or similar document against any Account Debtor or to any notice of Lien, assignment or satisfaction of Lien or similar document in connection with any of the Collateral; (vi) receive, open and dispose of all mail addressed to such Borrower and to notify postal authorities to change the address for delivery thereof to such address as Agent may designate; (vii) endorse the name of such Borrower upon any Payment Item relating to any Collateral and deposit the same to the account of Agent for application to the Obligations; (viii) endorse the name of such Borrower upon any Chattel Paper, Document, Instrument, invoice, freight bill, bill of lading or similar document or agreement relating to any Accounts or Inventory of any Obligor and any other Collateral; (ix) use such Borrower's stationery and sign the name of such Borrower to verifications of the Accounts and notices thereof to Account Debtors; (x) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to any Collateral; (xi) make and adjust claims under policies of insurance; (xii) sign the name of such Borrower to and file any proof of claim in an Insolvency Proceeding of any Account Debtor and on notices of Liens, claims of mechanic's Liens or assignments or releases of mechanic's Liens securing any Accounts; (xiii) take all action as may be necessary to obtain the payment of any letter of credit or banker's acceptance of which such Borrower is a beneficiary; and (xiv) do all other acts and things necessary, in Agent's determination, to fulfill such Borrower's obligations under any of the Loan Documents. 15.2.   General Indemnity . Whether or not any of the transactions contemplated by any of the Loan Documents are consummated, each Borrower agrees to indemnify and defend the Indemnitees and hold the Indemnitees harmless from and against any Claims that may be instituted or asserted against or are incurred by any of the Indemnitees. Without limiting the generality of the foregoing, this indemnity shall extend to any Claims instituted or asserted against or incurred by any of the Indemnitees (x) under any Environmental Laws or (y) under any Anti-Terrorism Laws, including any fines assessed against Agent or any Lender by any Governmental Authority as a result of conduct of an Obligor. Additionally, if any intangibles tax, stamp tax or recording tax shall be payable by any party on account of the execution or delivery of this Agreement, or the execution, delivery, issuance or recording of any of the other Loan Documents, or the creation or repayment of any of the Obligations hereunder, by reason of any Applicable Law now or hereafter in effect, Borrowers shall pay (and shall promptly reimburse Agent and Lenders for their payment of) all such amounts, including any interest and penalties thereon, and will indemnify and hold Indemnitees harmless from and against all liability in connection therewith. 15.3.   Survival of and Limitations Upon Indemnities . Notwithstanding anything to the contrary in this Agreement or any of the other Loan Documents, the obligation of each Borrower and each Lender with respect to each indemnity given by it in this Agreement any shall survive the Full Payment of the Obligations, the termination of any of the Commitments and the resignation of Agent. Notwithstanding anything to the contrary contained in this Agreement, no party shall have any obligation under this Agreement to indemnify an Indemnitee with respect to any Claim to the extent that it is determined in a final, non-appealable judgment by a court of competent jurisdiction that such Claim resulted from the gross negligence or willful misconduct of such Indemnitee or which constitute indirect, special, consequential or punitive damages. 15.4.   Modification of Agreement . This Agreement may not be modified, altered or amended, except as provided in Section 13; provided, however, that no consent, written or otherwise, of Borrowers shall be necessary or required in connection with any amendment of any of the provisions of Sections 2.3.2, 4.1.3, 5.6, or 13 (other than Sections 13.2.1, 13.9 and 13.17), or any other provision of this Agreement that affects only the rights, duties and responsibilities of Lenders and Agent as among themselves so long as no such amendment imposes any additional obligations on Borrowers. 15.5.   Severability . Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision of this Agreement shall be prohibited by or 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 the remaining provisions of this Agreement. 15.6.   Cumulative Effect; Conflict of Terms . The provisions of the Other Agreements and the Security Documents are hereby made cumulative with the provisions of this Agreement. Without limiting the generality of the foregoing, the parties acknowledge that this Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters and that such limitations, tests and measures are cumulative and each must be performed, except as may be expressly stated to the contrary in this Agreement. Except as otherwise provided in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 15.7.   Counterparts; Facsimile Signatures . This Agreement and any amendments hereto 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 to be an original and all of which counterparts taken together shall constitute but one and the same instrument. Loan Documents may be executed by facsimile and the effectiveness of any such Loan Documents and signatures thereon shall, subject to Applicable Law, have the same force and effect as manually signed originals and shall be binding on all parties thereto. Agent may require that any such documents and signatures be confirmed by a manually-signed original thereof, provided that the failure to request or deliver the same shall not limit the effectiveness of any facsimile signature. 15.8.   Consent . Whenever the consent of Agent or Lenders (or any combination of Lenders) is required to be obtained under this Agreement or any of the other Loan Documents as a condition to any action, inaction, condition or event, each party whose consent is required shall be authorized to give or withhold its consent in its discretion and to condition its consent upon the giving of additional collateral security for the Obligations, the payment of money or any other matter. 15.9.   Notices and Communications. 15.9.1.   Except as otherwise provided in Section 4.1.5, all notices, requests and other communications to or upon a party hereto shall be in writing (including facsimile transmission or similar writing) and shall be given to such party at the address or facsimile number for such party on the signature pages hereof (or, in the case of a Person who becomes a Lender after the date hereof, at the address shown on the applicable Assignment and Acceptance by which such Person became a Lender) or at such other address or facsimile number as such party may hereafter specify for the purpose by notice to Agent and Borrowers in accordance with the provisions of this Section 15.9. 15.9.2.   Except as otherwise provided in Section 4.1.5, each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified herein for the noticed party and confirmation of receipt is received, (ii) if given by mail, 3 Business Days after such communication is deposited in the U.S. Mail, with first-class postage pre-paid, addressed to the noticed party at the address specified herein, or (iii) if given by personal delivery, when duly delivered with receipt acknowledged in writing by the noticed party. In no event shall a voicemail message be effective as a notice, communication or confirmation under any of the Loan Documents. Notwithstanding the foregoing, no notice to or upon Agent, Issuing Bank or BofA pursuant to Sections 2.3, 3.1.2, 4.1 or 6.2.2 shall be effective until after actually received by the individual to whose attention at Agent such notice is required to be sent. Any written notice, request or demand that is not sent in conformity with the provisions hereof shall nevertheless be effective on the date that such notice, request or demand is actually received by the individual to whose attention at the noticed party such notice, request or demand is required to be sent. Any notice received by Borrower Representative shall be deemed to have been received by all Borrowers. 15.9.3.   Electronic mail and (with the permission of the noticed party) intranet websites may be used only to distribute routine communications, such as financial statements, Borrowing Base Certificates and other information required by Sections 10.1.2 and 10.1.3, and to distribute Loan Documents for execution by the parties thereto, and may not be used for any other purpose as effective notice under this Agreement or any of the other Loan Documents. Agent and Lenders shall be authorized to rely and act upon any notices (including telephonic communications) purportedly given by or on behalf of any Borrower even if such notices were made in a manner other than as specified herein, were incomplete or were not preceded or followed by any other form of notice specified or required herein, or the terms thereof, as understood by the recipient, varied from any confirmation thereof. Borrowers jointly and severally agree to indemnify and defend each Indemnitee from all losses, costs, expenses and liabilities resulting from the reliance by any such Indemnitee on each telephone communication purportedly given by or on behalf of any Borrower. 15.10.   Performance of Borrowers' Obligations . If any Borrower shall fail to discharge any covenant, duty or obligation hereunder or under any of the other Loan Documents, Agent may, in its discretion at any time or from time to time, for such Borrower's account and at Borrowers' expense, pay any amount or do any act required of Borrowers hereunder or under any of the other Loan Documents or otherwise lawfully requested by Agent to (i) enforce any of the Loan Documents or collect any of the Obligations, (ii) preserve, protect, insure or maintain or realize upon any of the Collateral, or (iii) preserve, defend, protect or maintain the validity or priority of Agent's Liens in any of the Collateral, including the payment of any judgment against any Borrower, any insurance premium, any warehouse charge, any finishing or processing charge, any landlord claim, any other Lien upon or with respect to any of the Collateral (whether or not a Permitted Lien). All payments that Agent may make under this Section and all out-of-pocket costs and expenses (including Extraordinary Expenses) that Agent pays or incurs in connection with any action taken by it hereunder shall be reimbursed to Agent by Borrowers, on demand, with interest from the date such payment is made or such costs or expenses are incurred to the date of payment thereof at the Default Rate applicable for Revolver Loans that are Base Rate Loans. Any payment made or other action taken by Agent under this Section shall be without prejudice to any right to assert, and without waiver of, an Event of Default hereunder and to without prejudice to Agent's right proceed thereafter as provided herein or in any of the other Loan Documents. 15.11.   Credit Inquiries . Each Borrower hereby authorizes and permits Agent and Lenders (but Agent and Lenders shall have no obligation) to respond to usual and customary credit inquiries from third parties concerning such Borrower or any of its Subsidiaries. 15.12.   Time of Essence . Time is of the essence of this Agreement, the Other Agreements and the Security Documents. 15.13.   Indulgences Not Waivers . Agent's or any Lender's failure at any time or times hereafter, to require strict performance by Borrowers of any provision of this Agreement shall not waive, affect or diminish any right of Agent or any Lender thereafter to demand strict compliance and performance therewith. 15.14.   Entire Agreement; Exhibits and Schedules . This Agreement and the other Loan Documents, together with all other instruments, agreements and certificates executed by the parties pursuant to any Loan Document, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written, regarding the same subject matter. Each of the Exhibits and each of the Schedules attached hereto are incorporated into this Agreement and by this reference made a part hereof. 15.15.   Interpretation . No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having, or being deemed to have, structured, drafted or dictated such provision. The paragraph and section headings are for convenience of reference only and shall not affect the substantive meaning of any provision of this Agreement. 15.16.   Obligations of Lenders Several . The obligations of each Lender hereunder are several, and no Lender shall be responsible for the obligations or Commitment of any other Lender. Nothing contained in this Agreement and no action taken by Lenders pursuant hereto shall be deemed to constitute Lenders to be a partnership, association, joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled, to the extent not otherwise restricted hereunder, to protect and enforce its rights arising out of this Agreement and any of the other Loan Documents and it shall not be necessary for Agent or any other Lender to be joined as an additional party in any proceeding for such purpose. 15.17.   Confidentiality . Agent and Lenders each agrees to take normal and reasonable precautions to maintain the confidentiality of any information that is delivered or made available by Borrowers to it (including information made available to Agent or any Lender in connection with a visit or investigation by any Person contemplated in Section 10.1.1), for a period of 24 months following the Commitment Termination Date, except that Agent and any Lender may disclose such information (i) to their respective Affiliates and individuals employed or retained by Agent or such Lender who are or are expected to become engaged in evaluating, approving, structuring, administering or otherwise giving professional advice with respect to any of the Loans or Collateral, including any of their respective legal counsel, auditors or other professional advisors; (ii) to any party to this Agreement from time to time or any Participant, (iii) pursuant the order of any court or administrative agency, (iv) upon the request or demand of any regulatory agency or other Governmental Authority having jurisdiction over Agent or such Lender or in accordance with Agent's or Lender's regulatory compliance policies, (v) which has ceased to be confidential other than by an act or omission of Agent or any Lender except as permitted herein or which becomes available to Agent or any Lender on a nonconfidential basis from a source other than Obligors, (vi) to the extent reasonably required in connection with any litigation (with respect to any of the Loan Documents or any of the transactions contemplated thereby) to which Agent, any Lender or their respective Affiliates may be a party, (vii) to the extent reasonably required in connection with the exercise of any remedies hereunder, (viii) to any actual or proposed Participant, Assignee, counterparty or advisors to any swap or derivative transactions relating to Obligors and the Obligations, or any other Transferee of all or part of a Lender's rights hereunder so long as such Person has agreed in writing to be bound by the provisions of this Section, (ix) to the National Association of Insurance Commissioners or any similar organization or to any nationally recognized rating agency that requires access to information about a Lender's portfolio in connection with ratings issued with respect to such Lender, (x) to the extent required (on the advice of Agent's or such Lender's counsel) by Applicable Law, or (xi) with the consent of Borrowers. 15.18.   Certifications Regarding Indentures. Each Borrower hereby certifies to Agent and Lenders that neither the execution or performance of this Agreement by Borrowers nor the incurrence of any Debt pursuant to the terms of this Agreement or any of the other Loan Documents violates any of the Senior Note Documents or Convertible Note Documents. Each Borrower further certifies to Agent and Lenders that all Loans collectively constitute "Senior Indebtedness" under each of the Senior Note Documents and Convertible Note Documents. 15.19.   Governing Law. This Agreement has been negotiated, executed and delivered, and shall be deemed to have been made, in New York, New York and shall be governed by and construed in accordance with the internal laws (but without regard to conflict of law principles) of the State of New York, New York, but giving effect to federal laws relating to national banks. 15.20.   Consent to Forum; Arbitration. Each Borrower hereby consents to the non-exclusive jurisdiction of any United States federal court sitting in or with direct or indirect jurisdiction over the Southern District of New York or in any New York state or superior court sitting in New York County, New York, in any action, suit or other proceeding arising out of or relating to this Agreement or any of the other Loan Documents and each Borrower irrevocably agrees that all claims and demands in respect of any such action, suit 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 action, suit or proceeding brought in any such court or that such court is an inconvenient forum. Nothing herein shall limit the right of Agent or any Lender to bring proceedings against any Borrower or with respect to any Collateral in the courts of any other jurisdiction. Any judicial proceeding commenced by any Borrower against Agent, BofA, any Lender or any holder of any of the Obligations, or any Affiliate of Agent, BofA, any Lender or any holder of any Obligations, 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 United States federal court sitting in or with direct jurisdiction over the Southern District of New York, or in any New York state or superior court sitting in New York County, New York. Nothing in this Agreement shall be deemed to preclude the enforcement by Agent of any judgment or order obtained in such forum or the taking of any action under this Agreement to enforce same in any other appropriate forum or jurisdiction. 15.21.   No Fiduciary Obligation . Each Borrower acknowledges and agrees that in connection with all aspects of each transaction contemplated by this Agreement, Borrowers and BofA and any Affiliate through which BofA may be acting, including, Banc of America Securities LLC (each, a "Transaction Affiliate") have an arms-length business relationship that creates no fiduciary duty on the part of BofA or any Transaction Affiliate and each Borrower expressly disclaims any fiduciary relationship. 15.22.   Quebec Collateral For the purposes of creating a solidarité active in accordance with Article 1541 of the Civil Code of Québec between each Lender, taken individually, on the one hand, and the Agent, on the other hand, each Obligor granting a Lien (hypothec) to the Agent under the Civil Code of Quebec and each such Lender acknowledge and agree with the Agent that such Lender and the Agent are hereby conferred the legal status of solidary creditors of each such Obligor in respect of all indebtedness, liabilities and other obligations, present and future, owed by each such Obligor to the Agent and such Lender hereunder and under the other Loan Documents (collectively, the "Solidary Claim") and that, accordingly, but subject (for the avoidance of doubt) to Article 1542 of the Civil Code of Québec, each such Obligor is irrevocably bound towards the Agent and each Lender in respect of the entire Solidary Claim of the Agent and such Lender. As a result of the foregoing, the parties hereto acknowledge that the Agent and each Lender shall at all times have a valid and effective right of action for the entire Solidary Claim of the Agent and such Lender and the right to give full acquittance for it. Accordingly, and without limiting the generality of the foregoing, the Agent, as solidary creditor with each Lender, shall at all times have a valid and effective right of action in respect of the Solidary Claim and the right to give a full acquittance for same. By its execution of the Loan Documents to which it is a party, each such Obligor not a party hereto shall also be deemed to have accepted the stipulations hereinabove provided. The parties further agree and acknowledge that such Liens (hypothecs) under the Loan Documents shall be granted to the Agent, for its own benefit and for the benefit of the Lenders, as solidary creditor as hereinabove set forth. For purposes of any Collateral located in Quebec or charged by any deed of hypothec, "personal property" shall be deemed to include "movable property", "security interest" shall be deemed to include a "hypothec" and "UCC" shall be deemed to include "the Civil Code of Quebec". 15.23.   Waivers by Borrowers . To the fullest extent permitted by Applicable Law, each Borrower waives (i) the right to trial by jury (which Agent and each Lender hereby also waives) in any action, suit, proceeding or counterclaim of any kind arising out of or related to any of the Loan Documents, the Obligations or the Collateral; (ii) presentment, demand and protest and notice of presentment, protest, default, non payment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent on which such Borrower may in any way be liable and hereby ratifies and confirms whatever Agent may do in this regard; (iii) notice prior to taking possession or control of the Collateral or any bond or security which might be required by any court prior to allowing Agent to exercise any of Agent's remedies; (iv) the benefit of all valuation, appraisement and exemption laws; (v) any claim against Agent or any Lender, on any theory of liability, for special, indirect, consequential, exemplary or punitive damages (as opposed to direct or actual damages) in respect of any claim for breach of contract or any other theory of liability arising out of, or the taking of any Enforcement Action; or related to any of the Loan Documents, any transaction thereunder or the use of the proceeds of any Loans; and (vi) notice of acceptance hereof. Each Borrower acknowledges that the foregoing waivers are a material inducement to Agent's and Lender's entering into this Agreement and that Agent and Lenders are relying upon the foregoing waivers in its future dealings with Borrowers. Each Borrower warrants and represents that it has reviewed the foregoing waivers with its legal counsel and has knowingly and voluntarily waived its jury trial rights following consultation with legal counsel. In the event of litigation, this Agreement may be filed as a written consent to a trial by the Court. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on the day and year specified at the beginning of this Agreement.     ATTEST: /s/ Robert F. Wrobel Robert F. Wrobel Secretary   BORROWERS : ALPHARMA INC. By:    /s/ Matthew T. Farrell Matthew T. Farrell Title: Executive Vice President, Finance & Chief Financial Officer Address: One Executive Drive Fort Lee, NJ 07024 Attention: Chief Legal Officer Telecopier No.: (201) 592-1481   ATTEST: /s/ Robert F. Wrobel Robert F. Wrobel Secretary ALPHARMA OPERATING CORPORATION By: /s/ Matthew T. Farrell Matthew T. Farrell Title: President Address: One Executive Drive Fort Lee, NJ 07024 Attention: Chief Legal Officer Telecopier No.: (201) 592-1481 ATTEST: /s/ Robert F. Wrobel Robert F. Wrobel Secretary ALPHARMA USPD INC. By: /s/ Frederick J. Lynch Frederick J. Lynch Title: President & Chief Executive Officer Address: One Executive Drive Fort Lee, NJ 07024 Attention: Chief Legal Officer Telecopier No.: (201) 592-1481 ATTEST: /s/ Robert F. Wrobel Robert F. Wrobel Secretary Alpharma U.S. Inc. By: /s/ Matthew T. Farrell Matthew T. Farrell Title: President Address: One Executive Drive Fort Lee, NJ 07024 Attention: Chief Legal Officer Telecopier No.: (201) 592-1481   ATTEST: __/s/ Robert F. Wrobel _____________ Robert F. Wrobel Secretary G.F. Reilly Company By: /s/ Matthew T. Farrell Matthew T. Farrell Title: President & Chief Executive Officer Address: One Executive Drive Fort Lee, NJ 07024 Attention: Chief Legal Officer Telecopier No.: (201) 592-1481   ATTEST: ____/s/ Robert F. Wrobel ___________ Robert F. Wrobel Secretary Parmed Pharmaceuticals, Inc. By: /s/ Frederick J. Lynch Frederick J. Lynch Title: President & Chief Executive Officer Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481   ATTEST: _/s/ Christopher J.N. Towner_________ Christopher J.N. Towner Secretary Alpharma Euro Holdings Inc. By: /s/ Einar Thorstensen_________ Einar Thorstensen Title: President Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481   ATTEST: _/s/ Christopher J.N. Towner_________ Christopher J.N. Towner Secretary Alpharma (Bermuda) Inc. By: /s/ Einar Thorstensen_________ Einar Thorstensen Title: President Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481       ATTEST: _/s/ Christopher J.N. Towner_________ Christopher J.N. Towner Secretary Alpharma USHP Inc. By: By: __/s/ Einar Thorstensen_______ Einar Thorstensen Title: President Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481     ATTEST: ___/s/ Robert F. Wrobel _____________ Robert F. Wrobel Secretary Alpharma Animal Health Company By: /s/ Carol Wrenn ______ Carol Wrenn Title: President Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481   ATTEST: __/s/ Robert F. Wrobel ______________ Robert F. Wrobel Secretary Mikjan Corporation By: /s/ Matthew T. Farrell Matthew T. Farrell Title: President & Chief Executive Officer Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481   ATTEST: _/s/ Christopher J.N. Towner_________ Christopher J.N. Towner Secretary Alpharma Holdings Inc. By: /s/ Einar Thorstensen_________ Einar Thorstensen Title: President Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481         ATTEST: _/s/ Christopher J.N. Towner_________ Christopher J.N. Towner Secretary Alpharma Pharmaceuticals Inc. By: /s/ Einar Thorstensen_________ Einar Thorstensen Title: President Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481   ATTEST: __/s/ Robert F. Wrobel ______________ Robert F. Wrobel Secretary Purepac Pharmaceutical Holdings, Inc. By: ___/s/ Frederick J. Lynch_________ Frederick J. Lynch Title: President & Chief Executive Officer Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481     ATTEST: __/s/ Robert F. Wrobel ______________ Robert F. Wrobel Secretary Alpharma Branded Products Division Inc. By: /s/ Ronald Warner Ronald Warner Title: President & Chief Executive Officer Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481   ATTEST: ___/s/ Robert F. Wrobel _____________ Robert F. Wrobel Secretary Purepac Pharmaceutical Co. By: /s/ Frederick J. Lynch Frederick J. Lynch Title: President & Chief Executive Officer Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481       ATTEST: _/s/ Robert F. Wrobel_______________ Robert F. Wrobel Secretary Alpharma Investment Inc. By: /s/ Matthew T. Farrell Matthew T. Farrell Title: President & Chief Executive Officer Address: One Executive Drive Fort Lee, NJ 07024_________ Attention: Chief Legal Officer Telecopier No.: (201) 592-1481       Revolver Commitment: $175,000,000.00 Term Loan Commitment: $35,000,000.00 LENDER : BANK OF AMERICA, N.A. , as a Lender and Issuing Bank By: /s/ John M. Olsen Title: Vice President LIBOR Lending Office: Address: Suite 800, 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 Attention: Office Head Telecopier No.: (770) 859-2483   AGENT : BANK OF AMERICA, N.A. , As Agent By: /s/ John M. Olsen Title: Vice President Address: Suite 800, 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 Attention: Office Head Telecopier No.: (770) 859-2483  

EXHIBIT 10.1   FFE TRANSPORTATION SERVICES, INC. MANAGEMENT PHANTOM STOCK PLAN This Phantom Stock Plan (hereafter the “Plan”), entered into as of May 13, 1992 (the “Effective Date”), by FFE Transportation Services, Inc., a Delaware corporation (“FFE”) which is a wholly owned subsidiary of FFE, Inc. (“Industries”), a public Texas corporation, for the benefit of certain managers covered by the FFE Transportation Services, Inc., Executive and Management Bonus Program (the “Program”). RECITALS FFE has established the Program for the benefit of specified managers of FFE. In order to enhance the benefits to the managers under the Program, allow the managers to share in the growth of FFE through the appreciation in the value of the common stock of Industries, and to provide the managers with greater incentive to promote the growth of Industries shareholder value, FFE desires to establish a Management Phantom Stock Plan (the “Plan”) which will allow the managers to elect to acquire hypothetical (“Phantom”) shares in FFE. AGREEMENTS NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained in this Plan, FFE hereby agrees as follows: 1. Definitions. For the purposes of this Plan, the following terms shall have the meanings as set forth below:   (a) The term “Phantom Shares” shall mean the Phantom Shares at any time acquired by FFE for the benefit of the Participants, as the number thereof may be adjusted from time to time and held by FFE for the Participants pursuant to the terms of this Plan.     (b) The term “Participant” shall mean each manager designated on Exhibit A attached hereto and made a part hereof who is designated as eligible to receive benefits under the Program and this Plan.     (c) The term “Phantom Share Value” shall mean the value assigned to a Phantom Share as provided in this Plan.     (d) The term “Phantom Share” shall mean a fictitious share of the Stock which will carry with it certain rights and benefits as described more particularly herein but which will not entitle the holder thereof either to equity rights in FFE, Inc. or Industries or to any type of voting rights in FFE, Inc. or Industries.     (e) The term “Allocated Phantom Shares” shall mean all Phantom Shares acquired by FFE pursuant to the terms of this Plan and held and allocated by FFE for the benefit of the Participants as herein provided.     (f) The term “Participant’s Allocated Phantom Shares” shall mean the allocated Phantom Shares allocated by FFE to a specific Participant’s account as provided in the Plan.     (g) The term “Stockholder” shall mean the party or parties who own Stock on the date of this Agreement.     (h) The term “Stock” shall mean all of the issued and outstanding shares of common stock of Industries and shall not include any Phantom Shares.     (i) The term “Triggering Event” shall mean any of the events provided for in Section 6, the occurrence of which shall give rise to an obligation or right of FFE to such Participant of the Phantom Share Value of Participant’s Allocated Phantom Shares.     (j) The term “Disability” shall mean any condition which causes the Participant to fail to devote his full time and reasonable best efforts to the performance of his duties and responsibilities for a period of in excess of ninety (90) consecutive days.     (k) The term “Employee’s Relative Percentage” shall mean at any point in time the fraction, expressed as a percentage, in which the numerator is the number of the Employee’s allocated Phantom Shares at such time and the denominator is the sum of the total number of shares of issued and outstanding Stock at such point in time plus the total number of allocated Phantom Shares at such point in time.     (l) The term “Election Period” shall mean the period of December 1 to December 15 inclusive for each year.     2. Purchase of Phantom Shares     (a) Pursuant to the terms of the Program, each Participant in this Plan shall be entitled to an incentive bonus calculated pursuant to the formula shown on Exhibit B attached to this Plan Agreement. On or before December 15 of each calendar year, each Participant may elect to defer up to 50% of their incentive bonus for that year, which deferred amount shall be applied to the acquisition of Phantom Shares. FFE shall acquire and hold, for the benefit of each Participant, the Phantom Shares acquired for the benefit of that Participant with the deferred amount. The number Phantom Shares to be acquired for any Participant shall be equal to the amount of the Participant’s deferral amount divided by the applicable Phantom Share Value.     (b) For the purpose of Section 2(a) above, the applicable Phantom Share Value shall mean the price of a share of Stock as quoted on the American Stock Exchange as of the last business day of that calendar year for which the Participant’s deferral election was effective.     (c) Each Phantom Share acquired for the benefit of a Participant shall be allocated to individual Participant accounts and held and maintained by FFE as an Allocated Phantom Share for the benefit of the Participant.     3. Adjustment to Number of Phantom Shares     (a) For the purpose of this Agreement, the number of the Participant’s Allocated Phantom Shares shall be the number of Phantom Shares acquired for the benefit of a Participant and held and maintained by FFE for such Participant as provided in Section 2 above, as said number may be adjusted from time to time in accordance with the provisions of this Section 3.     (b) In case Industries shall (i) declare a dividend or make a distribution on the outstanding shares of Stock in additional shares of Stock, (ii) subdivide or reclassify the outstanding shares of Stock into a greater number of shares of Stock, or (iii) combine or reclassify the outstanding shares of Stock into a lesser number of shares of Stock, the number of Participant’s Allocated Phantom Shares shall be adjusted immediately after the record date for such dividend or distribution of the effective date of such subdivision, combination or reclassification, so that such number is increased or decreased by multiplying such number as it existed immediately before such record date or effective date by a fraction, the numerator of which shall be the number of shares of Stock outstanding immediately after such dividend, distribution, subdivision, combination or reclassification, and the denominator of which shall be the number of shares of Stock outstanding immediately before such dividend, distribution, subdivision, combination or reclassification. In the event of such an adjustment, FFE shall deliver to the Trustee notification of such adjustment.     (c) In case Industries shall issue rights or warrants to all holders of Stock entitling them to subscribe for or purchase shares of Stock at a price per share less than the Phantom Share Value of a Phantom Share, the number of the Participant’s Allocated Phantom Shares shall be increased by an amount equal to Participant’s Relative Percentage of total number of Bonus Shares (hereafter defined) acquired upon exercise of such rights or warrants. For the purposes hereof, Bonus Shares shall; mean the total number of shares of Stock purchased upon exercise of such rights or warrants less the number of shares of Stock which could have been purchased for the amount expended in exercise of such rights or warrants if such shares of Stock were purchased at a price per share equal to the Phantom Share Value of a Phantom Share.     (d) In case Industries shall sell or issue shares of Stock, other types of equity securities, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for other purchase shares of Stock or other types of equity securities, in any transaction other than those described above in this Section 3, the Participant shall not have any right by virtue of the Phantom Shares allocated to the Participant’s separate Plan account to purchase or acquire any such shares of Stock or other types of equity securities, or any such rights, options, warrants, or convertible or exchangeable securities containing the right to subscribe for, or purchase shares of Stock or other types of equity securities, and such sale or issuance shall not result in any adjustment in the number of Phantom Shares allocated to the Participant’s separate Plan account, notwithstanding that as a result of such sale or issuance Participant’s Relative Percentage may then or thereafter be reduced.     4. Other Dividends. In case Industries shall fix a record date for the making of a distribution to all holders of shares of Stock (i) of shares of any class of stock in Industries other than Stock (ii) of evidences of Industries indebtedness (iii) of assets (including cash dividends or distributions but excluding dividends or distributions referred to elsewhere in this Section 4 or Section 3 above) or (iv) of rights or warrants to acquire securities of Industries (excluding those rights or warrants referred to in Section 3 above) then, in each such case, each Participant shall be entitled to receive that number of shares of stock, evidences of indebtedness or rights or warrants, or that amount of assets, that is equal to the Participant’s Relative Percentage of the total number or amount distributed to all holders of Stock which shall then be allocated to the Participant’s separate Plan account.     5. Reorganization. In the case of any capital reorganization of Industries, other than pursuant to a transaction provided for in Sections 3 or 4 above, or the consolidation or merger of Industries with or into another corporation (other than a consolidation or merger in which Industries is the continuing corporation and which does not result in any reclassification of outstanding shares of Stock or the conversion of such outstanding shares of Stock into shares of other stock or other securities or property), or the sale of the property of Industries as an entirety or substantially as an entirety (collectively such transactions being hereafter referred to as a “Reorganization”), the Participant’s Allocated Phantom Shares shall convert into that number or amount of shares of the stock or other securities or cash or property which a holder of the Participant’s Relative Percentage of the Stock immediately prior to the consummation of the Reorganization would be entitled to receive upon consummation of such Reorganization. Upon such conversion , the Participant shall only have the rights with respect to such shares of stock or other securities or cash or property as do the other owners of holders thereof, and shall have no further rights, and FFE shall have no further duties or obligations, under this Agreement. FFE shall, upon or prior to the consummation of any such Reorganization of the successor corporation, or if Industries shall be the surviving corporation in any such Reorganization and is not the issuer of shares of stock or other securities or cash or property to be delivered to holders of shares of Stock outstanding at the consummation thereof, then such issuer, shall assume by written instrument the obligation to deliver to such shares of stock, securities, cash or other property as the Trustee shall be entitled to in accordance with the foregoing provisions.     6. Triggering Events. Upon the occurrence of any of the following events (“Triggering Events”) FFE shall have an obligation, at the election of the Participant, to terminate all rights of Participant under this Agreement by paying to the Participant the Phantom Share Value of Participant’s Allocated Phantom Shares with such amount to be allocated to the Participant’s separate Plan account:     (a) The termination of the Participant’s employment.     (b) The death of Participant becoming subject to a Disability.     (c) The participant’s written election, during an Election Period for a year to cash out any number or all of the Phantom Shares allocated to the Participant, excluding any Phantom Shares to be allocated for that year.     (d) Change in Control (as defined in Treasury regulations promulgated under Internal Revenue Code Section 280G) with respect to Industries.     However, with respect to an allocation of Phantom Shares, in no event can an Optional or Mandatory Triggering Event occur, earlier than the year following the year for which the allocation was made.     7. Payment of Phantom Share Value.     (a) In the event of the occurrence of a Triggering Event as described in Subsection 6(a), 6(c), or 6(d) above (an “Optional Triggering Event”), if Participant’s rights under this Agreement have not already been terminated, then FFE shall, unless the Participant elects in writing 30 days of the Optional Triggering Event, pay to the Participant, within thirty (30) days of the close of the calendar year in which the Optional Triggering Event occurs, the Phantom Share Value of the Participant’s Allocated Phantom Shares.  In the event of the occurrence of a Triggering Event described in Subsection 6(b) above (a “Mandatory Triggering Event”), if Participant’s rights under this Agreement have not been already terminated, then FFE shall have the obligation within thirty (30) days of the close of the calendar year in which the Mandatory Triggering Event occurs, to terminate all rights or Participant under this Agreement by paying to the Participant the Phantom Share Value Participant’s Allocated Phantom Shares.  In any event, such payment shall be made in a single lump sum.  For the purposes of this Subsection 7(a), the Phantom Share Value shall mean the price of a share of Stock as quoted on the American Stock Exchange as of the last business day of the calendar year in which the Optional Triggering Event occurs.     (b) FFE may, but is not required to, obtain and maintain a policy of disability buyout insurance with respect to Participant which insurance shall provide for benefits in such amounts as FFE may determine.  The proceeds of such policy shall be applied in discharge of FFE’s obligation to pay the Phantom Share Value of Participant’s Phantom Shares, in the event that the Participant becomes subject to Disability.  FFE may, but is not required to also obtain and maintain while this Agreement remains in effect, a term policy of life insurance on the life of Participant which shall provide for benefits in such amounts as FFE may determine.  The proceeds of such policy shall first be applied in discharge of FFE’s obligation to pay the Phantom Share Value of Participant’s Phantom Shares in the event of the death of Participant and thereafter, to the extent of any excess proceeds, may be retained by FFE.  In the event that the proceeds of such policy if any are less than the Phantom Share Value of Participant’s Phantom shares, or the Minimum Amount if appropriate as provided above, the shortfall shall be paid by FFE.  In circumstances where proceeds are payable under either such policy, the payment of the amount that FFE is to pay may be delayed pending FFE’s receipt of such proceeds.  Notwithstanding the foregoing, the obtaining of any such insurance policies shall be subject to the determination by insurance companies licensed by the laws of the State of Texas that participant is insurable at standard rates and Participant satisfying all conditions required to be satisfied by any insurer, including but not limited to a pre-insurance physical, prior to the issuance of any such policy.     (c) In the event that Industries consummates a Reorganization within six (6) months after the date that the participant elects to be paid or FFE becomes obligated (other than due to the death of Participant or Participant becoming subject to a Disability) to pay the Phantom Share Value of Participant’s Phantom Shares, and as a result of such Reorganization the holders of all of the Stock receive cash for such Stock, and if the amount of cash which a holder of Participant’s Relative Percentage of the Stock immediately prior to the consummation of such Reorganization would receive exceeds the amount which FFE is obligated to pay to Participant, then such amount shall be increased by the amount of such excess and such increase shall be paid by increasing the principal amount of FFE’s promissory note executed and delivered to Participant by the amount of such increase and by increasing each principal installment thereafter due on such note by an amount equal to the total of such increase divided by the number of such installments still due on such note.     8. Board Discretion.  In the event that FFE has cash, which if the Board of Directors of FFE determined to do so would be available for payment of dividends to shareholders of FFE, notwithstanding the source of such cash, it shall be at the sole discretion of the Board whether to apply such cash in payment of dividends or for some other purpose.  Without limiting the broad discretionary rights of the Board provided in the preceding sentence, subject to other obligations imposed on the Board by law or contract, the Board shall always be entitled to apply FFE’s cash in payment of obligations of FFE to third parties or to shareholders, and any payment by FFE of cash to shareholders in discharge of now existing or hereafter arising obligations of FFE shall not be deemed to be a dividend or other distribution to such shareholder giving rise to a right of Participant to receive a dividend or distribution hereunder.     9. Non Transferability.  Except as expressly provided herein, the Phantom Shares and/or any rights and benefits granted in this Agreement may not be transferred, assigned, pledged or hypothecated in any manner, by operation of law or otherwise, other than by will or by the laws of descent or distribution, and shall not be subject to execution, attachment or similar process.  Subject to such limitation, this Agreement shall insure to the benefit of and be binding upon the successors and assigns of the parties hereto, expressly provided, however, that the ability of Participant to assign its rights pursuant to this Agreement shall be limited pursuant to the terms hereof.     10. No Fiduciary Relationship.  The Boards of Directors and the Officers of FFE, Inc. and Industries shall have no duty to manage or operate in order to maximize the benefits granted to Participant hereunder, but rather shall have full discretionary power to make all management and operational decisions based on their determination of their respective best interest.  This Agreement shall not be construed to create a fiduciary relationship between such Boards or the Officers of FFE, Inc. and Industries and the Participant.     11. Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Texas.     12. Entire Agreement.  This Agreement embodies and constitutes the entire understanding between the parties with respect to the subject matter hereof and all prior or contemporaneous agreements, understandings, representations and statements (oral or written) are merged into this Agreement.  Neither this Agreement nor any provision herein may be waived, modified, amended, discharged or terminated except by an instrument in writing signed by the party against whom the enforcement of such waiver, modification, amendment, discharge of termination is sought, and then only to the extent set forth in such instrument.     13. No Employment Guarantee.  Nothing in the Plan or the Trust shall be construed as an employment contract or guarantee of continued employment with the Employer.  The rights of any Participant shall only be those as are expressly set forth in this Plan.     14. Captions.  The captions in this Agreement are inserted for convenience of reference only and in no way define, describe or limit the scope of intent of this Agreement or any of the provisions hereof.     15. Counterpart Execution.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute but one and the same instrument.     16. Severability.  If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provisions shall be fully severable and shall not invalidate the remaining provisions of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be effected by the illegal, invalid or unenforceable provision or by its severance from this agreement.     17. Taxes.  FFE shall be entitled to deduct from amounts payable or items distributable hereunder any sums required by federal, state, or local tax law to be withheld with respect to such payments or distributions.  FFE will advise Participant and of the existence of such tax and of the amount that FFE is required to withhold.  Prior to any distribution of non-cash items FFE will advise Participant and if any withholding is required out of such distribution and if required of FFE’s calculation and method of calculation of the amount to be withheld.     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first set forth above.   FFE TRANSPORTATION SERVICES, INC.                                                         By: /s/ Stoney M. Stubbs, Jr. Name: Stoney M. Stubbs, Jr. Title: Chairman of the Board           --------------------------------------------------------------------------------     EXHIBIT A   ELIGIBLE MANAGERS     --------------------------------------------------------------------------------   EXHIBIT B   INCENTIVE BONUS CALCULATION Operating Ratio   Group B VP's   Group B VP's       1989   Prop. 1990   1989   Prop. 1990   100.0+     -11 %   -11 %   -9 %   -9 % 99.9-96.1     0     0     0     0   96.0     11     7     9     6   95.5     13     11     10     7   95.0     14     13     11     9   94.5     15     15     12     11   94.0     16     17     13     13   93.5     17     19     14     15   93.0     18     20     15     16   92.5     19     21     16     17   92.0     20     23     17     18   91.5     20     25     18     20      

  CHANGE OF CONTROL AGREEMENT      THIS CHANGE OF CONTROL AGREEMENT (“Agreement”) between UNIFI, INC., a New York Corporation (the “Company”), and William L. Jasper (“Executive”) effective the 25th day of July, 2006 (the “Effective Date”). WITNESSETH:      WHEREAS, The Executive is the Vice President of Sales of the Company and is considered as an integral part of the Company’s management; and      WHEREAS, the Company’s Board of Directors (hereinafter sometimes referred to as the “Board”) considers the establishment and maintenance of a sound and vital management to be essential in protecting and enhancing the best interests of the Company and its Shareholders, recognizes that the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its Shareholders; and      WHEREAS, the Executive desires that in the event of any Change in Control he will continue to have the responsibility and status he has earned; and      WHEREAS, the Board has determined that it is appropriate to reinforce and encourage the continued attention and dedication of the Executive, as a member of the Company’s management, to his assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a Change in Control of the Company.      NOW, THEREFORE, in order to induce the Executive to remain in the employment of the Company and in consideration of the Executive agreeing to remain in the employment of the Company, subject to the terms and conditions set out below, the Company agrees it will pay such amount, as provided in Section 4 of this Agreement, to the Executive, if the Executive’s employment with the Company terminates under one of the circumstances described herein following a Change in Control of the Company, as herein defined.      Section 1. Term: This Agreement shall terminate, except to the extent that any obligation of the Company hereunder remains unpaid as of such time, upon the earliest of (i) November 1, 2008 if a Change in Control of the Company has not occurred within such period; (ii) the termination of the Executive’s employment with the Company based on Death, Disability (as defined in Section 3(b)), Retirement (as defined in Section 3(c)), Cause (as defined in Section 3(d)) or by the Executive other than for Good Reason (as defined in Section 3(e)); and (iii) two years from the date of a Change in Control of the Company if the Executive has not voluntarily terminated his employment for Good Reason as of such time. 1 --------------------------------------------------------------------------------        Section 2. Change in Control: No compensation shall be payable under this Agreement unless and until (a) there shall have been a Change in Control of the Company, while the Executive is still an employee of the Company and (b) the Executive’s employment by the Company thereafter shall have been terminated in accordance with Section 3. For purposes of this Agreement, a Change in Control of the Company shall be deemed to have occurred if:(i) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving legal entity or pursuant to which shares of the Company’s Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company’s Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving company immediately after the merger, or (y) 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 the Company; or (ii) the shareholders of the Company approved any plan or proposal for the liquidation or dissolution of the Company; or (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of twenty percent (20%) or more of the Company’s outstanding Common Stock; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire Board of Directors shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company’s Shareholders, of each new Director was approved by a vote of at least two-thirds of the Directors then still in office who were Directors at the beginning of the period.      Section 3. Termination Following Change in Control: (a) If a Change in Control of the Company shall have occurred while the Executive is still an employee of the Company, the Executive shall be entitled to the compensation provided in Section 4 upon the subsequent termination of the Executive’s employment with the Company by the Executive voluntarily for Good Reason or by the Company unless such termination by the Company is as a result of (i) the Executive’s Death, (ii) the Executive’s Disability (as defined in Section (3)(b) below); (iii) the Executive’s Retirement (as defined in Section 3(c) below); (iv) the Executive’s termination by the Company for Cause(as defined in Section 3(d) below); or (v) the Executive’s decision to terminate employment other than for Good Reason (as defined in Section 3(e) below).      (b) Disability: If, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from his duties with the Company on a full-time basis for one hundred twenty (120) consecutive days or a period of one hundred eighty (180) days within twelve (12) consecutive months (including days before and after the change of control) and within 30 days after written notice of termination is thereafter given by the Company the Executive shall not have returned to the full-time performance of the Executive’s duties, the Company may terminate this Agreement for “Disability.” 2 --------------------------------------------------------------------------------        (c) Retirement: The term “Retirement” as used in this Agreement shall mean termination in accordance with the Company’s retirement policy or any arrangement established with the consent of the Executive.      (d) Cause: The Company may terminate the Executive’s employment for Cause. For purposes of this Agreement only, the Company shall have “Cause” to terminate the Executive’s employment hereunder only on the basis of fraud, misappropriation or embezzlement on the part of the Executive or malfeasance or misfeasance by said Executive in performing the duties of his office, as determined by the Board. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been a meeting of the Board (after at least ten (10) days written notice to the Executive and an opportunity for the Executive to be heard before the Board), and the delivery to the Executive of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of said Board of Directors stating that in the good faith opinion of the Board the Executive was guilty of conduct set forth in the second sentence of this Section 3(d) and specifying the particulars thereof in detail.      (e) Good Reason: The Executive may terminate the Executive’s employment for Good Reason at any time during the term of this Agreement. For purposes of this Agreement “Good Reason” shall mean any of the following (without the Executive’s express written consent):      (i) the assignment to the Executive by the Company of duties inconsistent with the Executive’s position, duties, responsibilities and status with the Company immediately prior to a Change in Control of the Company; or a change in the Executive’s titles or offices as in effect immediately prior to a Change in Control of the Company; or any removal of the Executive from or any failure to reelect the Executive to any of the positions held prior to the Change of Control, except in connection with the termination of his employment for Disability, Retirement, or Cause, or as a result of the Executive’s Death; or by the Executive other than for Good Reason;      (ii) a reduction by the Company in the Executive’s base salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement or the Company’s failure to increase (within 12 months of the Executive’s last increase in base salary) the Executive’s base salary after a Change in Control of the Company in an amount which at least equals, on a percentage basis, the average percentage increase in base salary for all executive officers of the Company effected in the preceding 12 months;      (iii) any failure by the Company to continue in effect any benefit plan or arrangement (including, without limitation, the Company’s 401(k) Plan, group life insurance plan and medical, dental, accident and disability plans) in which the Executive is participating at the time of a Change in Control of the Company (or any 3 --------------------------------------------------------------------------------   other plans providing the Executive with substantially similar benefits) (hereinafter referred to as “Benefit Plans”), or the taking of any action by the Company which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under any such Benefit Plan or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of a Change in Control of the Company;      (iv) any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company (including, without limitation, Stock Option Plans or any other plan or arrangement to receive and exercise stock options, restricted stock or grants thereof) in which the Executive is participating at the time of a Change in Control of the Company (or plans or arrangements providing him with substantially similar benefits) (hereinafter referred to as “Securities Plans”) and the taking of any action by the Company which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under any such Securities Plan;      (v) any failure by the Company to continue in effect any bonus plan, automobile allowance plan, or other incentive payment plan in which the Executive is participating at the time of a Change in Control of the Company, or said Executive had participated in during the previous calendar year;      (vi) a relocation of the Company’s principal executive offices to a location outside of North Carolina, or the Executive’s relocation to any place other than the location at which the Executive performed the Executive’s duties prior to a Change in Control of the Company, except for required travel by the Executive on the Company’s business to an extent substantially consistent with the Executive’s business travel obligations at the time of a Change in Control of the Company;      (vii) any failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled at the time of a Change in Control of the Company;      (viii) any breach by the Company of any provision of this Agreement;      (ix) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or      (x) any purported termination of the Executive’s employment which is not made pursuant to a Notice of Termination satisfying the requirements of Section 3(f).      (f) Notice of Termination: Any termination by the Company pursuant to Section 3(b), 3(c) or 3(d) shall be communicated by a Notice of Termination. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of 4 --------------------------------------------------------------------------------   the Executive’s employment under the provision so indicated. For purposes of this Agreement, no such purported termination by the Company shall be effective without such Notice of Termination.      (g) Date of Termination: “Date of Termination” shall mean (a) if Executive’s employment is terminated by the Company for Disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive’s duties on a full-time basis during such 30 day period) or (b) if the Executive’s employment is terminated by the Company for any other reason, the date on which a Notice of Termination is given; provided that if within 30 days after any Notice of Termination is given to the Executive by the Company the Executive notifies the Company that a dispute exists concerning the termination, the Date of Termination shall be the date the dispute is finally determined, whether by mutual agreement by the parties or otherwise or (c) the date the Executive notifies the Company in writing that he is terminating his employment and setting forth the Good Reason (as defined in Section 3(e)).      Section 4. Severance Compensation upon Termination of Employment. If the Company shall terminate the Executive’s employment other than pursuant to Section 3(b), 3(c) or 3(d) or if the Executive shall voluntarily terminate his employment for Good Reason, then the Company shall pay to the Executive as severance pay an amount equal to 2.99 times the annualized aggregate annual compensation paid to the Executive by the Company or any of its subsidiaries during the five (5) calendar years (or the period of the Executive’s employment with the Company if the Executive has been employed with the Company for less than five calendar years) preceding the Change in Control of the Company in twenty-four equal monthly installments beginning on the regular payroll date for salaried employees of the Company in the month of the Executive’s Date of Termination; provided, however, that if the severance payment under this Section 4, either alone or together with other payments which the Executive has the right to receive from the Company, would constitute a “parachute payment” (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)), such severance payment shall be reduced to the largest amount as will result in no portion of the severance payment under this Section 4 being subject to the excise tax imposed by Section 4999 of the Code. The determination of any reduction in the lump sum severance payment under this Section 4 pursuant to the foregoing proviso shall be made by the Company’s Independent Certified Public Accountants, and their decision shall be conclusive and binding on the Company and the Executive.      Section 5. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights: (a) The Executive 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 Executive as the result of employment by another employer after the Date of Termination, or otherwise. 5 --------------------------------------------------------------------------------        (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive’s rights under any employment agreement or other contract, plan or employment arrangement with the Company.      (c) The Company shall, upon the termination of the Executive’s employment other than by Death, Disability (as defined in Section 3(b)), Retirement (as defined in Section 3(c)) or Cause (as defined in Section 3(d)), or the termination of the Executive’s employment by the Executive without Good Reason, maintain in full force and effect, for the Executive’s continued benefit until the earlier of (a) two years after the Date of Termination or (b) Executive’s commencement of full time employment with a new employer, all life insurance, medical, health and accident, and disability plans, programs or arrangements in which he was entitled to participate immediately prior to the Date of Termination, provided that his continued participation is possible under the general terms and provisions of such plans and programs. In the event the Executive is ineligible under the terms of such plans or programs to continue to be so covered, the Company shall provide substantially equivalent coverage through other sources.      (d) The Executive’s account and rights in and under any retirement benefit or incentive plans, shall remain subject to the terms and conditions of the respective plans as they existed at the time of the termination of the Executive’s employment.      Section 6. Successor to the Company: (a) The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement expressly, absolutely and unconditionally to 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. Any failure of the Company to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle the Executive to terminate the Executive’s employment for Good Reason. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement the Executive is employed by any corporation a majority of the voting securities of which is then owned by the Company, “Company” as used in Sections 3, 4 and 10 hereof shall in addition include such employer. In such event, the Company agrees that it shall pay or shall cause such employer to pay any amounts owed to the Executive pursuant to Section 4 hereof.      (b) If the Executive should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s legatee, or other designee or, if there be no 6 --------------------------------------------------------------------------------   such designee, to the Executive’s estate. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives or attorney-in-fact, executors or administrators, heirs, distributees and legatees.      Section 7. Notice: For purposes of this Agreement, notices and all other communications provided for in the 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, as follows: If to the Company: Unifi, Inc. P. O. Box 19109 Greensboro, NC 27419-9109 ATTENTION: General Counsel           (currently Charles F. McCoy) If to the Executive: Mr. William L. Jasper 404-B Fisher Park Circle Greensboro, NC 27401 or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.      Section 8. Miscellaneous: (a) The invalidity or unenforceability of any provisions 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.      (b) Any payment or delivery required under this Agreement shall be subject to all requirements of the law with regard to withholding (including FICA tax), filing, making of reports and the like, and Company shall use its best efforts to satisfy promptly all such requirements.      (c) Prior to the Change in Control of the Company, as herein defined, this Agreement shall terminate if Executive shall resign, retire, become permanently and totally disabled, or die. This Agreement shall also terminate if Executive’s employment as an executive officer of the Company shall have been terminated for any reason by the Board as constituted more than three (3) months prior to any Change in Control of the Company, as defined in Section 2 of this Agreement. 7 --------------------------------------------------------------------------------        Section 9. Legal Fees and Expenses: The Company shall pay all legal fees and expenses which the Executive may incur as a result of the Company’s contesting the validity, enforceability or the executive’s interpretation of, or determinations under, this Agreement. Section 10. Disclosure of Confidential Information. Executive agrees that:   (A)   During the term of this Agreement and for a period of five (5) years after his Date of Termination, he will not disclose or make available to any person or other entity any trade secrets, Confidential Information, or “know-how” relating to the Company’s, its affiliates’ and subsidiaries’, businesses without written authority from the Board, unless he is compelled to disclose it by judicial process.         Confidential Information - shall mean all information about the Company, its affiliates or subsidiaries, or relating to any of their products, services or any phase of their operations, not generally known to their Competitors or which is not public information, which Executive knows or acquired knowledge of during the term of his employment with the Company.     (B)   Documents — under no circumstances shall Executive remove from the Company’ offices any of the Company’s books, records, documents, files, computer discs or information, reports, presentations, customer lists, or any copies of such documents for use outside of his employment with the Company, except as specifically authorized in writing by the Board. Section 11. Non-Compete. Executive agrees that during the period of employment and for a period of two (2) years after his Date of Termination he will not, directly or indirectly:   (A)   Seek employment or consulting arrangements with or offer advice, suggestions, or input to any Competitor of the Company; or     (B)   Own any interest in, other than ownership of less than two percent (2%) of any class of stock of a publicly held corporation, manage, operate, control, be employed by, render advisory services to, act as a consultant to, participate in, assess or be connected with any Competitor of the Company, unless approved by the Board; or (C) Solicit, induce, or attempt to induce any past or current customer of the Company (a) to cease doing business in whole or in part with or through the Company; or (b) to do business with any other person, firm, partnership, corporation, or other entity which sales products or performs services materially similar to or competitive with those provided by the Company; or 8 --------------------------------------------------------------------------------   (D) Initiate, encourage or solicit for employment any person who is now employed or during the term of this Agreement becomes employed by the Company (or whose activities or services are dedicated to the Company). Competitor - shall mean any individual, partnership, joint venture, firm, corporation, limited liability company, business trust, association, trust or other enterprise (whether or not incorporated) engaged in the business of developing, producing, manufacturing, selling and/or distributing a product or providing services similar to any product produced or service provided by the Company, its affiliates or subsidiaries.      Section 12. Remedy for violation of Sections 10 and 11. The Executive acknowledges that the Company has no adequate remedy at law and will be irreparably harmed if the Executive breaches or threatens to breach the provisions of Sections 10 or 11 of this Agreement, and therefore, agrees that the Company shall be entitled to injunctive relief to prevent any breach or threatened breach of such Sections and that the Company shall be entitled to specific performance of the terms of such Sections in addition to any other legal or equitable remedy it may have. Nothing in this Agreement shall be construed as prohibiting the Company from pursuing any other remedies at law or in equity that it may have or any other rights that it may have under any other agreement.      13. Arbitration. Any dispute or controversy between the Company and the Executive, whether arising out of or relating to this Agreement, the breach of this Agreement, or otherwise, shall be settled by arbitration administered by the American Arbitration Association (“AAA”) in accordance with its Commercial Arbitration Rules then in effect, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Any arbitration shall be held before a single arbitrator who shall be selected by the mutual agreement of the Company and the Executive, unless the parties are unable to agree to an arbitrator, in which case, the arbitrator will be selected under the procedures of the AAA. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. However, either party may, without inconsistency with this arbitration provision, apply to any court having jurisdiction over such dispute relief until the arbitration award is rendered or the controversy is otherwise resolved. Except as necessary in court proceedings to enforce this arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party nor an arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of the Company and the Executive. The Company and the Executive acknowledge that this Agreement evidences a transaction involving interstate commerce. Notwithstanding any choice of law provision included in this Agreement, the United States Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision. The arbitration proceeding shall be conducted in Greensboro, North Carolina or such other location to which the parties may agree. The Company shall pay the costs of any arbitrator appointed hereunder. 9 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, Unifi, Inc. has caused this Agreement to be signed by an officer of the Company and a member of the Company’s Compensation Committee pursuant to resolutions duly adopted by the Board of Directors and its seal affixed hereto and the Executive has hereunto affixed his hand and seal effective as of the date first above written.                   UNIFI, INC.                       By:   /s/ CHARLES F. MCCOY   Charles F. McCoy             Vice President, Secretary &                  General Counsel                       By:   /s/ WILLIAM J. ARMFIELD, IV   William J. Armfield, IV             Chairman of the Compensation Committee             of the Board of Directors                       EXECUTIVE                       /s/ WILLIAM L. JASPER (Seal)                 William L. Jasper                   10

  Exhibit 10.1 AMENDMENT TO STANDBY EQUITY DISTRIBUTION AGREEMENT This AMENDMENT TO STANDBY EQUITY DISTRIBUTION AGREEMENT (this “Amendment”), is made effective as of June 14, 2006 (the “Effective Date”), by and between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (“Investor”); and ACACIA RESEARCH CORPORATION, a Delaware corporation (the “Company”), with reference to the following recitals:   A. Investor and the Company entered into that certain Standby Equity Distribution Agreement, dated June 14, 2006 (the “Master Agreement”).   B. Investor and the Company wish to amend the definition of “Commitment Amount” in the Master Agreement to be 13,024,924 shares of common stock.   FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, Investor and the Company agree as follows:   1. Commitment Amount Section 1.9 of the Master Agreement is hereby amended and restated as follows:   “Commitment Amount” shall mean the aggregate amount of Fifty Million Dollars ($50,000,000) which the Investor has agreed to provide to the Company in order to purchase the Shares of Common Stock pursuant to the terms and conditions of this Agreement, provided that, the Company shall not effect any sale under this Agreement and the Investor shall not have the right or the obligation to purchase Shares of Common Stock under this Agreement to the extent that after giving effect to such purchase and sale the aggregate number of shares issued under this Agreement would exceed 13,024,924 shares of the Company’s capital stock regardless of class (which is less than 20% of the 66,876,811 outstanding shares of the Company’s capital stock regardless of class as of the date of this Agreement) unless or until the Company obtains any necessary shareholder approval or consent in accordance with Nasdaq rules prior to such issuance.   2. Definitions. Capitalized terms not otherwise defined herein shall have the meaning ascribed to them under the Master Agreement, and if not defined in the Master Agreement shall have the meaning ascribed to them in the Operating Agreement.   3. Non-Impairment. Except as expressly modified herein, the Master Agreement shall continue in full force and effect, and the parties hereby reinstate and reaffirm the Master Agreement as modified herein.   4. Inconsistencies. In the event of any inconsistency, ambiguity or conflict between the terms and provisions of this Amendment and the terms and provisions of the Master Agreement, the terms and provisions of this Amendment shall control.   5. Counterparts. This Amendment may be executed in any number of counterparts, each of which when executed will be deemed an original and all of which, taken together, well be deemed to be one and the same instrument.   IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the date first written above.   INVESTOR: COMPANY: Cornell Capital Partners, LP Acacia Research Corporation     By: Yorkville Advisors, LLC By: /s/ Paul R. Ryan   Its: General Partner Name: Paul R. Ryan   Title: Chairman & Chief Executive Officer By: /s/ Mark Angelo    Name: Mark Angelo   Title: Portfolio Manager   1

Exhibit 10.1 EXECUTIVE  SEVERANCE  AGREEMENT AGREEMENT made as of the 20th day of March, 2006, between HEXCEL CORPORATION, a Delaware corporation with offices at Stamford, Connecticut (the “Company”), and Robert G. Hennemuth (the “Executive”). WHEREAS, the Company is engaged in the business of developing, manufacturing and marketing carbon fibers, fabrics, high-performance composite materials and parts therefrom for the commercial aerospace, space and defense, recreation and industrial markets throughout the world, and hereafter may engage in other areas of business (collectively,  the “Business”); WHEREAS, the Executive, as a result of training, expertise and personal application over the years, has acquired and will continue to acquire considerable and unique expertise and knowledge which are of substantial value to the Company in the conduct, management and operation of the  Business; WHEREAS, the Company is willing to provide the Executive with certain benefits in the event of the termination of the Executive’s employment with the Company, including in the event of a Change in Control (as hereinafter defined); and WHEREAS, the Executive, in consideration of receiving such benefits from the Company, is willing to afford certain protection to the Company in regard to the confidentiality of its information, ownership of inventions and competitive activities. NOW, THEREFORE, in consideration of the mutual covenants of the Executive and the Company and of the Executive’s continued employment with the Company, the parties agree as follows: 1.     Position and Duties. The Executive shall initially serve as Senior Vice President, Human Resources of the Company and shall have such duties, responsibilities, and authority as he may have as of the date hereof (or any position to which he may be promoted after the date hereof). The Executive shall devote substantially all his working time and efforts to the business and affairs of the Company. 2.     Place of Performance. In connection with the Executive’s employment by the Company, the Executive shall be based at the principal executive offices of the Company in Stamford, Connecticut, except for required travel on the Company’s business. -------------------------------------------------------------------------------- 3.     Termination. The Executive’s employment hereunder may be terminated under the following circumstances: (a)   Death. The Executive’s employment hereunder shall automatically terminate upon his death. (b)   Disability. The Company may terminate the Executive’s employment hereunder due to the Executive’s inability to perform the customary duties of his employment by reason of any medical or psychological illness or condition that is expected to be permanent or of indefinite duration. (c)   Cause. The Company may terminate the Executive’s employment hereunder for Cause. The following shall constitute Cause: (i)        the willful and continued failure by the Executive to substantially perform his duties with the Company (other than any such failure resulting from the Executive’s incapability due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason) after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties; or (ii)       the willful engaging by the Executive in misconduct that is demonstrably and materially injurious to the Company, monetarily or otherwise including, but not limited to, conduct that violates the covenant not to compete in Section 6 hereof. No act, or failure to act, on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (i) reasonable notice from the Board to the Executive setting forth the reasons for the Company’s intention to terminate for Cause, (ii) delivery to the Executive of a resolution duly adopted by the affirmative vote of two-thirds or more of the Board then in office (excluding the Executive if he is then a member of the Board) at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board, the Executive was guilty of the conduct herein set forth and specifying the particulars thereof in detail, (iii) an opportunity for the Executive, together with his counsel, to be heard before the Board, and (iv) delivery to the Executive of a Notice of Termination from the Board specifying the particulars thereof in detail. (d)   Good Reason. The Executive may terminate his employment hereunder for Good Reason. The following shall constitute Good Reason: 2 --------------------------------------------------------------------------------   (i)        A diminution in the Executive’s position, duties, responsibilities or authority (except during periods when the Executive is unable to perform all or substantially all of his duties or responsibilities on account of illness (either physical or mental) or other incapacity); (ii)       A reduction in the Executive’s annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time; (iii)      Failure by the Company to continue in effect any compensation plan in which the Executive participates which is material to the Executive’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute plan) has been made with respect to such plan, or failure by the Company to continue the Executive’s participation therein (or in such substitute plan) on a basis not materially less favorable to the Executive; (iv)      Failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company’s pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating (except for across-the-board changes similarly affecting all senior executives of  the Company and all senior executives of any Person in control of the Company), or failure by the Company to continue to provide the Executive with the number of paid vacation days per year equal to the greater of (i) 20 and (ii) the number to which the Executive is entitled in accordance with the Company’s vacation policy; (v)       Failure to provide facilities or services which are suitable to the Executive’s position; (vi)      Failure of any successor (whether direct or indirect, by purchase of stock or assets, merger, consolidation or otherwise) to the Company to assume the Company’s obligations hereunder or failure by the Company to remain liable to the Executive hereunder after such assumption; (vii)     Any  termination by the Company of the Executive’s employment which is not effected pursuant to a Notice of Termination satisfying the requirements  of a Notice of Termination contained in this Agreement; (viii)    The relocation of the Executive’s principal place of employment to a location more than fifty (50) miles from the Executive’s principal place of employment as at the date hereof; or (ix)       Failure to pay the Executive any portion of current or deferred compensation within seven (7) days of the date such compensation is due. 3 --------------------------------------------------------------------------------   The Executive’s continued employment shall not constitute consent to, or waiver of rights with respect to, any circumstance constituting Good Reason hereunder; provided, however, that the Executive shall be deemed to have waived his rights pursuant to circumstances constituting Good Reason hereunder if he shall not have provided the Company a Notice of Termination within ninety (90) days following his knowledge of the occurrence of circumstances constituting Good Reason. (e)   Other Than Death, Disability, Cause or Good Reason. (i) The Company may terminate the Executive’s employment, other than as provided in Sections (3)(a), (b) or (c) hereof, upon written notice to the Executive and (ii) the Executive may terminate his employment with the Company, other than as provided in Section 3(d) hereof,  upon written notice to the Company. (f)    Notice of Termination; Date of Termination. Any termin-ation of the Executive’s employment by the Company or by the Executive (other than a termination pursuant to Section 3(a) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 10. For purposes of this Agreement, (i)  “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set 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 (ii)       “Date of Termination” shall mean (A) if the Executive’s employment is terminated pursuant to Section 3(a), the date of his death, (B) if the Executive’s employment is terminated pursuant to Section 3(b), thirty days after Notice of Termination is given (provided that the Executive shall not have returned substantially to  full-time performance of the Executive’s duties during such thirty day period), (C) if the Executive’s employment is terminated pursuant to Sections 3(c), (d) or (e), the date specified in the Notice of Termination (provided that such date shall not be more than thirty days from the date Notice of Termination is given and, in the case of a termination for Cause, shall not be less than fifteen days from the date Notice of Termination is given), or (D) if the Executive terminates his employment and fails to provide written notice to the Company of such termination, the date of such termination. 4.         Compensation Upon Death, Disability or Termination. (a)   If the Executive’s employment is terminated by his death, the Company shall pay the Executive’s legal representative (i) at the time such payments are due, the Executive’s full base salary through the Date of Termination at the rate in effect at the Date of Termination and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan), and (ii) within ten days following the 4 --------------------------------------------------------------------------------   date of the Executive’s death, a lump sum payment in an amount by which (A) the total amount received by the beneficiary or estate of the Executive as payment under the basic insurance provided by and at the expense of the Company on the Executive’s life is less than  (B) twice the sum of (I) the Executive’s annual base salary in effect as of the Date of Termination and (II) the Executive’s Average Annual Bonus (the term “Average Annual Bonus” shall mean the average of the last three annual bonus amounts awarded to the Executive under the Company’s Management Incentive Compensation Plan, or any successor, alternate or supplemental plan (the “Bonus Plan”) or, if the Executive has not participated in the Bonus Plan for three completed annual award periods, the average of the annual bonus amounts awarded, provided that any award made in respect of an annual award period in which the Executive did not participate for the full period (the “Pro-Rata Award”) shall be annualized for purposes of computing the Average Bonus Amount by multiplying the Pro-Rata Award by a fraction, of which the numerator is 365 and the denominator is the number of days during which the Executive participated in such annual award period). (b)   During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness the Executive shall continue to receive his full base salary at the rate then in effect for such period (offset by any payments to the Executive received pursuant to disability benefit plans maintained by the Company) until his employment is terminated pursuant to Section 3(b) hereof; and, within ten days following such termination, the Company shall pay the Executive all unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan). (c)   If the Executive’s employment is terminated by the Company for Cause or by the Executive for other than Good Reason, the Company shall at the time such payments are due pay the Executive his full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan), and the Company shall, thereafter, have no further obligations to the Executive under this Agreement. (d)   If (1) the Company shall terminate the Executive’s employment other than for Disability and other than for Cause or (2) the Executive shall terminate his employment for Good Reason, then (i)        the Company shall pay the Execu­tive on the Date of Termination, by wire transfer to the bank account designated by the Executive, the Executive’s full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given (disregarding any reduction in salary rate 5 --------------------------------------------------------------------------------   which would constitute a Good Reason) and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination including any reimbursable business expenses and amounts earned under any compensation plan or program (including the Bonus Plan); (ii)       in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive on the Date of Termination, by wire transfer to the bank account designated by the Execu­tive, an amount equal to the product of (A) the sum of (1) the Executive’s annual base salary in effect at the time the Notice of Termination is given (disregarding any reduction in salary rate which would constitute a Good Reason) and (2) the Executive’s Average Annual Bonus, and (B) (x) if the Executive terminates his employment or the Company terminates the Executive’s employment, in either case within two years after the occurrence of a Change in Control,  the number three or (y) in any other case, the number one; and (iii)  the Company shall continue the participation of the Executive for a period of one year (except, if the Executive terminates his employment or the Company terminates the Executive’s employment, in either case within two years after the occurrence of a Change in Control, such period shall be three years), in all medical, health, life and other employee “welfare” plans and programs in which the Executive participated imme­diately prior to the Date of Termination, provided that the Executive’s continued participation is possible under the general terms and provisions of such plans and pro­grams. In the event that the Executive’s participation in any such plan or program is barred, the Company shall by other means provide the Executive with benefits equivalent to those which the Executive would other­wise have been entitled to receive under such plans and programs from which his continued participation is barred. (e)   If the Company shall terminate the Executive’s employment other than for Cause, or the Executive shall terminate his employment for Good Reason, during the period of a Potential Change in Control or at the request of a person who, directly or indirectly, takes any action designed to cause a Change in Control, then the Company shall make payments and provide benefits to the Executive under this Agreement as though a Change in Control had occurred immediately prior to such termination. A “Potential Change in Control” shall exist during the period commencing at the time the Company enters into any agreement or arrangement which, if consummated, would result in a Change in Control and ending at the time such agreement or arrangement either (i) results in a Change in Control or (ii) terminates, expires or otherwise becomes of no further force or effect. (f)    For purposes of this Agreement, a “Change in Control” shall mean the first to occur of the following events: (1)   Any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as modified 6 --------------------------------------------------------------------------------   and used in Sections 13(d) and 14(d) of the Exchange Act) (a “Person”) is or becomes the Beneficial Owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of 40% or more of either (A) the then outstanding common stock of the Company (the “Outstanding Common Stock”) or (B) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the “Total Voting Power”); excluding, however, the following:  (x) any acquisition by the Company or any of its Controlled Affiliates (an “Affiliate” of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person; the term “Control” shall have the meaning specified in Rule 12b-2 under the Exchange Act); (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates; and (iii) any Person who becomes such a Beneficial Owner in connection with a transaction described in the exclusion within paragraph (3) below; or (2)   A change in the composition of the Board such that the individuals who, as of the effective date of this Agreement, constitute the Board (such individuals shall be hereinafter referred to as the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Company’s stockholders, was made or approved by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be considered a member of the Incumbent Board; (3)   There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company (“Corporate Transaction”); excluding, however, such a Corporate Transaction pursuant to which (1) all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (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 Corporate Transaction, of 7 --------------------------------------------------------------------------------   the Outstanding Common Stock and Total Voting Power, as the case may be, and (2) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the company resulting from such Corporate Transaction (including, without limitation, a company 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); or (4)   The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (g)       Excise Tax. (1)       Modified Gross-Up. It shall be determined whether this Section 4(g)(1) applies prior to any determination pursuant to Section 4(g)(2) hereof. This Section 4(g)(1) shall apply if “Total Payments” (as defined in Section 4(g)(1)(i)) are equal to or exceed one-hundred-and-ten percent (110%) of the “Safe Harbor Amount”. The “Safe Harbor Amount” is the amount to which the Total Payments would hypothetically have to be reduced so that no portion of the Total Payments would be subject to the Excise Tax (as defined in Section 4(g)(1)(i)). (i)        If any of the payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive’s termination of employment in respect of a Change in Control, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the “Total Payments”) will be subject to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), the Company shall pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. (ii)       For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) all of the Total Payments shall be treated as “parachute payments” (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company’s independent auditor (the “Auditor”), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (B) all “excess parachute payments” within the meaning of Section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole 8 --------------------------------------------------------------------------------   or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the base amount (within the meaning of Section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (C) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. If the Auditor is prohibited by applicable law or regulation from performing the duties assigned to it hereunder, then a different auditor, acceptable to both the Company and the Executive, shall be selected. The fees and expenses of Tax Counsel and the Auditor shall be paid by the Company. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (iii)      In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive’s taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (2)       Valley. This Section 4(g)(2) shall apply only if it has been previously determined that Section 4(g)(1) hereof does not apply. This Section 4(g)(2) shall then apply if the “Total Payments” (as defined in Section 4(g)(2)(i)) would be subject (in whole or part) to the “Excise Tax” (as defined in 9 --------------------------------------------------------------------------------   Section 4(g)(2)(i)) and the Total Payments are less than one-hundred-and-ten percent (110%) of the “Safe Harbor Amount” (as defined in Section 4(g)(1)). (i)        Notwithstanding any other provisions of this Agreement, in the event that any payment, benefit, property or right received or to be received by the Executive in connection with a Change in Control or the Executive’s termination of employment in respect of a Change in Control (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments, benefits, properties and rights being hereinafter referred to as the “Total Payments”) would be subject (in whole or part) to the tax (the “Excise Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any successor provision (the “Code”), then the payments and benefits provided under Section 4(d) or 4(e) hereof (“Severance Payments”) which are cash shall first be reduced, and the noncash Severance Payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax, but only if (A) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than or equal to (B) the net amount of such Total Payment without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments); provided, however, that the Executive may elect (by waiving the receipt or enjoyment of all or any portion of the noncash Severance Payments at such time and in such manner that the Severance Payments so waived shall not constitute a “payment” within the meaning of Section 280G(b) of the Code) to have the noncash Severance Payments reduced (or eliminated) prior to any reduction of the cash Severance Payments. (ii)       For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax (A) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account, (B) no portion of the Total Payments shall be taken into account which, in the written opinion of tax counsel (“Tax Counsel”) reasonably acceptable to the Executive and selected by the accounting firm (the “Auditor”) which was, immediately prior to the Change in Control, the Company’s Independent auditor, does not constitute a “parachute payment” within the meaning of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the written opinion of Tax Counsel, constitutes reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, and (C) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the 10 --------------------------------------------------------------------------------   Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. If the Auditor is prohibited by applicable law or regulation from performing the duties assigned to it hereunder, then a different auditor, acceptable to both the Company and the Executive, shall be selected. The fees and expenses of Tax Counsel and the Auditor shall be paid by the Company. (3)   Other Terms. At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions, or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and all such opinions or advice shall be in writing, shall be attached to the statement and shall expressly state that the Executive may rely thereon). If the Executive objects to the Company’s calculations, the Company shall pay to the Executive such portion of the payments as the Executive determines is necessary to result in the proper application of Section 4(g)(1)(i) or 4(g)(2)(i) above. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceeding concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 5.     No 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, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 6.     Non-Competition; Non-Solicitation; Non-Disparagement. (a)           The Executive acknowledges that, as a senior  management employee, the Executive will be involved, on a high level, in the development, implementation and management of the Company’s global business plans, including those which involve the Company’s finances, research, marketing, planning, operations, and acquisition strategies. By virtue of the Executive’s position and knowledge of the Company, the Executive acknowledges that his employment by a competitor of the Company represents a serious competitive danger to the Company, and that the use of the Executive’s experience and knowledge about the Company’s business, strategies and plans by a competitor can and would constitute a valuable competitive advantage over the Company. In view of the foregoing, and in consideration of the payments made to the Executive under this Agreement, the Executive covenants and agrees that, if the Executive’s employment is terminated and the Company has fulfilled its obligations under this Agreement, for a period of one year (or three years if the Executive receives payments under clause (B)(x) of Section 4(d)(ii) hereof) after the Date of Termination the Executive will not (A) engage, in any capacity, directly or indirectly, including but not limited as employee, 11 --------------------------------------------------------------------------------   agent, consultant, manager, executive, owner or stockholder (except as a passive investor holding less than a 5% equity interest in any enterprise) in any business entity engaged in competition with the Business conducted by the Company on the Date of Termination anywhere in the world, or (B) solicit a customer of the Business in violation of clause (A); provided, that the Executive may be employed by a competitor of the Company so long as the Executive’s duties and responsibilities do not relate directly or indirectly to the business segment of the new employer which is actually or potentially competitive with the Business. (b)           The Company (for itself and its officers and directors) and the Executive mutually agree and covenant not to disparage the reputation or character of the other. 7.     Assignment of Inventions. The Executive agrees that all processes, technologies, designs and inventions, including new contributions, improvements, ideas and discoveries, whether patentable or not (collectively “Inventions”), conceived, developed, invented or made by the Executive prior to the Date of Termination shall belong to the Company, provided that such Inventions grew out of the Executive’s work with the Company or any of its subsidiaries or affiliates, are related in any manner to the business (commercial or experimental) of the Company or any of its subsidiaries or affiliates or are conceived or made on the Company’s time or with the use of the Company’s facilities or materials. At the request of the Company, the Executive shall (i) promptly disclose such Inventions to the Company, (ii) assign to the Company, without additional compensation, all patent and other rights to such Inventions for the United States and foreign countries, (iii) sign all papers necessary to carry out the foregoing, and (iv) give testimony or otherwise take action in support of the Executive’s status as the inventor of such Inventions, in each case at the Company’s expense. 8.     Confidentiality. In addition to any obligation regarding Inventions, the Executive acknowledges that the  trade secrets and confidential and proprietary information of the Company, its subsidiaries and affiliates, including without limitation: (a)   unpublished information concerning: (i)        research activities and plans, (ii)       marketing or sales plans, (iii)      pricing or pricing strategies, (iv)      operational techniques, and (v)       strategic plans; (b)   unpublished financial information, including information concerning revenues, profits and profit margins; 12 -------------------------------------------------------------------------------- (c)   internal confidential manuals; and (d)   any “material inside information” as such phrase is used for purposes of the Securities Exchange Act of 1934, as amended; all constitute valuable, special and unique information of the Company, its subsidiaries and affiliates. In recognition of this fact, the Executive agrees that the Executive will not disclose any such trade secrets or confidential or proprietary information (except (i) information which becomes publicly available without violation of this Agreement, (ii) information of which the Executive, prior to disclosure by the Executive, did not know and should not have known was disclosed to the Executive by a third party in violation of any other person’s confidentiality or fiduciary obligation, (iii) disclosure required in connection with any legal process (provided the Executive promptly gives the Company written notice of any legal process seeking to compel such disclosure and reasonably cooperates in the Company’s attempt to eliminate or limit the scope of such disclosure) and (iv) disclosure while employed by the Company which the Executive reasonably and in good faith believes to be in or not opposed to the interests of the Company) to any person, firm, corporation, association or other entity, for any reason or purpose whatsoever, nor shall the Executive make use of any such information for the benefit of any person, firm, corporation or other entity except on behalf of the Company, its subsidiaries and affiliates. 9.     Binding Agreement. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided in this Agreement, shall be paid to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate. 10.   Notice. Notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered, if delivered personally, or mailed by United States certified or registered mail, return receipt requested, postage prepaid, and when received if delivered otherwise, addressed as follows: If to the Executive:           241 Plymouth Road     West Palm Beach, Florida 33405         If to the Company:     Hexcel Corporation     281 Tresser Blvd.     Stamford, CT 06901-3238         13 --------------------------------------------------------------------------------       Attn: General Counsel or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11.   General Provisions. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive (or, if applicable, his legal representative)  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 representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Connecticut without regard to its conflicts of law principles. 12.   Validity and Enforceability. 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. It is the desire and intent of the parties that the provisions of Sections 6, 7 and 8 hereof shall be enforceable to the fullest extent permitted by applicable law or public policy. If any such provision or the application thereof to any person or circumstance shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such provision shall be construed in a manner so as to permit its enforceability to the fullest extent permitted by applicable law or public policy. In any case, the remaining provisions or the application thereof to any person or circumstance other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 13.   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 instrument. 14.   Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the State of Connecticut, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Sections 6, 7 or 8 hereof. 14 -------------------------------------------------------------------------------- 15.   Entire Agreement. This Agreement is the entire agreement or understanding between the Company and the Executive regarding the subject matter hereof. 16.   Remedies. The Executive agrees that in addition to any other remedy provided at law or in equity or in this Agreement, the Company shall be entitled to a temporary restraining order and both preliminary and permanent injunctions restraining Executive from violating any provision of Sections 6, 7 and 8 hereof. In the event the Company fails to make any payment to the Executive when due, the Executive, in addition to any other remedy available at law or in equity, shall be entitled to interest on such unpaid amounts from the date such payment was due to the date actual payment is received by the Executive, at the legal rate applicable to unpaid judgments. The Company shall pay to the Executive all legal, audit, and actuarial fees and expenses as a result of the termination of employment, including all such fees and expenses incurred in contesting, arbitrating or disputing any action or failure to act by the Company or in seeking to obtain or enforce any right under this Agreement or any other plan, arrangement or agreement with the Company, provided that the Executive has obtained a final determination supporting at least part of his claim and there has been no determination that the balance of his claim was made in bad faith. 17.   Consent to Jurisdiction and Forum. The Executive hereby expressly and irrevocably agrees that any action, whether at law or in equity, permitted to be brought by the Company under this Agreement may be brought in the State of Connecticut or in any federal court therein. The Executive hereby irrevocably consents to personal jurisdiction in such court and to accept service of process in accordance with the provisions of the laws of the State of Connecticut. In the event the Company commences any such action in the State of Connecticut or in any Federal court therein, the Company shall reimburse the Executive for the reasonable expenses incurred by the Executive in his appearance in such forum which are in addition to the expenses the Executive would have incurred by appearing in the forum of the Executive’s residence at that time, including but not limited to additional legal fees. 18.   Term of Agreement.     The term of this Agreement (the “Term”) shall begin on March 20, 2006 (the “Effective Date”) and shall end on the third anniversary thereof; provided however that, commencing on the third anniversary of the Effective Date and on each subsequent anniversary of the Effective Date (each such anniversary, a “Renewal Date”), the Term shall automatically be extended for one additional year unless, not later than the date which is one year prior to such Renewal Date, the Company shall have given notice to the Executive not to extend the Term for such one additional year. 15 --------------------------------------------------------------------------------   HEXCEL CORPORATION         By:    /s/  Ira J. Krakower     Name: Ira J. Krakower     Title: Senior Vice President                    /s/  Robert G. Hennemuth     Executive   16 --------------------------------------------------------------------------------

EXHIBIT 10.2 Southern Graphics Inc. Stock Incentive Plan SECTION 1. PURPOSE The purpose of this Plan (as such term and any other capitalized terms used herein without definition are defined in Section 2) is to foster and promote the long-term financial success of the Company and its Subsidiaries and materially increase stockholder value by (a) motivating superior performance by means of service and performance-related incentives, (b) encouraging and providing for the acquisition of an ownership interest in the Company by Employees and (c) enabling the Company and its Subsidiaries to attract and retain the services of an outstanding management team upon whose judgment, interest and special effort the successful conduct of its and their operations is largely dependent. SECTION 2. DEFINITIONS Whenever used herein, the following terms shall have the respective meanings set forth below: 2.1. Adjustment Event: shall mean any dividend payable in capital stock, stock split or share combination of; or extraordinary cash dividend on, the Common Stock, or any recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares affecting the Common Stock, or any other similar event affecting the Common Stock. 2.2. Board: the Board of Directors of the Company. 2.3. Cause: (i) the refusal or neglect of the Participant to perform substantially his or her employment-related duties, (ii) the Participant’s personal dishonesty, incompetence, willful misconduct or breach of fiduciary duty, (iii) the Participant’s conviction of or entering a plea of guilty or nolo contendere (or any applicable equivalent thereof) to a crime constituting a felony (or a crime or offense of equivalent magnitude in any jurisdiction) or his or her willful violation of any other law, rule, or regulation (other than a traffic violation or other offense or violation outside of the course of employment which in no way adversely affects the Company or any affiliate or its reputation or the ability of the Participant to perform his or her employment related duties or to represent the Company or any affiliate), (iv) the breach by the Participant of any covenant or agreement with the Company or any Subsidiary, or any written policy of the Company or any Subsidiary, not to disclose any information pertaining to the Company or any affiliate or not to compete or interfere with the Company or any Subsidiary or (v) the violation by the Participant of the Company’s or a Subsidiary’s code of conduct or ethics; provided that, with respect to any Participant who is a party to an employment agreement with the Company or any Subsidiary, “Cause” shall have the meaning specified in such Participant’s employment agreement or, in the case of any such Participant who is not party to an employment agreement but is a party to the Stockholders Agreement, “Cause” shall have the meaning, if any, specified in the Stockholders Agreement. -------------------------------------------------------------------------------- 2.4. Change in Control: the occurrence of any of the following: (a) any person (within the meaning of Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than CVC, or any of its Affiliates or Permitted Transferees (as such terms are defined in the Stockholders Agreement), including any group (within the meaning of Rule 13d-5(b) under the Exchange Act)), acquires “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined Voting Power (as defined below) of the Company’s securities; (b) within any 24-month period commencing after an initial public offering of the Common Stock of the Company, the persons who were directors of the Company at the beginning of such period (the “Incumbent Directors”) shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company, provided that any director (i) elected to the Board, or nominated for election, by a majority of the Incumbent Directors then still in office or (ii) designated to serve on the Board by CVC pursuant to the Stockholder’s Agreement shall be deemed to be an Incumbent Director for purposes of this definition of Change in Control; (c) the stockholders of the Company, if at the time in question the Company is a stock company, approve a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Event”), and immediately following the consummation of which the stockholders of the Company immediately prior to such Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (x) in the case of a merger or consolidation, the surviving of resulting corporation, (y) in the case of a share exchange, the acquiring corporation or (z) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Corporate Event, holds more than 50% of the consolidated assets of the Company immediately prior to Corporate Event; or (d) any other event occurs which the Board declares to be a Change in Control. Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred (a) merely as a result of an underwritten offering of the equity securities of the Company where no Person (including any group (within the meaning of Rule 13d-5(b) under the Exchange Act)) acquires more than 50% of the beneficial ownership interests in such securities. For purposes of this definition, a specified percentage of “Voting Power” of a company shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors and “Voting Securities” shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors. -------------------------------------------------------------------------------- 2.5. Change in Control Price: the price per share of Common Stock paid in conjunction with any transaction resulting in a Change in Control (as determined in good faith by the Committee if any part of the offered price is payable other than in cash). 2.6. Code: the Internal Revenue Code of 1986, as amended. 2.7. Committee: the Compensation Committee of the Board or, if there shall not be any committee then serving, the Board. 2.8. Common Stock: the Class A common stock of the Company, par value $.01 per share. 2.9. Company: Southern Graphics Inc., a Delaware corporation, and any successor thereto. 2.10. CVC: Citigroup Venture Capital Equity Partners, L.P., a limited partnership organized under the laws of Delaware. 2.11. Disability: the termination of a Participant’s employment with the Company or any Subsidiary as a result of such Participant’s incapacity due to reasonably documented physical or mental illness that is reasonably expected to prevent such Participant from performing his duties for the Company or any subsidiary on a full-time basis for more than six months and within 30 days after written notice of termination has been given to such Participant, such Participant shall not have returned to the full time performance of his or her duties. The date of termination in the case of a termination due to “Disability” shall be deemed to be the last day of the aforementioned 30-day period. Notwithstanding the foregoing, (i) with respect to any Participant who is a party to an employment agreement with the Company or any Subsidiary, “Disability” shall have the meaning, if any, specified in such Participant’s employment agreement or, with respect to any such Participant who is not a party to an employment agreement but is a party to the Stockholders Agreement, “Disability” shall have the meaning, if any, specified in the Stockholders Agreement, and (ii) in the event a Participant whose employment with the Company terminates due to Disability continues to serve as a director of or a consultant to the Company, such Participant’s employment with the Company shall not be deemed to have terminated for purposes of the Plan or any agreement evidencing Options granted to such Participant until the date as of which such Participant’s services as a director of and consultant to the Company shall have also terminated. 2.12. Employee: any officer or other key employee of the Company or any Subsidiary. 2.13. Fair Market Value: unless otherwise determined by the Committee, if no Public Offering has occurred, the fair market value of a share of Common Stock as determined in good faith by the Board. The Fair Market Value as determined in good faith by the Board and in the absence of fraud shall be binding and conclusive upon the Company, any subsidiary, and each Participant. Following a Public Offering, the Fair Market Value, on any date of determination, shall mean the average of the closing sales prices for a share of Common Stock as reported on a national exchange for each of the ten business days preceding the date of determination or the average of the last transaction prices for a share of Common Stock as -------------------------------------------------------------------------------- reported on a nationally recognized system of price quotation for each of the ten business days preceding the date of determination. In the event that there are no Common Stock transactions reported on such exchange or system on such date, Fair Market Value shall mean the closing price on the immediately preceding date on which Common Stock transactions were so reported. 2.14. Option: the right to purchase Common Stock pursuant to the terms of the Plan at a stated price for a specified period of time. For purposes of the Plan, an Option may be either (i) an “Incentive Stock Option” within the meaning of section 422 of the Code (an “Incentive Stock Option”) or (ii) an Option which is not an Incentive Stock Option (a “Non-Qualified Stock Option”). 2.15. Participant: any Employee designated by the Committee to receive an Option under the Plan. 2.16. Person: any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity. 2.17. Plan: this Southern Graphics Inc. Stock Incentive Plan, as set forth herein and as the same may be amended from time to time in accordance with its terms. 2.18. Public Offering: a public offering pursuant to an effective registration statement filed with the Securities and Exchange Commission that covers (together with prior effective registrations) (i) not less than 25% of the then outstanding shares of Common Stock, on a fully diluted basis, or (ii) shares of Common Stock that, after the closing of such public offering, will be traded on the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers Automated Quotation System. 2.19. Retirement: the termination of a Participant’s employment with the Company or any Subsidiary on or after the date the Participant attains age 65. Notwithstanding the foregoing, (i) with respect to any Participant who is a party to an employment agreement with the Company or any Subsidiary, “Retirement” shall have the meaning, if any, specified in such Participant’s employment agreement, and (ii) in the event a Participant whose employment with the Company terminates due to Retirement continues to serve as a director of or a consultant to the Company, such Participant’s employment with the Company shall not be deemed to have terminated for purposes of the Plan or any agreement evidencing Options granted to such Participant until the date as of which such Participant’s services as a director of and consultant to the Company shall have also terminated, at which time the Participant shall be deemed to have terminated employment due to retirement. 2.20. Stockholders Agreement: the Stockholders Agreement, dated as of December 30, 2005, among the Company, CVC, and certain other stockholders of the Company, as it may be amended from time to time. 2.21. Subsidiary: any partnership, corporation, or other organization or entity a majority of whose outstanding voting interests are owned, directly or indirectly, by the Company. -------------------------------------------------------------------------------- 2.22. Voluntary Resignation: the termination of a Participant’s employment with the Company or any Subsidiary due to such Participant’s voluntary resignation; provided that, with respect to any Participant who is a party to an employment agreement with the Company or any Subsidiary, “Voluntary Resignation” shall have the meaning, if any, specified in such Participant’s employment agreement. SECTION 3. ELIGIBILITY AND PARTICIPATION Participants in the Plan shall be those Employees selected by the Committee to participate in the Plan, and the Committee shall consider Participants recommended by the Chief Executive Officer of the Company. The selection of an Employee as a Participant shall neither entitle such Employee to, nor disqualify such Employee from, participation in any other award or incentive plan of the Company or any Subsidiary. SECTION 4. ADMINISTRATION 4.1. Power to Grant and Establish Terms of Options. The Committee shall have the discretionary authority, subject to the terms of the Plan, to determine the Employees to whom Options shall be granted (which may include Employees who are members of the Committee), and the terms and conditions of any and all Options, including, but not limited to, the number of shares of Common Stock covered by each Option, the time or times at which Options shall be granted and the terms and provisions of the instruments by which such Options shall be evidenced and to designate Options as Incentive Stock Options or Non-Qualified Stock Options. In selecting the Participants to receive Options, and determining the number of Options to be granted, the Committee shall consider the recommendations of the Company’s CEO. The terms and conditions of each Option grant shall be determined by the Committee at the time of such offer or grant and such terms and conditions shall not be subsequently changed in a manner which would be adverse to the Participant without the consent of the Participant to whom such Option has been granted, even if this Plan shall be subsequently amended. The Committee may establish different terms and conditions for different Participants receiving Options and for the same Participant for each Option such Participant may receive, whether or not granted at the same or different times. The grant of any Option to any Employee shall neither entitle such Employee to, nor disqualify him from, the grant of any other Option. Nothing in this Section 4.1 shall be construed to limit the Committee’s or the Board’s authority under Section 4.2 or Section 9. 4.2. Administration. The Committee shall be responsible for the administration of the Plan. Any Option granted by the Committee may be subject to such conditions, not inconsistent with the terms of the Plan, as the Committee shall determine, in its sole discretion. The Committee shall have discretionary authority to prescribe, amend and rescind rules and regulations relating to the Plan, to provide for conditions deemed necessary or advisable to protect the interests of the Company, to interpret the Plan and to make all other -------------------------------------------------------------------------------- determinations necessary or advisable for the administration and interpretation of the Plan and to carry out its provisions and purposes. Determinations, interpretations or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding and conclusive for all purposes and upon all persons and shall be given deference in any proceeding with respect thereto. The Committee may consult with legal counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. SECTION 5. STOCK SUBJECT TO PLAN 5.1. Number. Subject to the provisions of Section 5.3, the number of shares of Common Stock subject to Options under the Plan may not exceed 31,000 shares. The shares of Common Stock to be delivered under the Plan may consist, in whole or in part, of shares held in treasury or authorized but unissued shares not reserved for any other purpose. Following a Public Offering no more than 10,000 shares of Common Stock may be the subject of Options granted to any one individual in any one calendar year. 5.2. Canceled, Terminated or Forfeited Awards. Any shares of Common Stock subject to an Option which for any reason expires or is canceled, terminated, forfeited, substituted for or otherwise settled without the lapse of restriction or the issuance of such shares of Common Stock shall again be available for purchase or grant under the Plan. 5.3. Adjustment in Capitalization. The aggregate number of shares of Common Stock available for grants of Options under Section 5.1 or subject to outstanding Option grants and the respective prices and/or vesting criteria applicable to outstanding Options shall be proportionately adjusted to reflect, as deemed equitable and appropriate by the Committee, each an Adjustment Event. To the extent deemed equitable and appropriate by the Committee, in its good faith judgment, and subject to any required action by stockholders, in any merger, consolidation, reorganization, liquidation, dissolution or other similar transaction (other than a Change in Control), any Option granted under the Plan shall pertain to the securities or other property to which a holder of the number of shares of Common Stock covered by the Option would have been entitled to receive in connection with such event. SECTION 6. STOCK OPTIONS 6.1. Grant of Options. Options may be granted to Participants at such time or times as shall be determined by the Committee. Options granted pursuant to this Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options provided that no Incentive Stock Option shall be granted to any individual who owns 10% or more of the Company’s Common Stock. The date of grant of an Option under the Plan will be the date on which the Option is awarded by the Committee or; if so determined by the Committee on the date of award of an Option, the date on which occurs any event the occurrence of which is an -------------------------------------------------------------------------------- express condition precedent to the grant of the Option. Subject to Section 5.1, the Committee shall determine the number of Options, if any, to be granted to a Participant. Each Option shall be evidenced by an Option agreement that shall specify the type of Option granted, the exercise price, the duration of the Option, the number of shares of Common Stock to which the Option pertains, the conditions upon which the Option or any portion thereof shall become vested or exercisable and otherwise shall be in the form of the Option agreement attached hereto as Exhibit A, subject to such changes not inconsistent with the Plan as the Committee shall determine, in its good faith judgment, to be equitable and appropriate, or in such other form as the Committee shall determine. 6.2. Option Price. Non-Qualified Stock Options and Incentive Stock Options granted pursuant to the Plan shall have an exercise price per share of Common Stock determined by the Committee, provided that such per share exercise price may not be less than the Fair Market Value of a share of Common Stock on the date the Option is granted. 6.3. Exercise of Options. Options awarded to a Participant under the Plan shall be exercisable at such times and shall be subject to such restrictions and conditions, including the performance of a minimum period of service or the satisfaction of performance goals, as the Committee may impose at the time of grant of such Options, subject to the Committee’s right to accelerate the exercisability of such Options in its discretion. Notwithstanding the foregoing, no Option shall be exercisable on or after the tenth anniversary of the date on which it is granted. Except as may be provided in any provision approved by the Committee pursuant to this Section 6.3, after becoming exercisable each installment of an Option shall remain exercisable until expiration, termination or cancellation of the Option. Subject to Section 9 and to Section 10.7, an Option may be exercised from time to time, in whole or in part, up to the total number of shares of Common Stock with respect to which it is then exercisable. Upon exercising an Option in whole or in part, the Participant shall be required to execute a stock subscription agreement in the form of the Stock Subscription Agreement attached hereto as Exhibit B, and a joinder to the Stockholders Agreement subject to such changes not inconsistent with the Plan as the Committee shall determine, in its good faith judgment, to be equitable and appropriate, or in such other form as the Committee shall determine. 6.4. Payment. The Committee shall establish procedures governing the exercise of Options, which shall require that (1) as a condition to the issuance of any shares of Common Stock upon the exercise of the Options prior to a Public Offering, the Participant is or shall become a party, by joinder, to the Stockholders Agreement with respect to such shares, (2) written notice of exercise be given to the Company (3) the Option exercise price be paid in full at the time of exercise in one of the following ways: (i) in cash or cash equivalents, (ii) at any time following a Public Offering, in unencumbered shares of Common Stock which have been owned by the Participant for at least six months (or such longer period as is required by applicable accounting standards to avoid a charge to earnings) having an aggregate Fair Market Value on the date of exercise equal to such aggregate Option exercise price or in a combination of cash and such unencumbered shares of Common Stock, or (iii) in such other consideration as the Committee shall determine and (4) the Participant shall have made arrangements satisfactory to the Company to pay all legally required taxes and other withholdings with respect to such exercise. Subject to Section 10.4, as soon as practicable after receipt of a written exercise notice, payment of the Option exercise price and receipt of evidence that the Participant -------------------------------------------------------------------------------- is a party to the Stockholders Agreement in accordance with this Section 6.4, the Company shall deliver to the Participant a certificate or certificates representing the acquired shares of Common Stock. 6.5. Incentive Stock Options. Notwithstanding anything in the Plan to the contrary, no term of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under section 422 of the Code, or, without the consent of any Participant affected thereby, to cause any Incentive Stock Option previously granted to fail to qualify for the federal income tax treatment afforded under section 421 of the Code. SECTION 7. TERMINATION OF EMPLOYMENT 7.1. Termination of Employment Due to Death. Unless otherwise determined by the Committee at the time of grant, in the event a Participant’s employment with the Company or any Subsidiary terminates by reason of death, any Options granted to such Participant which on or prior to the date of such termination have become exercisable in accordance with Section 6.3, may be exercised by the Participant’s beneficiary in accordance with Section 10.2, at any time during the six month period following the Participant’s termination of employment or until the expiration of the term of the Options, whichever period is shorter. 7.2. Termination of Employment For Cause. Unless otherwise determined by the Committee at the time of grant, in the event a Participant’s employment with the Company or any Subsidiary is terminated for Cause, all Options granted to such Participant which are then outstanding (whether or not exercisable on or prior to the date of such termination) shall be immediately forfeited and canceled. 7.3. Termination of Employment for Any Other Reason. Unless otherwise determined by the Committee at or after the time of grant, in the event a Participant’s employment with the Company or any Subsidiary terminates for any reason other than (i) due to death or (ii) for Cause, then any Options granted to such Participant which, on or prior to the date of such termination, have become exercisable in accordance with Section 6.3, may be exercised at any time during the 90 day period following the Participant’s termination of employment or the expiration of the term of such Options, whichever period is shorter. 7.4. Termination of Options. Unless otherwise determined by the Committee at the date of grant, upon the termination of a Participant’s employment, any Options that are not then exercisable shall terminate and be canceled effective upon the date of such termination. 7.5. Committee Discretion. Notwithstanding anything else contained in this Section 7 to the contrary, the Committee may permit all or any portion of any Options to be exercised following a Participant’s termination of employment for any reason on such terms and subject to such conditions not less favorable to such Participant than those terms and conditions provided for herein or in the option agreement evidencing the grant to such Participant of the applicable Options, as the Committee shall determine for a period up to and including, but not beyond, the expiration of the term of such Options. -------------------------------------------------------------------------------- SECTION 8. CHANGE IN CONTROL 8.1. In the event of a Change in Control or in the sole and absolute discretion of the Committee, in the reasonable anticipation of a Change in Control, the Committee, may, but shall not be required to, take any of the following actions, provided that such actions are not in conflict with the explicit terms of any Option that would be affected thereby: (a) accelerate the vesting of all outstanding Options issued under the Plan that remain unvested; (b) terminate any exercisable Option immediately prior to the date of any such transaction, provided that the Participant shall have been given at least seven days written notice of such transaction and of the Committee’s intention to cancel the Option with respect to all shares for which the Option remains unexercised to enable the Participant to exercise any such Option; (c) cancel any Option with respect to all shares for which the Option remains unexercised in exchange for a payment in cash of an amount equal to the value of such unexercised Option. If the Fair Market Value of the shares subject to the Option is less than the Option exercise price, the Option shall be deemed to have no value and shall be canceled with no further payment due the Participant. (d) in a Change of Control require that the Option be assumed by the successor corporation or that stock options of the successor corporation with equivalent value be substituted for such Option; or (e) take such other action as the Committee shall determine to be reasonable under the circumstances to permit the Participant to realize the value of the Option, taking into account any reserves, escrows or similar arrangements in connection with the Change in Control. 8.2. The application of the foregoing provisions, including, without limitation, the issuance of any substitute stock options, shall be determined in good faith by the Committee in its sole and absolute discretion. Any adjustment may provide for the elimination of fractional shares. In taking any action described above, the Committee, may in its discretion determine: (a) the Fair Market Value of Common Stock on the basis of the fair market value of the consideration to be received in the Change in Control, and (b) that the value of an Option equals the excess, if any, of the fair market value of the consideration to be received in the Change in Control had the Option been exercised over the Option exercise price of such Option or such lesser amount as the Board or the Committee, as applicable, may determine, including, in the in the case of an unvested Option, or any portion thereof, determining a value of zero. -------------------------------------------------------------------------------- 8.3. Conflict with Option Agreement. With respect to any Option granted hereunder that may become exercisable or vested, as the case may be, upon the attainment of performance objectives, in the event of a conflict between this Section 8 and the terms and conditions set forth in the agreement evidencing such Option, the terms and conditions set forth in the agreement evidencing such Option shall control. SECTION 9. AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN The Committee may at any time terminate or suspend the Plan and from time to time amend or modify the Plan. No such action of the Committee may, without the consent of a Participant, materially reduce such Participant’s rights under any previously granted Option. SECTION 10. MISCELLANEOUS PROVISIONS 10.1. Nontransferability of Awards. No Option granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Unless the Committee shall permit otherwise, as a condition to any transferee receiving Option by will or through the laws of descent and distribution, such transferee shall agree to be bound by any agreement evidencing such Option, and the provisions of the Stockholders Agreement. 10.2. Beneficiary Designation. Each Participant under the Plan may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid or by whom any right under the Plan is to be exercised in case of his death. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, Option outstanding at the Participant’s death shall be exercisable by the Participant’s surviving spouse, if any, or otherwise by his estate. 10.3. No Guarantee of Employment; No Additional Compensation for Loss of Rights Under Plan. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary. If any Participant’s employment with the Company or any Subsidiary shall be terminated for any reason, such Participant shall not be entitled to any compensation or other form of remuneration with respect to such termination (except as otherwise provided herein) to compensate such Participant for the loss of any rights under the Plan notwithstanding any provision to the contrary in his or her contract of employment. -------------------------------------------------------------------------------- 10.4. Tax Withholding. The Company or any Subsidiary shall have the power to withhold, or require a Participant to remit to the Company or such Subsidiary promptly upon notification of the amount due, an amount sufficient to satisfy all federal, state, local and foreign withholding tax requirements with respect to any Option and the Company or such Subsidiary may defer payment of cash or issuance or delivery of Common Stock until such requirements are satisfied. 10.5. Indemnification. Each person who is or shall have been a member of the Board or the Committee (an “Indemnified Person”) shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such Indemnified Person in connection with or resulting from any claim, action, suit or proceeding to which such Indemnified Person may be made a party or in which such Indemnified Person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such Indemnified Person in settlement thereof with the Company’s approval, or paid by such Indemnified Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnified Person, provided that, such Indemnified Person shall give the Company an opportunity, at its own expense, to handle and defend the same before such Indemnified Person undertakes to handle and defend it on such Indemnified Person’s own behalf. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such Indemnified Person may be entitled under the Company’s Certificate of Incorporation or By-laws, by contract, as a matter of law or otherwise. 10.6. No Limitation on Compensation. Nothing in the Plan shall be construed to limit the right of the Company or any Subsidiary to establish other plans or to pay compensation to employees in cash or property. 10.7. Requirements of Law. The granting of Options, the exercisability or vesting, as the case may be, of any Option and the issuance of shares of Common Stock shall be subject to all applicable laws, rules, and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. The issuance of Common Stock may be delayed, if necessary, to comply with applicable laws, including the U.S. federal securities laws and any applicable state or foreign securities laws. 10.8. Legend. Any stock certificate issued to a Participant before a Public Offering shall bear the following (or similar) legend: (i) “THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF (EACH, A “TRANSFER”) UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL IS RECEIVED W A FORM SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED.” -------------------------------------------------------------------------------- (ii) “THE SHARES-REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO (A) THE TRANSFER AND OTHER PROVISIONS OF (A) THE PROVISIONS OF THE SOUTHERN GRAPHICS INC. STOCK INCENTIVE PLAN, DATED AS OF [                    ] (THE “INCENTIVE PLAN”); (B) THE PROVISIONS OF A STOCKHOLDERS AGREEMENT, DATED AS OF DECEMBER 30, 2005 AMONG THE ISSUER AND CERTAIN STOCKHOLDERS OF THE ISSUER (THE “STOCKHOLDERS AGREEMENT”) INCLUDING, WITHOUT LIMITATION, THE REGISTRATION RIGHTS PROVISIONS FOR COMMON STOCK ATTACHED THERETO AS EXHIBIT B, AMONG THE ISSUER AND CERTAIN STOCKHOLDERS OF THE ISSUER AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED BY IT ARE TRANSFERABLE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THE INCENTIVE PLAN, AND THE STOCKHOLDERS AGREEMENT, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE ISSUER. NO TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE ISSUER, AND SUCH TRANSFER SHALL BE VOIDABLE, UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH PLAN AND AGREEMENTS.” (iii) “THE ISSUER WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS; PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OR SERIES OF SHARES AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.” and any other legend set forth in the Stockholder’s Agreement. 10.9. Governing Law. THIS PLAN, AND ALL AGREEMENTS HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE CORPORATE LAW OF THE STATE OF DELAWARE SPECIFICALLY AND MANDATORILY APPLIES. 10.10. No Impact On Benefits. Options granted under the Plan are not compensation for purposes of calculating an Employee’s rights under any employee benefit plan. 10.11. Securities Law Compliance. Instruments evidencing the grant of Options may contain such other provisions, not inconsistent with the Plan, as the Committee deems advisable, including a requirement that a Participant represent to the Company in writing, when such Participant receives shares of Common Stock upon exercise of an Option (or at such other time as the Committee deems appropriate) that such Participant is acquiring such shares (unless they are then covered by an effective registration statement filed under the Securities Act of 1933, as amended) for such Participant’s own account for investment only and with no present intention to transfer, sell or otherwise dispose of such shares except such disposition by a legal representative as shall be required by will or the laws of any jurisdiction in winding up the estate of such Participant. 10.12. Freedom of Action. Nothing in the Plan or any agreement entered into pursuant to this Plan shall be construed as limiting or preventing the Company or any Subsidiary from taking any action with respect to the operation or conduct of its business that it deems appropriate or in its best interest. -------------------------------------------------------------------------------- 10.13. No Fiduciary Relationship. Nothing contained in the Plan and no action taken pursuant to the Plan shall create or be construed to create a trust of any kind or any fiduciary relationship between the Company or any Subsidiary and any Participant or executor, administrator or other personal representative or designated beneficiary of such Participant, or any other persons. 10.14. No Right to Particular Assets. Any reserves that maybe established by the Company in connection with this Plan shall continue to be held as part of the general funds of the Company, and no individual or entity other than the Company shall have any interest in such funds until paid to a Participant. 10.15. Unsecured Creditor. To the extent that any Participant, executor, administrator or other personal representative, as the case may be, acquires a right to receive any payment from the Company pursuant to this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. 10.16. Severability of Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provision had not been included. 10.17. Term of Plan. This Plan shall be effective as of July 25, 2006 and shall expire on the tenth anniversary of such date (except as to Options outstanding on that date), unless sooner terminated pursuant to Section 9. 10.18. Relationship to Option Agreements. To the extent any provision of any agreement evidencing Option is inconsistent with this Plan, the terms of this Plan shall apply. -------------------------------------------------------------------------------- Exhibit A STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT, dated as of [                    ], 2006 between Southern Graphics Inc., a Delaware corporation ( the “Company”), and                      (the “Employee”), pursuant to the Southern Graphics Inc. Stock Incentive Plan, as in effect and as amended from time to time (the “Plan”). Capitalized terms that are not defined herein shall have the meanings given to such terms in the Plan. WHEREAS, the Company desires to grant options to purchase shares of its Class A Common Stock, par value $.01 per share (the “Common Stock”), to certain key employees of the Company and its Subsidiaries; WHEREAS, the Company has adopted the Plan in order to effect such grants; and WHEREAS, the Employee is a key employee as contemplated by the Plan, and the Committee has determined that it is in the interest of the Company to grant these options to the Employee. NOW, THEREFORE, in consideration of the premises and subject to the terms and conditions set forth herein and in the Plan, the parties hereto agree as follows: 1. Confirmation of Grant. (a) Confirmation of Grant. The Company hereby evidences and confirms the grant to the Employee, effective as of the date hereof (the “Grant Date”), of options to purchase from the Company [            ] shares of Common Stock at the exercise price specified in Section 2; and (b) Options Subject to Plan. The Options granted pursuant to this Agreement are subject in all respects to the Plan, all of the terms of which are made a part of and incorporated into this Agreement. By signing this Agreement, the Employee acknowledges that he has been provided a copy of the Plan and has had the opportunity to review such Plan. (c) Character of Options. The Options granted hereunder are not intended to be “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. 2. Option Price. (a) Subject to adjustment as provided in Section 9, the Options shall have an exercise price per share of Common Stock that shall decline, but not below the Fair Market Value of the underlying stock on the Grant Date, through the fifth anniversary of the date hereof as set forth on Schedule A (the “Option Price”), provided that if all of the Company’s Series A 10% Perpetual Preferred Stock, par value $.01, (the “Preferred Stock”) is redeemed or repurchased, or is exchanged for Common Stock, then the Option Price in effect at such time shall remain in effect thereafter notwithstanding any reduction provided for on Schedule A. 3. Exercisability. (a) Vesting Provisions. The Options will become exercisable at the rate of 20% of the shares of Common Stock subject to the Option on each of: (i) December 31, 2006; -------------------------------------------------------------------------------- (ii) December 31, 2007; (iii) December 31, 2008; (iv) December 31, 2009; and (v) December 31, 2010, subject to the Employee’s continuous employment with the Company or any Subsidiary from the Grant Date to the date(s) specified above. (b) Change in Control. Notwithstanding Section 3(a), but subject to Section 8 of the Plan, all outstanding Options shall vest immediately upon a Change in Control. (c) Normal Expiration Date. Unless the Options earlier terminate in accordance with Section 5, the Options shall terminate on the tenth anniversary of the Grant Date (the “Normal Expiration Date”). Once Options have become exercisable pursuant to this Section 3, such Options may be exercised, subject to the provisions hereof, at any time and from time to time until the Normal Expiration Date. 4. Method of Exercise and Payment.   All or part of the exercisable Options may be exercised by the Employee upon (a) the Employee’s written notice to the Company of exercise, (b) the Employee’s payment of the Option Price, in full at the time of exercise (i) in cash or cash equivalents, (ii) following a Public Offering, in unencumbered shares owned by the Employee for at least six (6) months (or such longer period as is required by applicable accounting standards to avoid a charge to earnings) having a fair market value on the date of exercise equal to the Option Price, or in a combination of cash and Common Stock or (iii) in accordance with such procedures or in such other form as the Committee shall from time to time determine, (c) the Employee’s execution of a stock subscription agreement which shall be in substantially the form of the Stock Subscription Agreement attached to the Plan as Exhibit B, and (d), the Employee’s execution of a joinder to the Stockholders Agreement in order to become a party to such agreement with respect to the shares of Common Stock issuable upon the exercise of such Options. As soon as practicable after receipt of a written exercise notice, payment in full of the exercise price of any exercisable Options, payment of all legally required taxes and other withholdings and receipt of evidence of the Employee’s execution of the joinder to Stockholders Agreement in accordance with this Section 4, but subject to Section 6 below, the Company shall deliver to the Employee a certificate or certificates representing the shares of Common Stock acquired upon the exercise thereof, registered in the name of the Employee, provided that, if The Company, in its sole discretion, shall determine that, under applicable securities laws, any certificates issued under this Section 4 must bear a legend restricting the transfer of such Common Stock, such certificates shall bear the appropriate legend. 5. Termination of Employment. (a) Termination of Employment Due to Death. Unless otherwise determined by the Committee, if the Employee’s employment with the Company or any Subsidiary -------------------------------------------------------------------------------- terminates by reason of the Employee’s death, then all Options held by the Employee that are exercisable as of the date of such termination may be exercised by the Employee’s beneficiary as designated in accordance with Section 8, or if no such beneficiary is named, by the Employee’s estate, at any time prior to six months following the Employee’s termination of employment or the Normal Expiration Date of the Options, whichever period is shorter. Upon the Employee’s termination on account of death, any Options that are not then exercisable shall terminate and be canceled immediately upon such termination of employment. (b) Termination for Cause. Unless otherwise determined by the Committee, if the Employee’s employment with the Company or any Subsidiary is terminated for Cause, all Options held by the Employee, whether or not then exercisable, shall terminate and be canceled immediately upon such termination of employment. (c) Other Termination of Employment. Unless otherwise determined by the Committee, if the Employee’s employment with the Company or any Subsidiary terminates for any reason other than (i) due to death or (ii) for Cause, then any Options held by the Employee which are exercisable at the date of the Employee’s termination of employment shall be exercisable at any time up until the 90th day following the Employee’s termination of employment (or, in the event that the Employee dies after terminating his employment, but within the period during which the Options would otherwise be exercisable hereunder, the 120th day after the date of the Employee’s death) or the Normal Expiration Date of the Options, whichever period is shorter, but any Options held by the Employee that are not then exercisable shall terminate and be canceled immediately upon such termination of employment. (d) Committee Discretion. Notwithstanding anything else contained herein to the contrary, the Committee may at any time extend the post-termination exercise period of all or any portion of the Options up to and including, but not beyond, the Normal Expiration Date of such Options. 6. Tax Withholding. Whenever Common Stock is to be issued pursuant to the exercise of an Option or any cash payment is to be made hereunder, the Company or its Subsidiary shall have the power to withhold, or require the Employee to remit to the Company or such Subsidiary, an amount sufficient to satisfy federal, state, and local withholding tax requirements relating to such transaction, and the Company or such Subsidiary may defer payment of cash or issuance of Common Stock until such requirements are satisfied. -------------------------------------------------------------------------------- 7. Nontransferability of Awards. Unless the Committee shall permit (on such terms and conditions as it shall establish) Options to be transferred, no Options may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Following the Employee’s death, all rights with respect to Options that were exercisable at the time of the Employee’s death and have not terminated shall be exercised by his designated beneficiary, his estate or such transferee as permitted by the Committee. 8. Beneficiary Designation. The Employee may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) by whom any right under the Plan and this Agreement is to be exercised in case of his death. Each designation will revoke all prior designations by the Employee, shall be in a form reasonably prescribed by the Committee, and will be effective only when filed by the Employee in writing with the Committee during his lifetime. If no beneficiary is named, or if a named beneficiary does not survive the Employee, Section 11.2 of the Plan shall determine who may exercise the Employee’s rights under the Plan. 9. Adjustment in Capitalization. The aggregate number of shares of Common Stock available under the Plan and subject to outstanding Option grants and the respective prices and/or vesting criteria applicable to outstanding Options, shall be proportionately adjusted to reflect, as deemed equitable and appropriate by the Committee, any dividend payable in stock, stock split or share combination of, or extraordinary cash dividend on, the Common Stock, or any recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares affecting the Common Stock, or any other similar event affecting the Common Stock. All determinations and calculations required under this Section 9 shall be made in the sole discretion of the Committee. 10. Requirements of Law. The issuance of shares of Common Stock pursuant to the Options shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. Such issuance may be delayed, if necessary, to comply with applicable laws, including the U.S. federal securities laws and any applicable state or foreign securities laws, and no shares of Common Stock shall be issued upon exercise of any Options granted hereunder, if such exercise would result in a violation of applicable law. 11. No Guarantee of Employment. Nothing in this Agreement shall interfere with or limit in any way the right of the Company or its Subsidiary to terminate the Employee’s employment at any time, or confer upon the Employee any right to continue in the employ of the Company or its Subsidiary. -------------------------------------------------------------------------------- 12. No Rights as Stockholder. Except as otherwise required by law, the Employee shall not have any rights as a stockholder with respect to any shares of Common Stock covered by the Options granted hereby until such time as the shares of Common Stock issuable upon exercise of such Options have been so issued. Notwithstanding anything else contained herein to the contrary, the exercise of any portion of the Options hereby is expressly conditioned on the Employee executing a stock subscription agreement which shall be in substantially the form of Stock Subscription Agreement attached to the Plan as Exhibit B. 13. Interpretation: Construction. Any determination or interpretation by the Committee under or pursuant to this Agreement shall be final and conclusive on all persons affected hereby. Except as otherwise expressly provided in the Plan, in the event of a conflict between any term of this Agreement and the terms of the Plan, the terms of the Plan shall control. 14. Amendments. The Committee shall have the right, in its sole discretion, to alter or amend this Agreement, from time to time, as provided in the Plan in any manner for the purpose of promoting the objectives of the Plan, provided that no such amendment shall in any manner adversely affect the Employee’s rights under this Agreement without the Employee’s consent. Subject to the preceding sentence, any alteration or amendment of this Agreement by the Committee shall, upon adoption thereof by the Committee, become and be binding and conclusive on the Employee without requirement for the Employee’s consent or other action. the Company shall give written notice to the Employee of any such alteration or amendment of this Agreement as promptly as practicable after the adoption thereof. This agreement may also be amended by a written agreement executed by both the Company and the Employee. 15. Miscellaneous. (a) Notices. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given if delivered personally or sent by certified or express mail, return receipt requested, postage prepaid, or by any recognized international equivalent of such mail delivery, to the Company, or the Employee, as the case may be, at the following addresses or to such other address as the Company or the Employee, as the case may be, shall specify by notice to the others:     (i) if to The Company, to it at:       626 West Main Street, Suite 500     Louisville, Kentucky 40202     Attn: General Counsel     (ii) if to the Employee, to the Employee at the address as reflected in the Company’s books and records. -------------------------------------------------------------------------------- All such notices and communications shall be deemed to have been received on the date of delivery if delivered personally or on the third business day after the mailing thereof. Copies of any notice or other communication given under this Agreement shall also be given to: Citigroup Venture Capital Equity Partners, L.P. 399 Park Avenue, 14th Floor New York, New York 10022 Fax: (212) 888-2940 Attention: Joseph Silvestri Dechert LLP Cira Centre 2929 Arch Street Philadelphia, Pennsylvania 19104 Fax: (215) 994-2222 Attention: Craig L. Godshall (b) Binding Effect; Benefits. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein. (c) Waiver. Either party hereto may by written notice to the other (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement, (ii) waive compliance with any of the conditions or covenants of the other contained in this Agreement and (iii) waive or modify performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of either party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by either party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party’s rights or privileges hereunder or shall be deemed a waiver of such party’s rights to exercise the same at any subsequent time or times hereunder. (d) Entire Agreement. This Agreement, together with the Plan, is the entire agreement of the parties with respect to the subject matter hereof and supersedes all other prior agreements, understandings, documents, statements, representations and warranties, oral or written, express or implied, between the parties hereto and their respective affiliates, representatives and agents in respect of the subject matter hereof. (e) Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE CORPORATE LAW OF THE STATE OF DELAWARE SPECIFICALLY AND MANDATORILY APPLIES. -------------------------------------------------------------------------------- (f) Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the Company and the Employee have duly executed this Agreement as of the date first above written.   SOUTHERN GRAPHICS INC. By:     Print Name:   Title:   EMPLOYEE   -------------------------------------------------------------------------------- SCHEDULE A OPTION PRICE   Time of Exercise    Exercise Price per Share From Grant to 12/31/06    $ 161 From 1/1/07 to 6/30/07    $ 156 From 7/1/07 to 12/31/07    $ 151 From 1/1/08 to 6/30/08    $ 145 From 7/1/08 to 12/31/08    $ 139 From 1/1/09 to 6/30/09    $ 133 From 7/1/09 to 12/31/09    $ 127 From 1/1/10 to 6/30/10    $ 120 From 7/1/10 to Normal Expiration Date    $ 113 -------------------------------------------------------------------------------- Exhibit B SUBSCRIPTION AGREEMENT This is a Subscription Agreement (the “Agreement”), dated as of                          , 20     between Southern Graphics Inc., a Delaware corporation (the “Company) and                                          (the “Participant”). BACKGROUND The Participant holds an option (the “Option”) to acquire              shares of the Class A common stock of the Company, par value $.01 per share (the “Common Stock”). Pursuant to the terms of the Southern Graphics Inc. Stock Incentive Plan (the “Plan”) and the Stock Option Agreement between the Company and the Participant dated                          , 20    , (the “Option Agreement”), that Option has become exercisable. The Participant now desires to exercise that Option with respect to              shares of the Common Stock, and the Company agrees that the Participant has that right under the terms of the Plan and the Option Agreement. Therefore, in consideration of the mutual covenants and agreements set forth herein and intending to be legally bound, the parties hereto hereby agree as follows: ARTICLE I PURCHASE OF SECURITIES 1.1 Sale and Purchase of Common Stock. Subject to the terms and conditions set forth in the Plan and the Option Agreement, Participant hereby exercises the Option to purchase, and the Company agrees to sell pursuant to the Option,              shares of Common Stock (the “Purchased Shares”) at an option price of $             per share, determined in accordance with Schedule A to the Option Agreement,, for a total purchase price of $            . The purchase price for the Common Stock shall be $             per share. 1.2 Withholding. Pursuant to Section 6 of the Option Agreement, the Company has determined, and the Participant has agreed to pay to the Company for delivery to the appropriate taxing authorities, that the amount of withholding taxes required to be paid by the Participant is $            . 1.3 Joinder to Stockholders Agreement. Pursuant to Section 6.3 of the Plan and Section 4 of the Option Agreement, the Participant hereby agrees to be bound by, and to execute an instrument of joinder to, the -------------------------------------------------------------------------------- Stockholders Agreement, dated as of December 30, 2005, among the Company, Citigroup Venture Capital Equity Partners, L.P., a limited partnership organized under the laws of Delaware, and certain other stockholders of the Company, as it may be amended from time to time. 1.4 Delivery. As soon as practicable following delivery by the Participant to the Company of the amounts required pursuant to Sections 1.1 and 1.2 above, the Company will instruct its stock transfer agent to make an appropriate entry on the Company’s shareholders list to reflect the Participant’s ownership of the Purchased Shares, and, if appropriate, to deliver to the Participant certificate(s) representing those Purchased Shares. ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY 2.1 Representations, Warranties and Covenants of the Company. The Company represents and warrants to, and covenants and agrees with, the Participant as follows: (a) The Company is a corporation validly existing and in good standing under the laws of the State of Delaware. (b) The Company has full corporate power and corporate authority to make, execute, deliver and perform this Agreement and to carry out all of the transactions provided for herein. (c) The Company has taken such corporate action as is necessary or appropriate to enable it to perform its obligations hereunder, including, but not limited to, the issuance and sale of the Common Stock to be issued by it, and this Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with the terms hereof. (d) The Common Stock when issued in compliance with the provisions of this Agreement will be validly issued, fully paid and non-assessable. -------------------------------------------------------------------------------- ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARTICIPANT 3.1 Representations, Warranties and Covenants of the Particpant. The Participant represents and warrants to, and covenants and agrees with, the Company that: (a) The Participant has the full legal right, power and authority to enter into this Agreement and to perform Participant’s obligations hereunder without the need for the consent of any other person; and this Agreement has been duly authorized, executed and delivered and constitutes the legal, valid and binding obligation of the Participant enforceable against the Participant in accordance with the terms hereof. (b) The Common Stock is being acquired by the Participant for investment, and not with a view to any distribution thereof that would violate the Securities Act of 1933, as amended (the “Securities Act”), or the applicable state securities laws of any state; and the Participant will not distribute the Common Stock in violation of the Securities Act or the applicable securities laws of any state. (c) The Participant understands that the Common Stock has not been registered under the Securities Act or the securities laws of any state and must be held indefinitely unless subsequently registered under the Securities Act and any applicable state securities laws or unless an exemption from such registration becomes or is available. (d) The Participant is financially able to hold the Common Stock for long-term investment, believes that the nature and amount of the Common Stock being purchased is consistent with the Participant’s overall investment program and financial position, and recognizes that there are substantial risks involved in the purchase of the Common Stock. (e) The Participant confirms that (i) the Participant is familiar with the proposed business of the Company (ii) the Participant has had the opportunity to ask questions of the officers and directors of the Company and to obtain (and that the Participant has received to his satisfaction) such information about the business and financial condition of the Company as the Participant has reasonably requested. 3.2 Legend. The certificates representing the Common Stock shall bear the following legends in addition to any other legend required under applicable law or the Stockholders Agreement: (i) “THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF (EACH, A “TRANSFER”) UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL IS RECEIVED W A FORM SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED.” (ii) “THE SHARES-REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO (A) THE TRANSFER AND OTHER PROVISIONS OF (A) THE PROVISIONS OF THE SOUTHERN GRAPHICS INC. STOCK INCENTIVE PLAN, DATED AS OF [                    ] (THE “INCENTIVE PLAN”); (B) THE PROVISIONS OF A STOCKHOLDERS AGREEMENT, DATED AS OF DECEMBER 30, 2005 AMONG THE ISSUER AND CERTAIN STOCKHOLDERS OF THE ISSUER (THE “STOCKHOLDERS AGREEMENT”) INCLUDING, WITHOUT LIMITATION, THE REGISTRATION RIGHTS PROVISIONS FOR COMMON STOCK ATTACHED THERETO AS EXHIBIT B, AMONG THE ISSUER AND CERTAIN STOCKHOLDERS OF THE ISSUER AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED BY IT ARE TRANSFERABLE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THE INCENTIVE PLAN, AND THE STOCKHOLDERS AGREEMENT, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE ISSUER. NO TRANSFER OF SUCH SHARES WILL BE MADE ON THE BOOKS OF THE ISSUER, AND SUCH -------------------------------------------------------------------------------- TRANSFER SHALL BE VOIDABLE, UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH PLAN AND AGREEMENTS.” (iii) “THE ISSUER WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS; PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OR SERIES OF SHARES AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.” and any other legend set forth in the Stockholder’s Agreement. 3.3 Sale or Other Transfer. Participant understands and agrees that no sale or other transfer of any of the Common Stock acquired upon exercise of the Option may be made except in accordance with the terms of the Stockholders Agreement. 3.4 Permitted Transfers. No consent shall be required for the disposition of any shares of Common Stock by will or operation of the intestacy laws upon the death of a Participant, provided that the recipient of such shares of Common Stock agrees to be bound by the terms of the Plan and the Stockholders Agreement. ARTICLE IV MISCELLANEOUS 4.1 Amendments. This Agreement may only be amended by a writing executed by the Company and the Participant. 4.3 Survival of Provisions. The representations, warranties, covenants and agreements contained in this Agreement shall survive and remain in full force and effect in accordance with their terms from and after the exercise of the Option. 4.4 Successors and Assigns. Except as expressly provided in this Agreement, the rights and obligations of the Participant under this Agreement may not be assigned to any person, and 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. This Agreement shall be binding upon the Company and Participant and their respective successors and assigns. 4.5 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without giving effect to the conflicts of laws provisions thereof. 4.6 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. -------------------------------------------------------------------------------- 4.7 Counterparts. This Agreement may be executed in any number of counterparts each of which shall be an original, but all of which shall constitute one and the same agreement. 4.8 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings of the parties hereto, whether oral or written, with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.   SOUTHERN GRAPHICS INC. By:     Title     Participant

EIGHTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT This Eighth Amendment to Amended and Restated Credit Agreement (this “Amendment”) is dated as of September 29, 2006 (the “Amendment Closing Date”) and entered into by and among Bank of America, N.A., as lender (the “Lender”), with offices at 55 South Lake Avenue, Suite 900, Pasadena, California 91101, and Meade Instruments Corp., a Delaware corporation, Simmons Outdoor Corp., a Delaware corporation, and Coronado Instruments, Inc., a California corporation (such entities being referred to hereinafter each individually as a “Borrower” and collectively, the “Borrowers”). WHEREAS, the Lender and the Borrowers have entered into that certain Amended and Restated Credit Agreement dated as of October 25, 2002 (as amended, restated or modified from time to time, the “Agreement”); and WHEREAS, in order to avoid any default related to the filing of the Borrowers’ annual and quarterly reports as set forth in the Agreement, the Borrowers have requested that the Lender amend the Agreement in certain respects and the Lender has agreed to such amendments pursuant to the terms and conditions provided herein. NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in the Agreement and this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE I Definitions Section 1.01. Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Agreement, as amended hereby. ARTICLE II Amendments Section 2.01. Amendment of Section 5.2(a). Solely with respect to the Fiscal Year of the Borrower ending February 28, 2006, the ninety (90) day period set forth in Section 5.2(a) of the Agreement that was previously amended, is now amended to read two hundred forty-five (245) days which, for avoidance of doubt, is October 31, 2006. Section 5.2(a) shall remain unchanged with respect to all other Fiscal Years of the Borrower ending thereafter. Section 2.02. Amendment of Section 5.2(b). Solely with respect to the fiscal quarter of the Borrower ending May 31, 2006 and the fiscal quarter of the Borrower ending August 31, 2006, the text “forty-five (45) days after the end of each fiscal quarter” set forth in Section 5.2(b) of the Agreement that was previously amended, is now amended to read “the earlier to occur of October 31, 2006 or five (5) days after the delivery of the 10K for the Fiscal Year ending February 28, 2006”. Section 5.2(b) shall remain unchanged with respect to all other fiscal quarters of the Borrower ending thereafter. ARTICLE III Section 3.01. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent: (i) The representations and warranties contained herein and in the Agreement, as amended hereby, shall be true and correct in all material respects as of the date hereof as if made on the date hereof, except for such representations and warranties limited by their terms to a specific date; (ii) The Borrowers shall have delivered to the Lender an executed original copy of this Amendment; (iii) The Borrowers shall have delivered to the Lender executed original copies of each of the Consents and Reaffirmations attached to this Amendment; (iv) No Default or Event of Default shall have occurred and be continuing; and (v) All proceedings taken in connection with the transactions contemplated by this Amendment and all documentation and other legal matters incident thereto shall be satisfactory to the Lender in its sole and absolute discretion. ARTICLE IV Section 4.01. Acknowledgment. Each Borrower hereby represents and warrants that the execution and delivery of this Amendment and compliance by such Borrower with all of the provisions of this Amendment, (i) are within its powers and purposes, (ii) have been duly authorized or approved by such Borrower, and (iii) when executed and delivered by or on behalf of such Borrower, will constitute valid and binding obligations of the Borrower, enforceable in accordance with their terms. Each Borrower reaffirms its obligation to pay all amounts due the Lender under the Loan Documents in accordance with the terms thereof, as modified hereby. Section 4.02. Loan Documents Unmodified. Except as otherwise specifically modified by this Amendment, all terms and provisions of the Agreement and all other Loan Documents, as modified hereby, shall remain in full force and effect. Nothing contained in this Amendment shall in any way impair the validity or enforceability of the Loan Documents, as modified hereby or alter, waive, annul, vary, affect, or impair any provisions, conditions, or covenants contained therein or any rights, powers, or remedies granted therein. Any lien and/or security interest granted to the Lender in the Collateral set forth in the Agreement or any other Loan Document is and shall remain unchanged and in full force and effect and the Agreement and the other Loan Documents shall continue to secure the payment and performance of all of the Obligations thereunder, as modified hereby, and the Borrowers’ obligations hereunder. Section 4.03. Parties, Successors and Assigns. This Amendment shall be binding upon and shall inure to the benefit of each of the Borrowers, the Lender, and their respective successors and assigns. Section 4.04. Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. A facsimile signature shall be deemed effective as an original. Section 4.05. Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. Section 4.06. Expenses of the Lender. The Borrowers agree to pay on demand (i) all reasonable costs and expenses incurred by the Lender in connection with the preparation, negotiation and execution of this Amendment and the other Loan Documents executed pursuant hereto and any and all subsequent amendments, modifications, and supplements hereto or thereto, including, without limitation, the costs and fees of the Lender’s legal counsel and the allocated cost of staff counsel and (ii) all costs and expenses reasonably incurred by the Lender in connection with the enforcement or preservation of any rights under the Agreement, this Amendment and/or other Loan Documents, including, without limitation, the reasonable costs and fees of the Lender’s legal counsel, the allocated cost of staff counsel, and the costs and fees associated with any environmental due diligence conducted in relation hereto. Section 4.07. Total Agreement. This Amendment, the Agreement, and all other Loan Documents shall constitute the entire agreement between the parties relating to the subject matter hereof, and shall rescind all prior agreements and understandings between the parties hereto relating to the subject matter hereof, and shall not be changed or terminated orally. Section 4.08. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY LAW, EACH OF THE BORROWERS AND THE LENDER IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AMENDMENT, THE AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY LENDER-RELATED PERSON OR PARTICIPANT, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. Without limiting the applicability of any other provision of the Credit Agreement, the terms of Section 12.3 of the Agreement shall apply to this Amendment. 1 IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the day and year first above written. “BORROWERS”: MEADE INSTRUMENTS CORP. By: /s/ Brent W. Christensen Name: Brent W. Christensen Title: Senior Vice President and CFO SIMMONS OUTDOOR CORP. By: /s/ Brent W. Christensen Name: Brent W. Christensen Title: Senior Vice President and CFO CORONADO INSTRUMENTS, INC. By: /s/ Brent W. Christensen Name: Brent W. Christensen Title: Senior Vice President and CFO “LENDER”: BANK OF AMERICA, N.A. By: /s/ Todd R. Eggertsen Name: Todd R. Eggertsen Title: Vice President 2 CONSENTS AND REAFFIRMATIONS Each of MEADE INSTRUMENTS EUROPE CORP., a California corporation, and MEADE INSTRUMENTS HOLDINGS CORP., a California corporation, hereby acknowledges the execution of, and consent to, the terms and conditions of that Eighth Amendment to Amended and Restated Credit Agreement dated as of September 29, 2006, among MEADE INSTRUMENTS CORP., SIMMONS OUTDOOR CORP., CORONADO INSTRUMENTS, INC. and BANK OF AMERICA, N.A. (“Creditor”), and reaffirms its obligations under (a) that certain Continuing Guaranty (the “Guaranty”) dated as of September 24, 2001, made by the undersigned in favor of the Creditor, and (b) that certain Security Agreement (the “Security Agreement”) dated as of September, 2001, by and between the undersigned and the Creditor. Each of the undersigned acknowledges and agrees that each of the Guaranty and the Security Agreement remain in full force and effect and are hereby ratified and confirmed. Dated as of September 29, 2006. MEADE INSTRUMENTS EUROPE CORP., a California corporation By: /s/ Brent W. Christensen Name: Brent W. Christensen Title: Senior Vice President and CFO MEADE INSTRUMENTS HOLDINGS CORP., a California corporation By: /s/ Brent W. Christensen Name: Brent W. Christensen Title: Senior Vice President and CFO 3 CONSENTS AND REAFFIRMATIONS Each of MTSC HOLDINGS, INC., a California corporation (“MTSC”), MC HOLDINGS, INC., a California corporation (“MC HOLDINGS”), and MEADE CORONADO HOLDINGS CORP., a California corporation (“MCHC”), hereby acknowledges the execution of, and consents to, the terms and conditions of that Eighth Amendment to Amended and Restated Credit Agreement dated as of September 29, 2006, among MEADE INSTRUMENTS CORP., SIMMONS OUTDOOR CORP., CORONADO INSTRUMENTS, INC. and BANK OF AMERICA, N.A. (“Creditor”), and reaffirms its obligations under that certain Continuing Guaranty (the “Guaranty”) dated as of September 24, 2001 executed in favor of the Creditor and joined by each of the undersigned pursuant to an Instrument of Joinder, dated as of (i) October 25, 2002 with respect to MTSC and MC HOLDINGS, and (ii) December 1, 2004 with respect to MCHC (respectively, the “Instrument”). Each of the undersigned acknowledges and agrees that each of the Guaranty and Instrument remain in full force and effect and are hereby ratified and confirmed. Dated as of September 29, 2006. MTSC HOLDINGS, INC., a California corporation, By: /s/ Brent W. Christensen Name: Brent W. Christensen Title: Senior Vice President and CFO MC HOLDINGS, INC., a California corporation By: /s/ Brent W. Christensen Name: Brent W. Christensen Title: Senior Vice President and CFO MEADE CORONADO HOLDINGS CORP., a California corporation By: /s/ Brent W. Christensen Name: Brent W. Christensen Title: Senior Vice President and CFO 4

Exhibit 10.57   TERM LOAN AGREEMENT   VIVUS, INC., a Delaware Corporation and VIVUS REAL ESTATE LLC, a New Jersey Limited Liability Company with a business address of 1172 Castro Street, Mountain View, CA 94040 (jointly and severally if more than one, the “Borrower”) and Crown Bank, N.A., a banking association created and existing under the laws of the United States of America with a principal office located at 715 Route 70, Brick, NJ 08723 (the “Bank”), for valuable consideration, the receipt of which is hereby acknowledged, agree as follows:   I.              DEFINITIONS. 1.                             Each reference herein to:   a.                             “Accounts”, “Chattel Paper”, “Consumer Goods”, “Documents”, “Equipment”, “Farm Products”, “Fixtures”, “General Intangibles”, “Goods”, “Instruments”, “Inventory”, “Money”, and “Securities” shall have the meaning assigned to each in the Uniform Commercial Code from time to time in effect in the State (the “UCC”); b.                            “Affiliates of Borrower” means any person or entity that, directly or indirectly, controls, is controlled by or is under common control with the Borrower or is an inside director or officer of the Borrower.  For purposes of this definition, the term “control” (including the terms “controlling”, “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to vote five percent (5%) or more of (i) the voting stock of a corporation, (ii) the partnership interests of a partnership, or (iii) the membership interests of a limited liability company, or to direct or cause the direction of the management and policies of any such entity, whether through the ownership of voting stock, partnership interests, membership interests, by contract or otherwise; c.                             “Books and Records” shall mean all books, correspondence, credit files, records and other documents relating directly or indirectly to the Obligations and the Collateral, including, without limitation, all tapes, cards, runs, data bases, software programs, diskettes, and other papers and documents in the possession or control of the Borrower, any computer service bureau, or other agent or independent contractor: d.                            “Loan Documents” shall mean this Agreement, the Note, any Bank issued Commitment Letter and any amendments thereto, and any and all mortgages, pledge agreements, security agreements, financing statements, guaranties and other documents related to this Agreement and/or the Loan; e.                             “Material Adverse Change” shall mean with respect to the Borrower and any guarantors and any of their respective properties or revenues, an event, action or condition that would or is reasonably likely to (i) adversely affect the validity or enforceability of, or the authority of the Borrower and/or any guarantor to perform their respective obligations under, the Loan Documents, or (ii) materially adversely affect the business, operations, assets or condition (financial or otherwise) of the Borrower and/or any guarantor or the ability of the Borrower and/or any guarantor to perform their respective obligations under any of the Loan Documents, or (iii) materially adversely affect the value of any Collateral; f.                               “Rate”  For the first year of this Note, the interest rate will be fixed at eight and one-quarter (8.25%) percent, which is equal to the Wall Street Journal Prime Rate plus one (1%) percent and then adjusted annually to a fixed rate for the year equal to the Wall Street Journal Prime Rate plus one (1%) percent, with a floor rate of seven and one-half (7.50%) percent at all times, subject to Article V, Section 8. g.                            “State” shall mean the State of New Jersey.   II.             LOAN. 1.                              Term Loan; Purposes.  The Bank agrees on the terms and provisions of this Agreement to extend a term loan for the account of the Borrower in the principal sum of Five Million Three Hundred Seventy-Five Thousand and No/100 Dollars ($5,375,000.00) (the “Loan”) for the following purpose(s):  Purchase real estate   2.                              Note; Interest Calculation.  The Loan shall be evidenced by the Borrower’s note of even date with this Agreement (which note and all amendments thereto and any additional or supplementary notes executed pursuant to this Agreement are herein referred to collectively as the ‘‘Note’’).  The interest rate initially set forth in the Note is a variable rate.  Interest shall be calculated on the basis of a 360-day year using the actual number of days elapsed.  On maturity, whether scheduled or otherwise, both principal and all accrued and unpaid interest shall be immediately due and payable.   3.                              Late Fee.  If the entire amount of any required principal and/or interest is not paid in full within (15) days after the same is due, the Borrower shall pay to the Bank a late fee equal to five percent (5%) of the required payment.   4.                              Prepayment.  During the term of the Loan, for the loss on income, there shall be a premium for the prepayment of the Loan before its scheduled maturity.  (a)  Except as set forth in subsection (b) below, if the Loan is prepaid, in whole or in part, within the first year of its term, the premium shall be five (5%) percent of the prepaid amount.  If prepayment occurs in the second year of its term, the premium shall be four (4%) percent.  If prepayment occurs in the third year the prepayment shall be three   1 --------------------------------------------------------------------------------   (3%) percent.  If prepayment occurs in the fourth year the premium shall be two (2%) percent, and one (1%) percent if it occurs in the fifth year.  At no time shall the prepayment premium be less than one (1%) percent.  (b)  If the Borrower sells one of the two buildings to an independent party at a later date, the Bank will assess a one (1%) percent premium provided the Bank received a payment reducing the loan in an amount equal to forty (40%) percent of the initial appraised value and the remaining parcel has a loan to value not less than sixty (60%) percent of the remaining balance of the loan.  In addition, the Borrower must pay a Five Thousand ($5,000.00) and 00/100 Dollar release fee for the release of the parcel.   III.           REPRESENTATIONS AND WARRANTIES.   The Borrower represents and warrants that:   1.                              Organization and Powers.  (a) If a corporate, partnership, limited liability company or trust Borrower, it is duly organized, validly existing and in good standing under the laws of the state of its formation and in every other jurisdiction, except where the failure to so qualify would not have a material adverse effect upon the Borrower, its property, its financial condition, or otherwise, (b) it has the power and authority to own its properties and to carry on its business as now being conducted and, if a corporate, partnership, limited liability company or trust Borrower, is qualified to do business in every jurisdiction where such qualification is necessary, (c) it has the power to execute, deliver and perform the Loan Documents, (d) the execution, delivery and performance of the Loan Documents have been duly authorized by all requisite action, (e) the execution, delivery and performance of the Loan Documents will not violate any provision of law, any order of any court or other agency of government, the Articles of Formation or By-laws of a corporate Borrower, the partnership agreement of a partnership Borrower, the Articles of Incorporation or Operating Agreement of a limited liability company Borrower, or the trust agreement of a trust Borrower, or any indenture, agreement or other instrument to which it is a party, or by which it is bound, or be in conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Borrower (other than in favor of the Bank) or the acceleration of any of its outstanding indebtedness.   2.                              Financial Statements.  The Borrower has heretofore furnished to the Bank accurate and complete financial data and other information based on its operations in previous years, and said financial data fairly presents the financial position and the results of operations for the periods indicated therein.  There has been no Material Adverse Change since the date of the most recent financial statement.   3.                              Litigation.  There is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending or threatened against or affecting the Borrower.   4.                              No Conflict.  The Borrower is not a party to any agreement or instrument or subject to any restriction materially or adversely affecting its business, properties or assets, operations or condition, financial or otherwise.  The Borrower has no knowledge that it is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party.   5.                              Use of Proceeds.  No part of the proceeds of the Loan will be used for consumer purposes or will be used, in whole or in part, to purchase or carry, directly or indirectly, any margin stock or margin security (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying any such margin stock or margin security.  If requested by the Bank, the Borrower will furnish in connection with this Agreement a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in said Regulation U.   IV.           CONDITIONS OF LENDING.   1.        The Bank shall be obligated to extend the credit and make the advances under this Agreement only if on the date such advance is requested:   a.                             The Bank shall have received, to the extent applicable (i) copies of the Articles of Incorporation, Certificate of Incorporation, Certificate of Limited Partnership, or Certificate of a Limited Liability Company or Partnership, each certified by the secretary of state of the state of its formation, (ii) copies of partnership, trust, or operating agreements, each certified to the Bank by a duly authorized representative of such Borrower, (iii) Good Standing, Subsistence and/or Existence Certificates of the state of formation of the Borrower if applicable, and from all other states where such Borrower conducts its business or holds property, (iv) duly adopted resolutions authorizing the execution, delivery and performance under the Loan Documents certified by an officer of the Borrower; (v) a title policy insuring that the Bank’s loan is a first lien on the Property, (vi)  copy of the Certificate of Inspection from the Department of Community Affairs, Bureau of Housing Inspection of the State of New Jersey and a copy of the Certificate of Occupancy of both Properties; b.                            The representations and warranties in Part III hereof are true and correct; c.                             No Event of Default shall have occurred;   2 --------------------------------------------------------------------------------   V.                                              COVENANTS.   The Borrower covenants and agrees that it will:   1.                              a.  Legal Existence; Insurance; Etc.  Keep in full force and effect its legal existence (if a corporation, partnership, limited liability company or trust), authority, rights, licenses, permits and franchises and operate its business as conducted prior to the date hereof; maintain all property used in the conduct of its business and keep the same in good repair, working order and condition; and maintain adequate insurance on its properties against fire, theft, and extended coverage risks and against public liability and property damage and products liability and such other risks as may be required by law or as may be reasonably required by the Bank, in such form, for such periods, and written by such companies as may be satisfactory to the Bank, such insurance in the case of a secured loan to name the Bank as additional insured and/or mortgagee/loss payee.  All policies of insurance shall provide for at least thirty (30) days’ written notice to the Bank prior to cancellation or change in the coverage, scope or amount of any such policy or policies.  Borrower shall furnish the Bank with certificates of compliance with the foregoing insurance provision. b.  Compliance with Laws.  Comply with all present and future applicable laws, ordinances, rules, regulations, directives and other requirements of all governmental instrumentalities, including without limitation those relating to Hazardous Substances, within such time periods as required thereby, with time being of the essence.   2.                              Operation of Business.  Maintain and operate its business in a proper and efficient manner.   3.                              Payment of Taxes.  Pay and discharge all taxes, assessments, and governmental charges imposed upon Borrower, its income or its property before the same shall be in default, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might become a lien upon any such properties.   4.                              Financial Statements.  Furnish to the Bank:   a.                             promptly, from time to time as requested by the Bank, and in all events within one hundred twenty (120) days after the close of each applicable party’s tax year, (i) with respect to the Borrower and all corporate, partnership or trust guarantors, financial statements (audited if requested), balance sheets, profit and loss statements, together with supporting schedules, signed and in such form as may be acceptable to the Bank; (ii) with respect to all individual guarantors, signed personal financial statements; and (iii) with respect to all entities and individuals referred to in (i) and (ii), current Federal income tax returns (with all schedules and exhibits), or in the case of a partnership, Form 1065 (with all schedules and exhibits).  In any event, all the documents referred to in this subparagraph (a), regardless of when last submitted, must be submitted to the Bank, as often as the Bank shall deem necessary, if there occurs a Material Adverse Change; b.                            promptly, from time to time, such other information regarding the operations, assets, business, affairs and financial condition of the Borrower and all guarantors, as the Bank may reasonably request; and c.                             with respect to all personal financial statements submitted by individual guarantors, such statements shall be on forms prescribed by the Bank.   5.                              Inspection.  Permit agents or representatives of the Bank, at reasonable hours and upon reasonable notice, to inspect the Books and Records of the Borrower and to make abstracts or reproductions thereof, all at the Borrower’s expense.   6.                              Adverse Changes.  Promptly advise the Bank of any Material Adverse Change.   7.                              Accounting System.  Maintain a standard system of accounting in accordance with generally accepted accounting principles.   8.                              Depository.  Maintain the Bank as the Borrower’s depository and maintain in one or more accounts at the Bank, a minimum collected balance of $100,000.00, to be analyzed annually.  If the minimum balance is not maintained the interest rate will be automatically increased by one-half (.5%) percent.   9.                              Sales of Accounts and Instruments.  Not sell, assign, discount or dispose of any Accounts or Instruments held by the Borrower, with or without recourse, except for collection (including endorsements) in the ordinary course of business.   10.                        Sales and Transfers.  Not sell, assign, lease, transfer, sell and leaseback, or otherwise dispose of all or any material amount of its assets not in the ordinary course of business to any person or entity or turn over the management of, or enter into a management contract with respect to, such assets.   11.                        Valuation.  Not write up (by creating an appraisal surplus or otherwise) the value of any capital assets above their cost less the depreciation regularly allowable thereon.   12.                        Fundamental Changes.  Not dissolve, liquidate, consolidate with or merge with any corporation, limited liability company or other entity or agree to do any of the foregoing.   13.                        Additional Covenants.  Comply special provisions with the additional covenants, if any, set forth on affixed Exhibit A-1.   VI.                                          SECURITY AGREEMENT AND OTHER SECURITY DOCUMENTS. 1.                              Security Interest; Collateral; Obligations.  The Borrower hereby grants to the Bank, as security for any and all obligations whatsoever of the Borrower to the Bank, whether direct, indirect, absolute or contingent, due or to become due, and whether   3 --------------------------------------------------------------------------------   now existing or hereafter arising and howsoever evidenced or acquired, including without limitation all indebtedness and liabilities evidenced by the Loan, this Agreement, the other Loan Documents, checking account overdrafts, and letter of credit reimbursement agreements, excluding, however, indebtedness incurred primarily for personal, family or household purposes (collectively, the “Obligations”), a first lien on, and a security interest in and agrees and acknowledges that the Bank has and will continue to have a first lien on and a perfected security interest in all of the Collateral described below, both presently owned and after acquired, together with all proceeds and products thereof, additions and accessions thereto, and all replacements and substitutions therefor (collectively, the “Collateral”), including all such Collateral which constitutes Fixtures attached to the Property as set forth on Exhibit A-4 and the Certificate of Deposit (as defined below).   2.                              Borrower hereby warrants, covenants and agrees that:   a.                             Title; Adverse Liens.  Except for prior security interests disclosed on Exhibit A-2 (if any) and except for the security interest granted hereby, the Borrower is the owner of presently owned Collateral and will be the owner of Collateral hereafter acquired free from any lien or encumbrance (other than those in favor of the Bank), and Borrower will defend the Collateral against the claims and demands of all persons at any time claiming the same or any interest therein. b.                            Financing Statements.  Except for financing statements evidencing the security interests which may be listed on Exhibit A-2 (if any), no financing statements covering any Collateral are on file in any public office.  At the request of the Bank, the Borrower will execute one or more (i) financing statements pursuant to the UCC; (ii) title certificate lien application forms; and (iii) other documents necessary or advisable to perfect the security interests evidenced hereby, all in form satisfactory to the Bank.  Where allowed by law, the Borrower hereby irrevocably authorizes the Bank to file financing statements and amendments without the signature of the Borrower.  The Borrower will pay the cost of filing the aforesaid documents or filing or recording this Agreement in all public offices wherever filing or recording is deemed by the Bank to be necessary or desirable. c.                             Adverse Liens.  The Borrower will keep the Collateral free from any future adverse liens. d.                            Mortgages; Fixtures; Farm Products.  If the Borrower has granted a mortgage on real property and a security interest in Fixtures and/or Farm Products, there is affixed hereto as Exhibit A-4 a description of the mortgaged property and/or applicable real estate and the name(s) of the record owner. e.                             Certificate of Deposit.  The Borrower has granted a security interest in a $700,000.00 Certificate of Deposit to be opened at the Bank (the “Certificate of Deposit”).  Anything to the contrary herein, notwithstanding, the Certificate of Deposit shall be used by the Bank only to maintain current payments of interest in the event of a default. f.                               Taxes.  The Borrower will pay promptly when due all taxes and assessments upon the Collateral or for its use or operation or upon this Agreement and any of the other Loan Documents. g.                            Insurance.  With respect to all required insurance policies and coverage, the Bank may act either in its name or as attorney for the Borrower (for that purpose by these presents duly authorized and appointed with full power of substitution and revocation) in obtaining, adjusting, settling and canceling such insurance and endorsing any drafts in payment of any loss. h.                            Preservation of Collateral.  The Bank may, at its election, discharge taxes and liens levied or placed on the Collateral, pay for insurance on the Collateral and pay for the maintenance and preservation of the Collateral.  The Borrower agrees to reimburse Bank on demand for any payment made, or any expense incurred by the Bank pursuant to the foregoing authorization, and in any event all such payments and expenses shall constitute an Obligation hereunder.  If the Borrower fails to insure Collateral as required by this Agreement or any of the Loan Documents, the Borrower shall pay to the Bank on the date of such failure a nonrefundable fee for each such failure equal to the sum of (i) $100 plus (ii) the amount of the insurance premium cost incurred by the Bank.  Notwithstanding the foregoing, neither the charging or payment of such fee nor this provision shall in any way be deemed to waive or imply or constitute a basis for waiver of any default occasioned by Borrower’s failure to comply with the insurance requirements of this Agreement or any of the Loan Documents. i.                                Possession and Use.  Other than with respect to Collateral in which the Bank’s security interest is perfected by the Bank’s possession thereof, such as instruments, documents, cash, bank accounts, etc., which so long as any of the Obligations remain outstanding and unpaid shall remain in the possession of the Bank, until an Event of Default, the Borrower may have possession of the Collateral, provided that the Borrower will not use the Collateral in any unlawful manner or in a manner inconsistent with this Agreement, the Loan Documents, or any policy of insurance thereon. j.                                Power of Attorney.  The Borrower irrevocably designates and appoints the Bank its true and lawful attorney with full power of substitution and revocation to execute, deliver, and record in the name of the Borrower all financing statements, amendments, continuation statements, title certificate lien applications and other documents deemed by the Bank to be necessary or advisable to perfect or to continue the perfection of the security interests granted hereunder. k.                             Reproduction as Financing Statement.  A carbon, photographic, or other reproduction of a security agreement or a financing statement is sufficient as a financing statement. l.                                Remedies.  If an Event of Default occurs, the Bank shall have the rights and remedies provided in this Agreement, including without limitation in Part VII hereof.  In addition, the Bank may exercise and shall have any and all rights and remedies accorded it by the UCC.  The Bank may require the Borrower to assemble the Collateral and make it available to the Bank at a place to be designated by the Bank which is reasonably convenient to both parties.  The requirement of reasonable notice shall be met, if notice is mailed, postage prepaid, to the Borrower or other person entitled thereto at least ten (10) days (including non-business days) before the time of sale or disposition of the Collateral.  The Bank at its option may have a receiver appointed to take possession of the Collateral, to use and operate the Collateral, to collect the profits and proceeds   4 --------------------------------------------------------------------------------   therefrom, and to apply the same as the court may direct.  The Borrower agrees that the Bank’s legal remedies are inadequate and that the Bank shall be entitled to obtain equitable relief upon the occurrence of an Event of Default.  The Borrower shall pay to the Bank on demand all expenses, including reasonable legal expenses and attorney’s fees (which may include costs allocated by the Bank’s internal legal department), incurred or paid by the Bank in protecting or enforcing any rights of the Bank hereunder, including its right to take possession of the Collateral, storing and disposing of the same or in collecting the proceeds thereof. m.                          Inspection and Appraisal.  The Bank and its agents and representatives (including without limitation appraisers, engineers, and other professionals) shall, upon reasonable advance notice, have access to the Borrower’s premises for the purpose of inspecting and appraising the Collateral and/or performing environmental site assessments.  If an event of default has occurred and is continuing, all fees and expenses incurred by the Bank in connection with such inspections, appraisals and site assessments shall be payable by the Borrower to the Bank upon demand, and until paid in full, shall be secured by the Bank’s security interests.   VII.          EVENTS OF DEFAULT. 1.        Listing of Events of Default.  The happening of any of the following events or conditions with respect to the Borrower, individually and collectively, shall constitute an “Event of Default”:   a.                             any representation or warranty made herein or in any report, certificate, financial statement or other instrument furnished in connection with this Agreement or the Loan shall prove to be false or misleading in any material respect; b.                            failure to pay the principal of, or interest on, the Note or any other indebtedness of the Borrower to the Bank, within fifteen (15) days from the date the same or any installment thereof shall become due and payable, whether at the due date thereof or at a date fixed for prepayment or by acceleration or otherwise; c.                             default in the due observance or performance of any other covenant, condition or agreement contained in this Agreement, any of the other Loan Documents, or in any other agreement or document evidencing or pertaining to Obligations, and such other default shall remain unremedied for fifteen (15) days or, except for non-monetary default, if such compliance cannot be effected within fifteen (15) days, Borrower commences such compliance within the fifteen (15) days, and diligently and continuously pursues the same; d.                            the acceleration of the maturity of any of the Borrower’s indebtedness other than to the Bank; e.                             involvement in financial difficulties as evidenced by: i.         an attachment made on the Borrower’s property or assets seeking a sum in excess of $100,000.00 which remains unreleased for a period in excess of sixty (60) days; or ii.        the inability to pay its debts (including without limitation taxes) generally as they become due; or iii.       the appointment or authorization of a custodian as defined in the Bankruptcy Code; provided, however, that in the case of the appointment of a receiver in an involuntary proceeding such appointment continues in effect and undischarged for a period of sixty (60) days; or iv.       the entry of an order for relief in a voluntary case under any chapter of the Bankruptcy Code; or v.        the filing of an involuntary petition under any chapter of the Bankruptcy Code, which petition remains undismissed for a period of sixty (60) days; or vi.       any other judicial modification or adjustment of the rights of Borrower’s creditors; f.                               final judgment for the payment in excess of an aggregate of One Hundred Thousand Dollars ($100,000.00) shall be rendered against the Borrower and the same shall remain undischarged for a period of thirty (30) consecutive days during which execution shall not be effectively stayed; g.                            the suspension of business for cause, other than strike, casualty or other cause beyond the Borrower’s control and in the event of such suspension for cause beyond the Borrower’s control, failure to resume operations as soon as possible; h.                            dissolution or termination of the legal existence of the Borrower; i.                                seizure, forfeiture or confiscation by any federal or state governmental instrumentality of a material portion of the assets of Borrower which shall not have been stayed for a period of sixty (60) days; j.                                if the Bank believes in good faith, at any time, that either (a) the prospect of the Borrower’s (i) repayment of the Loan or payment of any of its other obligations under the Loan Documents or (ii) performance of its duties thereunder is impaired or (b) there is any Material Adverse Change; k.                             with respect to any guaranty and/or subordination agreement included in the Loan Documents, the failure of the same to remain in full force and effect until the Loan is paid in full and this Agreement is terminated; l.                                the existence of any liens for taxes due with respect to the Property unless the liens are being contested in good faith and adequate reserves have been deposited with the Bank, or construction lien claims which have not been dismissed for 30 days or for which escrows, satisfactory in amount to the Bank, have not been established by the Borrower; or m.                          the default of the Borrower or any Guarantor under any other obligation owed to the Bank, or any third party, now existing or arising after the date of this Note.   2.                              Certain Cross-Defaults.  The happening of any event or condition set forth in Article VII subsection 1(c), (e), (f), (l), or (m) above, by the Borrower or any guarantor of the Loan shall likewise constitute an Event of Default.   3.                              Acceleration.  If an Event of Default occurs, the Bank may declare all Obligations to be immediately due and payable.   5 --------------------------------------------------------------------------------   VIII.                                  MISCELLANEOUS. 1.                              Waiver of Event of Default.  No delay in accelerating the maturity of any Obligation shall affect the rights of the Bank later to take such action with respect thereto, and no waiver as to one Event of Default shall affect rights as to any other default.   2.                              Notices.  Except as otherwise specifically provided for herein, any notice, demand or communication hereunder shall be given in writing (including facsimile transmission or telex) and mailed or delivered to each party at its address set forth below, or, as to each party, at such other address as shall be designated by such party by a prior notice to the other party in accordance with the terms of this provision.  Any notice to the Borrower shall be sent as follows:   VIVUS, INC. AND VIVUS REAL ESTATE, LLC, 1172 Castro Street, Mountain View, CA 94040.  All notices hereunder shall be effective upon the earliest to occur of (i) five (5) business days after such notice is mailed, by registered or certified mail, postage prepaid (return receipt requested), (ii) upon delivery by hand, (iii) upon delivery if delivered by overnight courier (such delivery to be evidenced by the courier’s records), and (iv) in the case of any notice or communication by telex or telecopy, on the date when sent.   3.                              Survival.  This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive any making by the Bank of the Loan and the execution and delivery of any Loan Documents and shall continue in full force and effect until this Agreement is terminated and all the Obligations are paid in full.   4.                              Legal Fees and Expenses; Additional Fees and Charges. The Borrower will pay all reasonable expenses incurred by the Bank in connection with the preparation of the Loan Documents, the making of the Loan, and the enforcement of the rights of the Bank in connection with this Agreement, any of the other Loan Documents and the Loan, including, but not limited to, the reasonable fees of its counsel (which may include costs allocated by the Bank’s internal legal department), plus the disbursements of said counsel.  Borrower further agrees to pay to the Bank on demand all reasonable fees, costs and expenses incurred by the Bank in connection with the administration of the Loan, including, without limitation, overnight courier fees, lien search fees, and filing and recording fees.   5.                              Choice of Law.  This Agreement and all the other Loan Documents shall be construed in accordance with and governed by the local laws (excluding the conflict of laws rules, so-called) of the State.   6.                              Written Modification and Waiver.  No modification or waiver of any provision of this Agreement or of any of the other Loan Documents nor consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in the same, similar or other circumstances.   7.                              Accounting Practice.  All matters involving accounting practice are to be determined both as to classification of items and amounts in accordance with generally accepted principles of accounting practice consistently applied by the Borrower’s accountants in the preparation of its previous annual financial statements.   8.                              Documentation.  All documents required hereunder shall be in form and substance reasonably satisfactory to the Bank.   9.                              Replacement Documents.  Upon receipt of an affidavit of an officer of the Bank as to the loss, theft, destruction or mutilation of the Note or any security document which is not of public record, and, in the case of any such loss, theft, destruction, mutilation, upon cancellation of such Note or other security document, the Borrower will issue, in lieu thereof, a replacement note or other security document in the same principal amount thereof and otherwise of like tenor.   10.                        Joint and Several Obligations.  If this Agreement is signed by more than one Borrower, all obligations of the Borrowers are their joint and several obligations, and all references to the Borrower herein shall be deemed to refer to each of them, either of them, and all of them.   11.                        Unenforceability.  In the event any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be held invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall be valid and enforceable to the fullest extent permitted by law.   12.                        Cumulative Remedies; Setoff. The rights and remedies provided the Bank in this Agreement and in the other Loan Documents shall be cumulative and shall be in addition to and not in derogation of any rights or remedies provided the Bank in any other document, instrument or agreement or under applicable law or otherwise, and may be exercised concurrently or successively. The Borrower hereby grants to the Bank, a continuing lien, security interest and right of setoff as security for all liabilities and obligations to the Bank, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Bank.  Except for the Certificate of Deposit, at any time, without demand or notice (any such notice being expressly waived by the Borrower), the Bank may setoff the same or any part thereof and apply the same to any liability or obligation of the Borrower and any guarantor even though unmatured and regardless of the adequacy of any other collateral securing the Loan. ANY AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER   6 --------------------------------------------------------------------------------   PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.   13.                        Special Provisions.  A)  the Borrower shall pay to the Bank, each month, together with its monthly payment of principal and interest, an amount equal to one twelfth (1/12) of the annual property taxes on the Properties set forth on Exhibit A-4, attached hereto.  No interest shall be paid on the amount held in escrow for the property taxes.  Furthermore, an amount equal to two (2) months of the annual property taxes is due at closing.  B) The Borrower may, in its sole discretion, release certain of the collateral, provided, that the Borrower pay a one (1%) percent prepayment premium and the Bank receives a payment reducing the loan in an amount equal to forty (40%) percent of the initial appraised value and the remaining parcel has a loan to value not less than sixty (60%) percent of the remaining balance of the loan. C)  At the time the Bank provides each individual release of mortgage, the Borrower shall pay a fee in an amount equal to $5,000.00 per release.   14.                        Assignments and Participations; Credit Reporting.  The Borrower agrees that the Bank shall have the right at all times to sell all or any portion of the Loan and all Loan Documents, and to grant one or more participations in the Loan and in all Loan Documents.  In connection therewith, the Borrower hereby irrevocably authorizes the Bank to deliver to each such purchaser, participant and prospective purchaser and prospective participant originals and copies of all Loan Documents and all financial statements and other credit and factual data from time to time in the Bank’s possession which relate to the Borrower and/or all guarantors, if any, of the Loan.  The Borrower further agrees that the Bank shall have the right at all times to disclose and report to credit reporting agencies and credit rating agencies such information pertaining to the Borrower and/or all guarantors, if any, as is consistent with the Bank’s policies and practices from time to time in effect.   15.                        Maximum Rate of Interest.  All provisions of this Agreement are expressly subject to the condition that in no event , whether by reason of acceleration of the maturity of the Loan or otherwise, shall the amount paid or agreed to be paid to the Bank hereunder and deemed interest under applicable law exceed the maximum rate of interest on the unpaid principal balance of the Loan allowed by applicable law (the “Maximum Allowable Rate”), which shall mean the law in effect on the date of this Agreement, except that if there is a change in such law which results in a higher Maximum Allowable Rate being applicable to this Agreement, then this Agreement shall be governed by such amended law from and after its effective date.  In the event that fulfillment of any provision of this Agreement results in the interest rate hereunder being in excess of the Maximum Allowable Rate, the obligation to be fulfilled shall automatically be reduced to eliminate such excess.  If, notwithstanding the foregoing, the Bank receives an amount which under applicable law would cause the interest rate set forth in this Agreement to exceed the Maximum Allowable Rate, the portion thereof which would be excessive shall automatically be applied to and deemed a prepayment of the unpaid principal balance of the Loan and not a payment of interest.   16.                        Pledge to Federal Reserve. The Bank may at any time pledge or assign all or any portion of its rights under the Loan Documents [including any portion of the promissory note] to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341.  No such pledge or assignment or enforcement thereof shall release the Bank from its obligations under any of the Loan Documents.   17.                        WAIVER OF JURY TRIAL.  THE BORROWER WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT AND ANY OF THE OTHER LOAN DOCUMENTS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.   18.                        Jurisdiction and Venue.  The Borrower irrevocably consents that any legal action or proceeding against it or any of its property with respect to any matter arising under or relating to this Agreement and the other Loan Documents may be brought in any court of the State, or any Federal Court of the United States of America located in the State, as the Bank may elect, and by execution and delivery of this Agreement the Borrower hereby submits to and accepts with regard to any such action or proceeding, for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.  The Borrower further irrevocably consents to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Borrower at its address set forth herein.  The foregoing, however, shall not limit the Bank’s rights to serve process in any other manner permitted by law or to bring any legal action or proceeding or to obtain execution of judgment in any other jurisdiction.  The Borrower irrevocably waives any objection which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement and the other Loan Documents, and further irrevocably waives any claim that the State is not a convenient forum for any such suit, action or proceeding.   19.                        Presentment; Etc. The Borrower waives presentment, notice of dishonor, protest, notice of non-payment, demand and other notice of any kind.   20.                        Debit.  The Borrower hereby irrevocably authorizes the Bank and any subsequent holder of the Note, both before and after demand, to debit any of the Borrower’s business accounts maintained with the Bank (or subsequent holder) for all sums (including without limitation principal, interest, late fees, and other fees) payable from time to time under this Agreement and the other Loan Documents.  In addition, if the Borrower has signed a separate authorization, the Bank is authorized to initiate ACH debit transfers for the Loan payments and on the business account(s) specified in the authorization.  These provisions   7 --------------------------------------------------------------------------------   shall not obligate the Bank to create or allow any overdraft, and such authority shall not relieve the Borrower of the obligation to assure that payments are made when due.   21.                        Integration.  The Loan Documents supersede all prior agreements between the parties with respect to the Loan, whether oral or written, including, without limitation, all correspondence between counsel for the respective parties.  The Loan Documents constitute the entire agreements between the parties with respect to the Loan, and the rights, duties, and obligations of the parties with respect thereto.   22.                        Lender Liability.  The Bank shall not be liable for any loss sustained by any party resulting from any action, omission, or failure to act by the Bank, whether with respect to the exercise or enforcement of the Bank’s rights or remedies under the Loan Documents, the Loan, or otherwise, unless such loss is caused by the actual willful misconduct of the Bank conducted in bad faith.  IN NO EVENT SHALL THE BANK EVER BE LIABLE FOR CONSEQUENTIAL OR PUNITIVE DAMAGES, ANY RIGHT OR CLAIM THERETO BEING EXPRESSLY AND UNCONDITIONALLY WAIVED.   23.                        Bank’s Decisional Standards.  To the extent that applicable laws require the Bank’s actions or decisions under the Loan Documents to be conducted in good faith, the term “good faith” shall be defined (using a subjective standard) as honesty in fact with regard to the conduct or transaction concerned based upon the facts and circumstances actually known to the individual(s) acting for the Bank, and such requirement may be satisfied by reliance upon the advice of attorneys, accountants, appraisers, architects, engineers, or other qualified professionals.   24.                        Descriptive Headings; Context.  The captions in this Agreement are for convenience of reference only and shall not define or limit any provision.  Whenever the context requires, reference in this Agreement to the neuter gender shall include the masculine and/or feminine gender, and the singular number shall include the plural, and, in each case, vice versa.   25.                        Acknowledgment of Copy.  The Borrower acknowledges that it has received a fully executed copy of this Agreement.   IN WITNESS WHEREOF, the Borrower and the Bank, by persons duly authorized, have executed this Agreement as of January 4, 2006.   ATTEST OR WITNESSED BY: BORROWER:                 Vivus, Inc., a Delaware Corporation             By: /s/ Jay Samuels   By: /s/ Timothy E. Morris   Jay Samuels, Esq. Timothy E. Morris, Vice President Finance   and Chief Financial Officer               Vivus Real Estate, LLC,   a New Jersey Limited Liability Company             By: /s/ Jay Samuels   By: /s/ Timothy E. Morris   Jay Samuels, Esq. Vivus, Inc., a Delaware Corporation, Sole Member Timothy E. Morris, Vice President Finance and Chief Financial Officer           Crown Bank, N.A.               By:       Name: Patricia J. Downs   Title: Vice President   8 --------------------------------------------------------------------------------   EXHIBIT A-1   Additional Covenants   None   EXHIBIT A-2   Prior Security Interests in Collateral   None   EXHIBIT A-3   Location of Equipment   None   Location of Inventory   None   Offices Containing Records of Accounts   None   EXHIBIT A-4   Description of Real Estate   735 and 745 Airport Road, , Block 1160.01, Lots 229 and 232, Lakewood, Ocean County, NJ   Name(s) of Record Owner   VIVUS REAL ESTATE LLC   9 --------------------------------------------------------------------------------

Exhibit 10.2 UTSTARCOM, INC. 2006 EQUITY INCENTIVE PLAN STOCK OPTION AWARD AGREEMENT Unless otherwise defined herein, the terms defined in the 2006 Equity Incentive Plan (the “Plan”) will have the same defined meanings in this Stock Option Award Agreement (the “Award Agreement”). I.              NOTICE OF STOCK OPTION GRANT Name: Address: You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Award Agreement, as follows: Grant Number                                                                          Date of Grant                                                                          Vesting Commencement Date                                                                          Exercise Price per Share   $                                                                       Total Number of Shares Granted                                                                          Total Exercise Price   $                                                                       Type of Option:          Incentive Stock Option                  Nonstatutory Stock Option       Term/Expiration Date:                                                                      Vesting Schedule: Subject to any acceleration provisions contained in the Plan or set forth below, this Option may be exercised, in whole or in part, in accordance with the following schedule: [Insert Vesting Schedule Here] --------------------------------------------------------------------------------   Termination Period: This Option shall be exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be Service Provider.  Notwithstanding the foregoing, in no event may this Option be exercised after the Term/Expiration Date as provided above and may be subject to earlier termination as provided in Section 14(c) of the Plan. II.            AGREEMENT A.            GRANT OF OPTION. 1.             The Administrator hereby grants to the individual named in the Notice of Grant attached as Part I of this Agreement (the “Participant”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of the Plan, which is incorporated herein by reference.  Subject to Section 19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Award Agreement, the terms and conditions of the Plan will prevail. 2.             If designated in the Notice of Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code.  However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it will be treated as a Nonstatutory Stock Option (“NSO”). B.            EXERCISE OF OPTION. 1.             RIGHT TO EXERCISE.  THIS OPTION IS EXERCISABLE DURING ITS TERM IN ACCORDANCE WITH THE VESTING SCHEDULE SET OUT IN THE NOTICE OF GRANT AND THE APPLICABLE PROVISIONS OF THE PLAN AND THIS AWARD AGREEMENT. 2.             METHOD OF EXERCISE.  THIS OPTION IS EXERCISABLE BY DELIVERY OF AN EXERCISE NOTICE, IN THE FORM ATTACHED AS EXHIBIT A (THE “EXERCISE NOTICE”) OR IN SUCH OTHER FORM AND MANNER AS DETERMINED BY THE ADMINISTRATOR, WHICH WILL STATE THE ELECTION TO EXERCISE THE OPTION, THE NUMBER OF SHARES IN RESPECT OF WHICH THE OPTION IS BEING EXERCISED (THE “EXERCISED SHARES”), AND SUCH OTHER REPRESENTATIONS AND AGREEMENTS AS MAY BE REQUIRED BY THE COMPANY PURSUANT TO THE PROVISIONS OF THE PLAN.  THE EXERCISE NOTICE WILL BE COMPLETED BY PARTICIPANT AND DELIVERED TO THE COMPANY.  THE EXERCISE NOTICE WILL BE ACCOMPANIED BY PAYMENT OF THE AGGREGATE EXERCISE PRICE AS TO ALL EXERCISED SHARES, TOGETHER WITH ANY APPLICABLE WITHHOLDING TAXES.  THIS OPTION WILL BE DEEMED TO BE EXERCISED UPON RECEIPT BY THE COMPANY OF SUCH FULLY EXECUTED EXERCISE NOTICE ACCOMPANIED BY SUCH AGGREGATE EXERCISE PRICE AND ANY APPLICABLE TAX WITHHOLDING. No Shares will be issued pursuant to the exercise of this Option unless such issuance and exercise comply with Applicable Laws.  Assuming such compliance, for income tax purposes the Exercised Shares will be considered transferred to Participant on the date the Option is exercised with respect to such Exercised Shares. 2 --------------------------------------------------------------------------------   C.            Method of Payment. Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Participant: 1.             CASH; 2.             CHECK; 3.             CONSIDERATION RECEIVED BY THE COMPANY UNDER A FORMAL CASHLESS EXERCISE PROGRAM ADOPTED BY THE COMPANY IN CONNECTION WITH THE PLAN; OR 4.             SURRENDER OF OTHER SHARES WHICH, (A) IN THE CASE OF SHARES ACQUIRED FROM THE COMPANY, EITHER DIRECTLY OR INDIRECTLY, HAVE BEEN OWNED BY PARTICIPANT AND NOT SUBJECT TO A SUBSTANTIAL RISK OF FORFEITURE FOR MORE THAN SIX (6) MONTHS ON THE DATE OF SURRENDER, AND (B) HAVE A FAIR MARKET VALUE ON THE DATE OF SURRENDER EQUAL TO THE AGGREGATE EXERCISE PRICE OF THE EXERCISED SHARES. D.            NON-TRANSFERABILITY OF OPTION.  UNLESS DETERMINED OTHERWISE BY THE ADMINISTRATOR, THIS OPTION MAY NOT BE TRANSFERRED IN ANY MANNER OTHERWISE THAN BY WILL OR BY THE LAWS OF DESCENT OR DISTRIBUTION AND MAY BE EXERCISED DURING THE LIFETIME OF PARTICIPANT ONLY BY PARTICIPANT. E.             TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Award Agreement. F.             TAX OBLIGATIONS. 1.             WITHHOLDING TAXES.  PARTICIPANT AGREES TO MAKE APPROPRIATE ARRANGEMENTS WITH THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) FOR THE SATISFACTION OF ALL FEDERAL, STATE, AND LOCAL INCOME AND EMPLOYMENT TAX WITHHOLDING REQUIREMENTS APPLICABLE TO THE OPTION EXERCISE.  PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE COMPANY MAY REFUSE TO HONOR THE EXERCISE AND REFUSE TO DELIVER SHARES IF SUCH WITHHOLDING AMOUNTS ARE NOT DELIVERED AT THE TIME OF EXERCISE. 2.             NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES.  IF THE OPTION GRANTED TO PARTICIPANT HEREIN IS AN ISO, AND IF PARTICIPANT SELLS OR OTHERWISE DISPOSES OF ANY OF THE SHARES ACQUIRED PURSUANT TO THE ISO ON OR BEFORE THE LATER OF (A) THE DATE TWO YEARS AFTER THE GRANT DATE, OR (B) THE DATE ONE YEAR AFTER THE DATE OF EXERCISE, PARTICIPANT WILL IMMEDIATELY NOTIFY THE COMPANY IN WRITING OF SUCH DISPOSITION.  PARTICIPANT AGREES THAT PARTICIPANT MAY BE SUBJECT TO INCOME TAX WITHHOLDING BY THE COMPANY ON THE COMPENSATION INCOME RECOGNIZED BY PARTICIPANT. G.            ENTIRE AGREEMENT; GOVERNING LAW.  THE PLAN IS INCORPORATED HEREIN BY REFERENCE.  THE PLAN AND THIS AWARD AGREEMENT CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE IN THEIR ENTIRETY ALL PRIOR UNDERTAKINGS AND AGREEMENTS OF THE COMPANY AND PARTICIPANT WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE MODIFIED ADVERSELY TO PARTICIPANT’S INTEREST EXCEPT BY MEANS OF A WRITING SIGNED BY THE COMPANY AND 3 --------------------------------------------------------------------------------   Participant.  This Award Agreement is governed by the internal substantive laws, but not the choice of law rules, of California. H.            NO GUARANTEE OF CONTINUED SERVICE.  PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER.  PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. [Remainder of Page Intentionally Left Blank] 4 --------------------------------------------------------------------------------   By Participant’s signature and the signature of the Company’s representative below, Participant and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Award Agreement.  Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions of the Plan and Award Agreement.  Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Award Agreement.  Participant further agrees to notify the Company upon any change in the residence address indicated below.   PARTICIPANT:   UTSTARCOM, INC.                     Signature   By               Print Name   Title             Residence Address             5 --------------------------------------------------------------------------------   EXHIBIT A UTSTARCOM, INC. 2006 EQUITY INCENTIVE PLAN EXERCISE NOTICE UTStarcom, Inc. 1275 Harbor Bay Parkway Suite 100 Alameda, CA 94502 Attention: [             ] 1.             Exercise of Option.  Effective as of today,                           ,              , the undersigned (“Participant”) hereby elects to purchase                       shares (the “Shares”) of the Common Stock of UTStarcom, Inc. (the “Company”) under and pursuant to the 2006 Equity Incentive Plan (the “Plan”) and the Award Agreement dated               (the “Award Agreement”). The purchase price for the Shares will be $                 , as required by the Award Agreement. 2.             Delivery of Payment.  Participant herewith delivers to the Company the full purchase price for the Shares and any required withholding taxes to be paid in connection with the exercise of the Option. 3.             Representations of Participant.  Participant acknowledges that Participant has received, read and understood the Plan and the Award Agreement and agrees to abide by and be bound by their terms and conditions. 4.             Rights as Stockholder.  Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired will be issued to Participant as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 14 of the Plan. 5.             Tax Consultation.  Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice. 6.             Entire Agreement; Governing Law.  The Plan and Award Agreement are incorporated herein by reference. This Exercise Notice, the Plan, and the Award Agreement constitute the entire   --------------------------------------------------------------------------------   agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s interest except by means of a writing signed by the Company and Participant. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by:     PARTICIPANT: UTSTARCOM, INC.             Signature By                 Print Name Its     Address: Address:           1275 Harbor Bay Parkway   Suite 100     Alameda, CA 94502             Date Received   2 --------------------------------------------------------------------------------

THESE SECURITIES HAVE NOT 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. ALLIANCE PHARMACEUTICAL CORP. AMENDED AND RESTATED SENIOR CONVERTIBLE PROMISSORY NOTE $________________ ________________, 2006          ALLIANCE PHARMACEUTICAL CORP., a New York corporation (the “Company”), for value received, promises to pay to the order of ____________________, or its assigns (the “Holder”), the principal sum of __________________________ ($___________), plus simple interest thereon from March 25, 2006 until paid (or earlier converted as provided below) at the rate of ten percent (10%) per annum. This Amended and Restated Senior Convertible Promissory Note amends and restates in its entirety that certain Senior Convertible Promissory Note, made by the Company payable to the order of the Holder, in the principal amount of $___________, dated September 24, 2004 (as amended hereby, this “Note”). The principal amount of this Note remains outstanding as of the date hereof. This Note is not intended to evidence a revolving loan. The Company shall have no right to re-borrow any sums that have been borrowed and repaid.         This Note is issued pursuant to that certain Omnibus Amendment to Senior Convertible Promissory Note Purchase Agreement and Registration Rights Agreement dated as of March __, 2006 between the Company and the initial Holder (the “Amendment”). Certain capitalized terms used herein but not defined herein shall have the meanings set forth in the Amendment or that certain Senior Convertible Promissory Note Purchase Agreement dated September 21, 2004 between the Company and the initial Holder (the “Note Purchase Agreement”). The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder, by the acceptance of this Note, agrees:         1.    Maturity. Unless previously converted as provided for below, this Note will automatically mature and the entire unpaid principal amount, together with accrued interest through such date, shall become due and payable upon the first to occur of (i) April 1, 2007, and (ii) an Event of Default (as defined below), such first date to occur being the “Maturity Date.”         2.    Payment. The payment of all principal and accrued interest under this Note is to be made on the Maturity Date or any prepayment dates and at the address of the Holder or at such other place in the United States as the Holder shall designate to the Company in writing, in lawful money of the United States of America. 1 --------------------------------------------------------------------------------         3.    Interest. Interest on this Note shall be computed on the basis of a 365-day year and actual days elapsed. No interest shall be payable until the Maturity Date or the date on which this Note is prepaid or required to be prepaid. Upon an Event of Default, the principal of the Note and any part thereof shall thereafter bear interest a the highest legal rate permissible under the laws of the State of New York.         4.    Optional Prepayment. This Note, plus all accrued and unpaid interest through the prepayment date, may be prepaid in whole or in part by the Company without penalty or additional fees at any time or from time to time upon fifteen (15) days prior written notice to the Holder, provided that such Holder may convert this Note into Common Stock of the Company in accordance with Section 5(a) hereof prior to the end of such fifteen (15) day period.         5.    Conversion of Note.             (a)    Voluntary Conversion. If not sooner converted automatically as described below, all or part of the outstanding principal, and the accrued and unpaid interest thereon through the date of such conversion, of this Note may be converted at any time or from time to time prior to the Maturity Date, at the option of the Holder, into shares of Common Stock of the Company at a conversion price per share equal to seventeen cents ($0.17), subject to adjustment in accordance with Section 12 hereof (the “Conversion Price”) by delivering a notice of such conversion (the “Conversion Notice”) to the Company along with the original of this Note.             (b)    Automatic Conversion. All of the outstanding principal, and the accrued and unpaid interest thereon through the date of such conversion, of this Note shall automatically convert into Common Stock of the Company at the Conversion Price: (i) immediately prior to (A) the consummation of a consolidation or merger of the Company with or into any third party (whether or not the Company is the surviving corporation), or (B) the sale, assignment, conveyance, transfer or other disposition of all or substantially all of the Company’s properties or assets, in one or more related transactions, to another person, in each case where the gross proceeds to the Company in such transaction represent an aggregate amount equal to per share consideration of $0.50, but only if the Lender Committee (as defined in Section 4.11 of the Purchase Agreement) has approved such conversion in accordance with the provisions of the Purchase Agreement. In the event the Lender Committee does not approve such conversion and the Notes are to remain outstanding upon consummation of such transaction, the person formed by or surviving any such consolidation or merger (if other than the Company) or the person to which such sale, assignment, transfer, conveyance or other disposition is to be made, must assume the Company’s obligations hereunder and, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred on the date of determination must be Creditworthy, (ii) on the date that (A) the average daily trading volume of shares of the Company’s Common Stock has been more than 250,000 shares, and (B) the volume weighted average price of a share of the Company’s Common Stock, as reported by Bloomberg, L.P., has been $0.50 or greater, in each case, for the forty-five (45) consecutive trading days prior to such date, provided that the shares of Common Stock to be issued upon such automatic conversion are then covered by an effective registration statement and are freely tradable by the holder thereof, or (iii) at the closing of a primary public offering of the Company’s Common Stock in which gross proceeds to the Company are equal to or greater than $25,000,000 and the sale price per share of Common Stock in such offering is at least $0.50. 2 --------------------------------------------------------------------------------             (c)    Conversion of Accrued but Unpaid Interest. Notwithstanding anything to the contrary set forth herein, accrued and unpaid interest on this Note will be converted into shares of Common Stock of the Company only to the extent that the Company has a sufficient number of authorized but unissued and unreserved shares of Common Stock available to enable such conversion at the time of such conversion. To the extent the Company does not have a sufficient number of authorized, but unissued and unreserved shares of Common Stock to enable such conversion in full, then the remainder of such accrued but unpaid interest shall be due and payable in cash on the Maturity Date.         6.    Mechanics of Conversion.             (a)     To receive a certificate representing the shares of Common Stock into which the original of this Note shall be converted pursuant to Section 5 above, the Holder shall surrender the original of this Note accompanied by a Conversion Notice to the Company at its principal executive office set forth below. The Company shall, as soon as practicable, but not later than fifteen (15) business days after the date of receipt of this Note accompanied by a Conversion Notice, issue and deliver to a location in the United States designated by the Holder a certificate for the number of shares of the Company’s Common Stock to which the Holder shall be entitled as aforesaid (with such legends as may be required by the Purchase Agreement). Such conversion shall be deemed to have been made on the date of the Conversion Notice if conversion is pursuant to Section 5(a) above, or on the applicable date in the case of conversion pursuant to Section 5(b) above (either, as applicable, the “Conversion Date”), and the Holder shall be treated for all purposes as the record holder of such shares of Common Stock as of such Conversion Date. If the Holder elects to convert part, but not all, of the outstanding principal amount and accrued but unpaid interest, then together with a stock certificate evidencing the applicable number of shares of Common Stock, the Company shall also issue a replacement Note in accordance with Section 9, with a principal amount equal to the principal amount not converted by the Holder into Common Stock.             (b)     The Company shall not be required to issue fractions of shares upon conversion. If any fraction of a share would, but for this provision, be issuable upon any conversion, in lieu of such fractional share, Holder shall, upon delivery of a certificate representing the shares into which this Note shall be converted, be paid in cash the dollar amount (rounded to the nearest whole cent) determined by multiplying such fraction by the Conversion Price.             (c)     The Company shall reserve and shall at all times have reserved out of its authorized but unissued shares of Common Stock a sufficient number of shares to permit the conversion of the unpaid amount (including principal and accrued interest) of this Note. All shares of Common Stock that may be issued upon conversion of this Note shall be validly issued, fully paid and nonassessable 3 --------------------------------------------------------------------------------             (d)     Notwithstanding anything herein to the contrary, in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its Affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the un-converted portion of this Note or the unexercised or unconverted portion of any other security of the Holder subject to a limitation on conversion analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its Affiliates of more than 9.99% of the then outstanding shares of Common Stock. For purposes of this Section 6(d), beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of the proviso of the immediately preceding sentence. To the extent that the limitation contained in this Section 6(d) applies, the determination of whether this Note, or any portion hereof, may be converted into Common Stock shall be in the sole discretion of the Holder, and the submission of a request for conversion of this Note, or any portion hereof, into Common Stock shall be deemed to be the Holder’s determination of whether this Note or portion hereof is convertible, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. Nothing contained herein shall be deemed to restrict the right of the Holder to convert this Note or any portion hereof into Common Stock at such time as such conversion will not violate the provisions of this Section 6(d). The provisions of this Section 6(d) may be waived by the Holder, at the election of the Holder, on not less than sixty-one (61) days’ prior notice to the Company, and the provisions of this Section 6(d) shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). No conversion of this Note or portion hereof by the Holder in violation of this Section 6(d) but otherwise in accordance with this Note shall affect the status of the shares of Common Stock issued upon such conversion as validly issued, fully-paid and nonassessable.         7.    Charges, Taxes and Expenses. Issuance of replacement Notes shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Note(s), all of which taxes and expenses shall be paid by the Company, and such Note(s) shall be issued in the name of the Holder, or such Note(s) shall be issued in such name or names as may be directed by the Holder; provided, however, that in the event replacement Notes are to be issued in a name other than the name of the Holder, this Note, when surrendered for exercise or transfer, shall be accompanied by the Assignment Form attached hereto as Attachment A duly executed by the Holder; and provided further, that upon any transfer involved in the issuance or delivery of any replacement Notes, the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. Any transfer shall be subject to (i) the transferee’s agreement in writing to be subject to the applicable terms of this Note and (ii) compliance with all applicable state and federal securities laws (including the delivery of legal opinions reasonably satisfactory to the Company, if such are reasonably requested by the Company).         8.    Default. Each of the following events shall be an “Event of Default” hereunder:             (a)     The Company fails to pay timely any of the principal amount, accrued interest or other amounts due under this Note on the date any of the same become due and payable; 4 --------------------------------------------------------------------------------             (b)     The Company takes any action prohibited by any of the Restrictive Covenants set forth in the Purchase Agreement without the written approval of the Lender Committee;             (c)     The Company files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors;             (d)     An involuntary petition is filed against the Company (unless such petition is dismissed or discharged within sixty (60) days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of the Company;             (e)     The Company defaults under any mortgage, indenture or financial instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company (or the payment of which is guaranteed by the Company) whether such indebtedness or guarantee now exists, or is created after the date hereof, if that default results in the acceleration of such indebtedness prior to its stated maturity; or             (f)     The Company fails to pay final judgments aggregating $250,000 or more, which judgments are not paid, discharged or stayed for a period of 60 days.         In the case of an Event of Default arising from events described in clause (c) or (d) above, all outstanding Notes will become due and payable immediately without further action or notice and without presentment, demand, protest, notice of any kind or notice of dishonor, all of which are hereby expressly waived. Upon the occurrence of any other Event of Default hereunder, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of, and upon written notice provided to the Company exclusively by the Holder be immediately due, payable and collectible by the Holder pursuant to applicable law without presentment, demand, protest, notice of any kind or notice of dishonor, all of which are hereby expressly waived.         The Company hereby waives demand, presentment, notice of dishonor, diligence, protest, notice of protest and all other notices or demands relating to this Note.         If an Event of Default occurs and is continuing, the Holder may pursue any available remedy by proceeding at law or in equity to collect the payment of amounts due on this Note or to enforce the performance of any provision of this Note. A delay or omission by the Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. A waiver on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on any future occasion. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law.         9.    Loss, Theft or Destruction of Note. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft or destruction of this Note and of indemnity or security reasonably satisfactory to it, the Company will make and deliver a replacement Note which shall carry the same rights to interest carried by this Note, stating that such Note is issued in replacement of this Note, making reference to the original date of issuance of this Note (and any successors hereto) and dated as of such cancellation. 5 --------------------------------------------------------------------------------         10.    Registration Rights. The Holder is entitled to the benefit of certain registration rights with respect to the shares of Common Stock issuable upon conversion of this Note as provided in the Registration Rights Agreement, as amended.         11.    Reservation of Conversion Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue the Conversion Shares upon conversion of this Note as herein provided, the number of Conversion Shares which are then issuable and deliverable upon conversion of the entire principal amount and accrued interest under this Note, free from preemptive rights or any other contingent purchase rights of Persons other than the Holder (taking into account the adjustments and restrictions of Section 12). The Company covenants that all Conversion Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Conversion Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.         12.    Certain Adjustments. The Conversion Price and number of Conversion Shares issuable upon conversion of this Note are subject to adjustment from time to time as set forth in this Section 12.             (a)     If the Company shall, at any time or from time to time while this Note is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the number of Conversion Shares purchasable upon conversion of this Note and the Conversion Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Company so that the Holder thereafter converting this Note shall be entitled to receive the number of shares of Common Stock or other capital stock which the Holder would have received if the Note had been fully converted immediately prior to such event upon payment of a Conversion Price that has been adjusted to reflect a fair allocation of the economics of such event to the Holder. Such adjustments shall be made successively whenever any event listed above shall occur.             (b)     If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected, then, the Company shall use its reasonable best efforts to ensure that lawful and adequate provision shall be made whereby each Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Conversion Shares immediately theretofore issuable upon conversion of this Note, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Conversion Shares equal to the number of Conversion Shares immediately theretofore issuable upon conversion of this Note, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Holder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Conversion Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise thereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the holder of this Note, at the last address of such holder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase, and the other obligations under this Note. The provisions of this Section 12(b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions. 6 --------------------------------------------------------------------------------             (c)     In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 12(a)), or subscription rights or warrants, the Conversion Price to be in effect after such payment date shall be determined by multiplying the Conversion Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date. The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Holder prior to the exercise hereunder as to the Market Price of a share of Common Stock as determined by the Board of Directors of the Company. For purposes of this Note, “Market Price” means, as of a particular date (the “Valuation Date”) the following: (a) if the Common Stock is then listed on a national stock exchange, the Market Price shall be the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date, provided that if such stock has not traded in the prior ten (10) trading sessions, the Market Price shall be the average closing price of one share of Common Stock in the most recent ten (10) trading sessions during which the Common Stock has traded; (b) if the Common Stock is then included in The Nasdaq Stock Market, Inc. (“Nasdaq”), the Market Price shall be the closing sale price of one share of Common Stock on Nasdaq on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low ask price quoted on Nasdaq as of the end of the last trading day prior to the Valuation Date, provided that if such stock has not traded in the prior ten (10) trading sessions, the Market Price shall be the average closing price of one share of Common Stock in the most recent ten (10) trading sessions during which the Common Stock has traded; (c) if the Common Stock is then included in the Over-the-Counter Bulletin Board, the Market Price shall be the closing sale price of one share of Common Stock on the Over-the-Counter Bulletin Board on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low ask price quoted on the Over-the-Counter Bulletin Board as of the end of the last trading day prior to the Valuation Date, provided that if such stock has not traded in the prior ten (10) trading sessions, the Market Price shall be the average closing price of one share of Common Stock in the most recent ten (10) trading sessions during which the Common Stock has traded, (d) if the Common Stock is then included in the “pink sheets,” the Market Price shall be the closing sale price of one share of Common Stock on the “pink sheets” on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low ask price quoted on the “pink sheets” as of the end of the last trading day prior to the Valuation Date, provided that if such stock has not traded in the prior ten (10) trading sessions, the Market Price shall be the average closing price of one share of Common Stock in the most recent ten (10) trading sessions during which the Common Stock has traded. 7 --------------------------------------------------------------------------------             (d)    Calculations. All calculations under this Section 12 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.             (e)    Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 12, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Note and prepare a certificate setting forth such adjustment, including a statement of the adjusted Conversion Price and adjusted number or type of Conversion Shares or other securities issuable upon conversion of this Note (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s transfer agent.         13.    Miscellaneous.             (a)    Issue Date; Governing Law. The provisions of this Note shall be construed and shall be given effect in all respects as if it had been issued and delivered by the Company on the earlier of the date hereof or the date of issuance of any Note for which this Note is issued in replacement. This Note shall be binding upon any successors or assigns of the Company. This Note shall constitute a contract under the laws of the State of New York and for all purposes shall be construed in accordance with and governed by the laws of said state, excluding its conflicts of law principles.             (b)    Assignment. This Note shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Holder may assign any or all of its rights under this Note to any Person in accordance with applicable securities laws and regulations, provided such transferee agrees in writing to be bound by the provisions of this Note and the provisions of the Purchase Agreement that apply to the “Lenders.”             (c)    Notices. A notice required hereby shall be made in accordance with the notice provision set forth in Section 7.3 of the Purchase Agreement. 8 --------------------------------------------------------------------------------             (d)    Amendment or Waiver. Except as expressly set forth herein or in the Purchase Agreement, provisions of this Note may only be amended or waived by a writing signed by a majority of the members of the Lender Committee (as defined in Section 4.12 of the Purchase Agreement), and the Company. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 9 --------------------------------------------------------------------------------         IN WITNESS WHEREOF, ALLIANCE PHARMACEUTICAL CORP. has caused this Amended and Restated Senior Convertible Promissory Note to be executed by its officer thereunto duly authorized. COMPANY:   ALLIANCE PHARMACEUTICAL CORP.   By:________________________________ Name:      Duane Roth Title:        Chief Executive Officer 10 -------------------------------------------------------------------------------- ATTACHMENT A TO NOTE ASSIGNMENT FORM (To assign the foregoing Note, execute this form and supply required information.)         FOR VALUE RECEIVED, and subject to compliance with applicable federal and state securities laws (including the delivery of legal opinions satisfactory to the Company, if such are requested by the Company), an interest corresponding to the unpaid principal amount of the foregoing Note and all rights evidenced thereby are hereby assigned to -------------------------------------------------------------------------------- (Please Print) whose address is ________________________________________________________________ Dated: ________________________________ Holder’s Signature: __________________________________________ Holder’s Address: ________________________________________   ________________________________________ Signature Guaranteed: _________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Note, without alteration or enlargement or any change whatever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Note.   The assignee of the Note, in connection with the execution of this Assignment Form, must execute and deliver an acknowledgment of, and agreement to be bound by, the terms of the Note and Purchase Agreement related thereto.

Exhibit 10.1 LOGO [g21529image001.jpg]   October 23, 2006      LOGO [g21529image002.jpg] Dear Stuart, This letter agreement memorializes our discussions and understanding in respect of your upcoming termination of employment with Pan Pacific Retail Properties, Inc. (the “Company”) in connection with the anticipated closing of the transactions contemplated by the Agreement and Plan of Merger dated July 9, 2006 by and among the Company, Kimco Realty Corporation, KRC Acquisition Inc., KRC CT Acquisition Limited Partnership, KRC PC Acquisition Limited Partnership, CT Operating Partnership, L.P., and Western/Pinecreek, L.P. (the “Merger”). This letter agreement amends the Amended and Restated Employment Agreement between you and the Company, dated October 29, 2001, as amended (the “Employment Agreement”). We agree that you will terminate your employment effective as of the closing date of the Merger (the “Closing Date”). We further agree that your termination will be treated as a resignation by you for “good reason” (as defined in the Employment Agreement) and any notice required from you is waived. The Company hereby agrees to make a lump sum cash payment to you in the amount of $4,352,200, which is the “Total 5.2 a and 5.2 b” amount shown under your name on the attached schedule prepared by the Company. The lump sum will be paid to you on the Closing Date, in immediately available funds by wire transfer to the bank specified by you, or by delivery of a cashier’s check to you, at your election, in either case subject to applicable tax withholding. The lump sum payment will serve to satisfy in full all obligations of the Company to you under Sections 5.2(a) and 5.2(b) of the Employment Agreement. Except as amended by this letter agreement, the Employment Agreement will remain in full force and effect in accordance with its terms and conditions. By your signature below, you acknowledge that you have read this letter agreement, understand the terms and conditions described above, and agree to be bound by those terms and conditions.   PAN PACIFIC RETAIL PROPERTIES, INC. By:   LOGO [g21529image003.jpg] Title:   CEO & EVP KIMCO REALTY CORPORATION By:   LOGO [g21529image004.jpg] Title:   VP/CFO   So acknowledged and agreed:     /s/ Stuart A. Tanz Name:   Stuart A. Tanz 1631-B S. Melrose Drive Ÿ Vista, CA 92081 Ÿ Telephone: (760) 727-1002 Ÿ Facsimile: (760) 727-1430 www.pprp.com -------------------------------------------------------------------------------- Pan Pacific Retail Properties, Inc Executive Contractual Liability        Stuart Tanz Salary and Bonus    Salary    800,000 Bonus    600,000      Bonus and Salary (Annual)    1,400,000 Factor per Contract (Years)    3      Salary and Bonus per 5.2 a    4,200,000 Benefits    401 k (company match)    4,200 Life and Disability    10,850 Dental    1,500 Medical and Optical (PPO)    15,500 Deductible    6,000      Benefits (Annual)    38,050 Factor per Contract (Years)    4      Benefits per Section 5.2 b    152,200      Total 5.2 a & 5.2 b    4,352,200     

  Exhibit 10.1 Monarch Pointe Fund, Ltd. Mercator Momentum Fund, LP Mercator Momentum Fund III, LP c/o M.A.G. Capital, LLC 555 South Flower Street, Suite 4200 Los Angeles, California 90071 Camden International Longview Fund Longview Equity Fund Longview International Equity Fund c/o 600 Montgomery Street, 44th Floor San Francisco, CA 94111 Asset Managers International Limited c/o Pentagon Capital Management, Plc 88 Baker Street London W1U 6TQ Ocean Park Advisors, LLC 5710 Crescent Park East, Suite 334 Playa Vista, CA 90094 March 20, 2006 Ladies and Gentlemen:      Reference is hereby made to (i) the Subscription Agreement dated December 6, 2005, by and among Diametrics Medical, Inc., a Minnesota corporation (the “Company”) and the Purchasers named therein (the “Subscription Agreement”), (ii) the Convertible Secured Promissory Note of the Company dated December 6, 2005 (the “Monarch Note”), in the principal amount of $375,000, issued to Monarch Pointe Fund, Ltd. (“Monarch”), and (iii) the Convertible Secured Promissory Note of the Company dated December 6, 2005 (the “AMIL Note” and, together with the Monarch Note, the “Notes”), in the principal amount of $375,000, issued to Asset Managers International Limited (“AMIL”). Capitalized terms used but not otherwise defined herein shall have the respective meanings assigned to such terms in the Subscription Agreement or the Notes, as applicable.      Section 9(a) of the Subscription Agreement provides, among other things, that the Company shall prepare and file a registration statement with the SEC within 120 days from the Closing Date, covering the shares of Company Common Stock issuable thereunder. Section 10 of the Subscription Agreement provides that, if the Company fails to file a registration statement within the specified time period, the Company shall pay certain of the Purchasers, collectively, $200 per day that such filing is late. The parties recognize that, notwithstanding the Company’s commercially reasonable efforts, a registration statement will not be filed with the SEC within the specified time period. 1 --------------------------------------------------------------------------------   Upon the agreement of each Purchaser, Section 9(a) of the Subscription Agreement shall hereby be amended such that the deadline for filing a registration statement shall be September 6, 2006. Furthermore, the Purchasers, and each of them, hereby waive any payments that would otherwise be due under Section 10 of the Agreement. Other than as expressly set forth herein, the Notes shall remain in full force and effect in accordance with their terms.      Section 8.1 of the Notes provides, among other things, that the Company shall use commercially reasonable efforts to prepare and file a registration statement with the SEC within 120 days of the date of the Notes, covering the shares of Company Common Stock issuable under the Notes, and further that the Company will use commercially reasonable efforts to cause such registration statement to be declared effective within 210 days of the date of the Notes. The parties recognize that, notwithstanding the Company’s commercially reasonable efforts, a registration statement will not be filed with the SEC or declared effective within the specified time periods. Upon the agreement of each of Monarch and AMIL, Section 8.1 of each of the Notes shall hereby be amended such that the deadline for filing a registration statement shall be September 6, 2006 and the deadline for such registration to be declared effective shall be December 6, 2006. Other than as expressly set forth herein, the Notes shall remain in full force and effect in accordance with their terms.      Please indicate your agreement with the foregoing by signing a copy of this letter and returning by facsimile to the Company at (310) 745-0855, attention: Heng Chuk, Chief Financial Officer.               Diametrics Medical, Inc.                   /s/           Heng Chuk         Chief Financial Officer & Secretary     2 --------------------------------------------------------------------------------   AGREED AND ACCEPTED AS OF THE DATE INDICATED ABOVE:                   Monarch Pointe Fund, Ltd.       Mercator Momentum Fund, LP                   By:   /s/       By:   /s/ Name:     H. Harry Aharonian       Name:      H. Harry Aharonian Its:   Portfolio Manager       Its:   Portfolio Manager                   Mercator Momentum Fund III, LP       M.A.G. Capital, LLC                   By:   /s/       By:   /s/                   Name:   H. Harry Aharonian       Name:   H. Harry Aharonian Its:   Portfolio Manager       Its:   Portfolio Manager                   Ocean Park Advisors, LLC       Camden International                   By:   /s/       By:   /s/                   Name:   W. Bruce Comer, III       Name:   Deirdre M. McCoy Its:   CEO       Its:   Director                   Longview Fund       Longview Equity Fund                   By:   /s/       By:   /s/                   Name:   S. Michael Rudolph       Name:   Wayne H. Coleson Its:   CFO – Investment Advisor       Its:   CEO, Investment Advisor                   Longview International Equity Fund       Asset Managers International Limited                   By:   /s/       By:   /s/                   Name:   Wayne H. Coleson       Name:   Carolynn D. Hiron Its:   CEO – Investment Advisor       Its:   Director 3

FIRST AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY AND ESCROW INSTRUCTIONS This First Amendment to Agreement for Purchase and Sale of Real Property And Escrow Instructions (this “First Amendment”), dated November 5, 2005 for identification purposes only, is entered into by and between NNN Oakey Building 2003, LLC, a Delaware limited liability company (“Seller”) and Trans-Aero Land & Development Company, a Nevada corporation (“Buyer”). RECITALS A. Seller and Buyer are parties to that certain Agreement for Purchase and Sale of Real Property And Escrow Instructions dated November 3, 2005 (the “Agreement”) All capitalized terms used in this First Amendment and not otherwise defined herein shall have the same meaning as defined in the Agreement. B. The Lease referred to in the Agreement is that certain Lease Agreement between Seller, as the landlord, and Las Vegas Metropolitan Police Department, as the tenant, dated April 25, 2005. The parties further acknowledge that the Inspection Period ends at 5:00 pm Pacific lime on November 4, 2005. C. Seller and Buyer desire to amend the Agreement and the Exhibits attached thereto as set forth below. AGREEMENT NOW THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows: 1. Amendment of Agreement. The following provisions of the Agreement and the Exhibits attached thereto are hereby amended as follows: 1.1 Section 3.1 of the Agreement is amended to replace “Commonwealth Land Title” with “First American Title Company.” 1.2 Section. 4.2 of the Agreement is amended to replace the form of estoppel certificate attached to the Agreement with any reasonable form proposed by Buyer or its lender, subject to Seller’s approval, not to be unreasonably withheld, delayed or conditioned.. Buyer shall provide its proposed form of estoppel certificate on or before November 11, 2005. If Buyer does not object to any matters certified by the tenant on the estoppel certificate within three (3) business days of receipt thereof, Buyer shall be deemed to have approved the estoppel certificate. 1 With respect to the $1,420,091 Allowance for tenant improvements, the $300,000 Additional Allowance, and the $684,000 Furniture Allowance described in the Lease, if any such amounts have not been paid in full by Seller pursuant to the Lease on or before the Close of Escrow, whether or not the tenant under the Lease verifies the same in the Estoppel Certificate, Seller shall represent and warrant such facts to Buyer as of the Close of Escrow, With respect to any such amount that has not been paid in full by Seller pursuant to the Lease as of the Close of Escrow, (i) Buyer shall assume such payment obligation as of the Close of Escrow, and (ii) Buyer shall receive a credit towards the Purchase Price in such amount assumed by Buyer 1.3 Section 6.2.1 of the Agreement is amended to delete the first sentence thereof and to replace the same with the following: “Escrow shall close (“Close of Escrow”) within three (3) days following the satisfaction (or written waiver by Buyer) of all of the conditions precedent to closing set forth in Section 9 of the Agreement, but in no event before November 30, 2005” 1.4 Section 6.4.10 and Section 9.1 of the Agreement are amended to provide that if, due to circumstances beyond Seller’s reasonable control, Seller is unable to deliver a certificate to the effect that all of the representations and warranties of Seller set forth in the Agreement are accurate as of the Close of Escrow pursuant to Section 6.4.10, or if the condition precedent set forth in Section 9.1 is not satisfied, the Agreement shall not automatically terminate, but shall terminate, at the election of Buyer, Buyer shall have the right to waive any such misrepresentation, breach of warranties, or condition precedent, and to proceed to the Close of Escrow notwithstanding any such misrepresentation, breach of warranty, or failure of such condition precedent. If the Agreement is terminated pursuant to said Sections, the Deposit shall be returned to Buyer pursuant to Section 9.5 1.5 Section 7.11.2 is amended to provide that Seller shall not enter into any new lease with respect to the Property at any time, nor, after the expiration of the Inspection Period, shall Seller modify or amend the existing Lease, without first obtaining the written consent of Buyer, which consent may be withheld or granted in Buyer’s sole and absolute discretion. 1.6 Section 9.4 of the Agreement is amended to add: “and the Work (as said term is defined in Section 3.1 of the Lease)” following each use of the term “Parking Garage” in said Section 9.4, and to add the following to the end of said Section 9.4: “In addition to the forgoing, as additional requirements for the satisfaction of the condition precedent set forth herein, Seller shall: (a) obtain a certificate for the benefit of Buyer from its architect or general contractor responsible for the design or construction (as applicable) of the Parking Garage and the Work certifying that construction of the Parking Garage and the Work is substantially complete in accordance with the plans and specifications for the same approved by the City of Las Vegas and delivered to Buyer as part of the Due Diligence Items; (b) record a Notice of Completion with respect to the Parking Garage and the Work pursuant to NRS 108228 and deliver a conformed copy of such recorded Notice of Completion to Buyer showing the recording reference information provided by the Clark County Recorder’s Office; and (c) deliver to Buyer an original Certificate or Certificates of Occupancy for the entire building on the Property and for the Parking Garage issued by the City of Las Vegas.” In addition, on the Close of Escrow, Seller shall deliver to Buyer (a) an original contractor’s warranty covering the construction of the Parking Garage and Work in favor of Buyer for a period of one (1) year from substantial completion of such work given by the general contractor performing such work, and (b) an assignment of the construction contract or contracts for the Parking Garage and the Work between Seller and the general contractor performing such work. 1.7 Section 13.3 of the Agreement is amended to replace “Santa Ana, California” with “Clark County, Nevada.” 1.8   Section 25 is added to the Agreement, as follows: “25. Survival. The representations, warranties, and covenants of Seller set forth in this Agreement shall survive the Close of Escrow for a period of six (6) months. However, notwithstanding the forgoing to the contrary, the obligations of Seller under the Escrow Agreement attached to the Agreement as Exhibit B shall continue for so long as any amounts are payable thereunder by Seller to Buyer.” 1.9 Section 26 is added to the Agreement, as follows: “26. SNDA If required by Buyer’s lender financing any part of the Purchase Price, on or before the Close of Escrow, Seller shall deliver to Escrow Holder for recording a Subordination, Non-Disturbance and Attornment Agreement (“SNDA”) executed by the tenant under the Lease, subordinating its interest in the Lease and Real Property to the lien of a first priority deed of trust in favor of such lender, and in any reasonable form proposed by Buyer’s lender, subject to Seller’s approval, not to be unreasonably withheld, delayed or conditioned. Buyer shall provide its lender’s proposed form of SNDA on or before November 11, 2005. If Buyer’s lender does not object to any matters certified by the tenant on the SNDA 2 within three (3) business days of receipt thereof Buyer’s lender shall be deemed to have approved the SNDA. Delivery of such SNDA shall be an additional condition precedent to closing for Buyer’s benefit pursuant to Section 9 above.” 1.10 Section 27 is added to the Agreement, as follows: “27. Outside Date Notwithstanding anything contained in this Agreement to the contrary, if the conditions precedent to the closing set forth in Section 9 have not been satisfied or waived in writing by Buyer on or before January 31, 2006 (which date shall not be extended by any events of force majeure), then Buyer shall have the right at any time thereafter and prior to the Close of Escrow to terminate this Agreement by written notice to Seller and Escrow Holder. Upon delivery of such notice and the return of the Due Diligence Items, the Deposit shall be returned to Buyer and, thereafter, neither Seller nor Buyer shall have any continuing obligations under this Agreement.” 1.11. Recital C of the Escrow Agreement attached to the Agreement as Exhibit B is amended to replace “The guaranty” in the last sentence thereof with “Seller’s obligations under this Agreement with respect to Rent Payments (as defined below).” 1.12 Section 1(c) of the Escrow Agreement attached to the Agreement as Exhibit B is deleted in its entirety and replaced with the following: “(c) Beginning on the later of (i) December 1, 2005, or (ii) the first (1st) day of the calendar month in which the Close of Escrow occurs if the Close of Escrow occurs after December 31, 2005, and continuing on the first (1st) day of each calendar month thereafter until and including December 1, 2006, the Escrow Agent shall, without the need for any additional instructions from the panties, disburse from the $1,745,629.00 proceeds held by Escrow Agent pursuant hereto the total Rent Guaranty amount shown for each such calendar month at the bottom of each Rent Guaranty column on the schedule attached to this Agreement. Said Rent Guaranty Amount shall be pro-rated for any partial month in which the Close of Escrow occurs, based on the actual number of days in such month. However, if the Police Department actually pays to Purchaser any sublease rent pursuant to Section 5.4 of the P.D. Lease in any calendar month, then the Rent Guaranty amount payable from such escrowed funds for such calendar month shall be decreased by the same amount of such sublease rent actually received by Purchaser. Escrow Agent shall not decrease the Rent Guaranty amount payable from such escrowed funds unless and until Seller and 3 Purchaser deliver joint escrow instructions to Escrow Agent with respect thereto. Purchaser shall not unreasonably withhold any such escrow instructions provided that it has actually received good funds in the amount of any such sublease rent from the Police Department.” 1.13 The parties acknowledge that the name of Buyer set forth in the Agreement and the Escrow Agreement attached as Exhibit B thereto was incorrectly shown as Trans-Aero Land & Development Corporation and/or Trans-Aero Land and Development Corp., and that the correct legal name of Buyer’s entity is “Trans-Aero Land & Development Company.” Said entity name is hereby amended for all purposes where incorrectly stated in the Agreement or any attached Exhibits. 2. Miscellaneous. 2.1 No Other Changes. Except as expressly amended by this First Amendment, the Agreement shall remain in full force and effect. All references to the Agreement contained therein shall mean the Agreement as amended hereby. 2.2 Counterparts; Electronic Transmission This First Amendment may be executed in two ox more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Executed counterparts of this First Amendment may be delivered by facsimile, PDF file or other electronic file attached to e-mail, or other electronic means. Such delivery shall be conclusive for all purposes. [ Remainder of Page is Intentionally Blank; Signature Page Follows] 4 IN WITNESS WHEREOF, Buyer and Seller have executed this First Amendment to Agreement fox Purchase and Sale of Real Property And Escrow Instructions on the date set forth opposite their respective signatures below.               “Seller” NNN Oakey Building 2003, LLC                 a Delaware limited liability company               By: Triple Net Properties, LLC,               a Virginia limited liability company           Executed on      , 2005   Its: Manager By: /s/ Louis Rogers LOUIS ROGERS PRESIDENT                 “Buyer”                 Trans-Aero Land & Development Company,           Executed on 11-8-05, 2005   a Nevada Corporation             /s/ Eugene L. Buckley Eugene   L. Buckley, President           5

Exhibit 10.24 Second Amendment to the Asset Purchase Agreement This Second Amendment to the Asset Purchase Agreement (this “Amendment”) is made effective as of the 31st day of March, 2006 by and between Teletouch Communications, Inc. (the “Seller”) and Teletouch Paging, LP (the “Buyer”). Capitalized terms not defined in this Amendment shall have the meanings set forth in the Agreement (as defined below). RECITALS: WHEREAS, the Buyer and the Seller entered into an Asset Purchase Agreement, dated as of August 18, 2005 (the “Agreement”) in connection with the sale of the paging business assets of the Seller to the Buyer; and, WHEREAS, on December 30, 2005, the parties to the Agreement executed the First Amendment thereto; and, WHEREAS, the Buyer and the Seller now desire to further amend the Agreement. NOW THEREFORE, for valuable consideration, the receipt and adequacy of which are expressly acknowledged, accepted and agreed, the Buyer and the Seller hereby agree and consent, that Section 3.1 Amount; Delivery of the Agreement shall be amended and restated in its entirety and shall read as follows: 1. “Section 3.1(a) Amount; Delivery. In addition to Buyer’s assumption of the Assumed Obligations, Buyer shall pay to Seller the consideration as follows (the “Purchase Price”), subject to adjustment as provided in Section 3.3 hereof, which Purchase Price shall be remitted by Buyer to Seller in the following manner: (a) $2,200,000 in cash (the “Cash Payment”) to Seller on the Closing Date (subject to adjustment as provided further in this clause (a)), all of which shall be paid by check or by wire transfer of immediately available funds to an account of Seller as designated in writing by Seller to Buyer not more than three (3) Business Days prior to the Closing Date or at such other date and time as may be agreed upon by both parties. The Cash Payment will be (1) reduced by the amount of the Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of the Business beginning April 1, 2006 through the Closing Date determined in accordance with Seller’s current GAAP and business management practices (e.g. monthly recognition of deferred revenue), (2) increased by the amount of any approved cash capital expenditures incurred by the Business from April 1, 2006 through the Closing Date and (3) reduced by an amount equal to the lesser of (A) $10,000.00 or (B) the amount, if any, by which the interest earned on the escrowed funds referenced allowable during the periods listed below (“Allowable Escrowed Funds”) is less than the imputed interest on such escrowed funds for the same period, calculated at the prime rate of interest quoted in the Wall Street Journal on August 31, 2005 as follows:   Period   Allowable Escrowed Funds September 1, 2006 – December 31, 2005   $ 4,000,000.00 January 1, 2006 – March 31, 2006   $ 3,400,000.00 April 1, 2006 – June 30, 2006   $ 3,000,000.00 -------------------------------------------------------------------------------- The calculation of EBITDA will reflect a reduction of earnings attributable to payment of the management fees paid pursuant to Article IV. Simply as evidence that Buyer has funds available to make the Cash Payment at Closing, on or before August 31, 2005, Buyer shall deposit the Cash Payment in an escrow account pursuant to an escrow agreement in form and substance satisfactory to both Buyer and Seller. (b) A non-interest bearing promissory note (the “Promissory Note”) in the amount of $1,200,000.00 as evidenced by a copy of such Promissory Note attached hereto as Exhibit A. The Promissory Note shall be secured by a lien on the Assets subject to customary subordination provisions required by Buyer’s senior lender. The Buyer hereby agrees to prepay the amount owed under the Promissory Note in whole at the Closing by paying $1,200,000.00 (the “Note Prepayment”) to the Seller. The Seller agrees to cancel the Promissory Note and to discharge the Buyer’s obligations owed to the Seller thereunder upon receipt of the Note Prepayment.” 2. ARTICLE IV. MANAGEMENT AGREEMENT shall be amended and restated in its entirety and shall read as follows: “ARTICLE IV. MANAGEMENT AGREEMENT On or prior to August 31, 2005, Buyer and Seller shall execute and deliver a management agreement (the “Management Agreement”) pursuant to which Buyer will manage the Business prior to Closing. The Management Agreement will provide that, for this service, Seller will pay the Buyer a management fee as set forth in the Management Agreement which will be payable on the 1st and 16th day of each month during the term of such Management Agreement if the Closing has not occurred on or prior to the date that such payment is due (unless the Closing has not occurred as a result of Buyer’s failure to perform its obligation under this Agreement.” 3. Section 12.1 of ARTICLE XII. TERMINATION shall be amended to add Subsection (g) to state as follows: (g) By Seller or Buyer, in its discretion, if the Closing of the transactions contemplated hereunder has not occurred on or before July 1, 2006. Further, in the event Seller elects to terminate this Agreement pursuant to this subsection (g), the Seller shall be obligated to pay the Buyer, the excess interest on Allowable Escrowed Funds through March 31, 2006 as described in Section 3.1(a)(2) of this Second Amendment”   2 -------------------------------------------------------------------------------- This Amendment is acknowledged and agreed to this 31st day of March, 2006.   TELETOUCH PAGING, LP By:   /s/ Robert Albritton Name:   Robert Albritton Title:   Managing Member TELETOUCH COMMUNICATIONS, INC. By:   /s/ Thomas A. Hyde, Jr. Name:   Thomas Hyde, Jr. Title:   Chief Executive Officer Date: March 31, 2006 3

  MTN GLOBAL FUNDING AGREEMENT Principal Life Insurance Company 711 High Street Des Moines, Iowa 50392-0001 (515) 247-5111 In consideration of the payment made by, or at the direction of, Principal Life Income Fundings Trust 2006-35 (the “Agreement Holder”) of the Net Deposit, as described below, Principal Life Insurance Company (“Principal Life”) agrees to make payments to the person or persons entitled to them, subject to the provisions of this funding agreement (this “Agreement”). This Agreement is delivered in and subject to the laws of the State of Iowa. This Agreement is issued and accepted subject to all the terms set out in it. This Agreement is executed by Principal Life at its Corporate Center to take effect as of the 21st day of June, 2006, which is referred to as the Effective Date, subject to the receipt by Principal Life or its designee of the Net Deposit (as set forth in Section 1).       -s- Joyce N. Hoffman [c05827c0595693.gif]   -s- J. Barry Griswell [c05827c0595694.gif] Senior Vice President and   Chairman, President and Corporate Secretary   Chief Executive Officer       /s/ Jim Madden   Registrar   June 21, 2006   Date GLOBAL FUNDING AGREEMENT NO. 4-53598 RESTRICTIONS REGARDING THE TRANSFER OR SALE OF THIS FUNDING AGREEMENT OR ANY INTEREST HEREIN ARE SET FORTH HEREIN   --------------------------------------------------------------------------------   FUNDING AGREEMENT   No. 4-53598      This Agreement is issued in connection with the issuance by the Trust (specified in the Annex) of Secured Notes (the “Notes”) which are identified in the annex hereto (the “Annex”) and which are being issued by the Trust pursuant to the Prospectus dated February 16, 2006, the Prospectus Supplement dated February 16, 2006, as from time to time amended or supplemented, and the Pricing Supplement applicable to the Notes (the “Pricing Supplement”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Notes. Where used in this Agreement, the term “Notes” shall mean the Notes secured by this Agreement as the same exist on the Effective Date, without giving effect to any amendments or modifications to said Notes effected or made after any such Effective Date unless such amendments or modifications to said Notes have been consented to in writing by Principal Life. 1.   Deposit       Principal Life agrees to accept, and the Agreement Holder agrees to pay or cause to be paid to Principal Life, for value on the Effective Date, the Net Deposit (as specified in the Annex). All funds received by Principal Life under this Agreement shall become the exclusive property of Principal Life and remain a part of Principal Life’s general account without any duty or requirement of segregation or separate investment.       This Agreement shall become effective only upon the receipt by Principal Life or its designee of the Net Deposit.   2.   Fund       Upon receipt of the Net Deposit, Principal Life will establish, under this Agreement, a bookkeeping account in the name of the Agreement Holder, which will evidence Principal Life’s obligations under this Agreement.       The Deposit deemed received (as specified in the Annex), (i) less any withdrawals to make payments hereunder and (ii) plus any interest accrued and premium, if any, pursuant to Section 7, will be referred to as the “Fund”.       Principal Life is neither a trustee nor a fiduciary with respect to the Fund.   3.   Purchase of Notes By Principal Life.       Principal Life may purchase some or all of the Notes in the open market or otherwise at any time, and from time to time. Simultaneously, upon such purchase, (1) the purchased Notes shall, by their terms become mandatorily redeemable by the Trust as specified in the related Pricing Supplement, Prospectus Supplement and/or Prospectus and (2) the Fund under this Agreement shall be permanently reduced by the same percentage as the principal amount of the Notes so redeemed bears to the sum of (i) the aggregate principal amount of all Notes issued and outstanding immediately prior to such redemption and (ii) the principal amount of the Trust Beneficial Interest related to such Notes. If Principal Life, in its sole discretion, engages in such open market or other purchases, then the Trust, the Indenture Trustee in respect of such Notes, and Principal Life shall take 2 --------------------------------------------------------------------------------       actions (including, in the case of Principal Life, making the payment(s) necessary to effect the Trust’s redemption of such Notes) as may be necessary or desirable to effect the cancellation of such Notes by the Trust.   4.   Entire Agreement       This Agreement and the Annex attached hereto constitute the entire Agreement.   5.   Representations   (a)   Each party hereto represents and warrants to the other that as of the date hereof:   (i)   it has the power to enter into this Agreement and to consummate the transactions contemplated hereby;     (ii)   this Agreement has been duly authorized, executed and delivered, this Agreement constitutes a legal, valid and binding obligation of each party hereto, and this Agreement is enforceable in accordance with the terms hereof, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights, and subject as to enforceability to general principles of equity, regardless of whether enforcement is sought in a proceeding in equity or at law; and     (iii)   the execution and delivery of this Agreement and the performance of obligations hereunder do not and will not constitute or result in a default, breach or violation of the terms or provisions of its certificate, articles or charter of incorporation, declaration of trust, by-laws or any agreement, instrument, mortgage, judgment, injunction or order applicable to it or any of its property.   (b)   The Trust further represents and warrants to Principal Life that:   (i)   it is a person other than a natural person and is purchasing this Agreement for the purpose of providing collateral security for securities registered with the United States Securities and Exchange Commission;     (ii)   it has been informed and understands that transfer is restricted by the terms of this Agreement; and     (iii)   it (a) is solely responsible for determining whether this Agreement is suitable for the purpose intended; (b) has carefully read this Agreement (including the Annex) before signing this Agreement; (c) has had a reasonable opportunity to make such inquiries as it deemed necessary prior to signing this Agreement; and (d) has received or had access to such additional information as it deemed necessary in connection with its decision to sign this Agreement. 3 --------------------------------------------------------------------------------       In performing its obligations hereunder Principal Life is not acting as a fiduciary, agent or other representative for the Agreement Holder or anyone else. All representations and warranties made by the Agreement Holder and Principal Life in this Agreement shall be considered to have been relied upon by the other in connection with the execution hereof.   6.   Assignment of Agreement       The following conditions must be satisfied in order to effectuate any assignment of this Agreement:   (i)   This Agreement may only be transferred through a book entry system maintained by Principal Life, or an agent designated by it, within the meaning of Temporary Treasury Regulations Section 5f.103-1(c) and Treasury Regulations Section 1.871-14(c)(1)(i).     (ii)   The Agreement Holder, and any assignee, must comply with applicable securities laws.     (iii)   Principal Life has consented in writing to the proposed assignment, such consent not to be unreasonably withheld.     (iv)   Principal Life shall have received from the proposed assignee a duly executed certificate containing, in substance, the information, representations, warranties, acknowledgments and agreements set forth in this Agreement.     Any attempted sale, transfer, anticipation, assignment, hypothecation, or alienation not in accordance with this Section 6 shall be void and of no effect. Until such time, if any, as Principal Life has consented in writing to a proposed assignment, Principal Life shall not be obligated to make any payments to or at the direction of anyone other than the person shown on Principal Life’s books and records as the Agreement Holder. Once the foregoing conditions have been satisfied with respect to an assignment, the assignee or its successor shall be deemed to be the sole Agreement Holder for all purposes of this Agreement and Principal Life shall promptly amend its records to reflect the assignee’s status as Agreement Holder.   7.   Payments to the Agreement Holder       Principal Life shall pay to, or at the direction of, the Agreement Holder by the date (the “Due Date”) on which any payment becomes due in respect of the Notes secured by this Agreement (and in any event such period of time prior to the Due Date as shall be necessary to ensure that the Trust can fulfill its obligation to make payment in full of all amounts due and payable under the Notes on the Due Date), an amount in the currency or currencies in which the Notes are denominated as specified in the Notes equal to the sum of (i) the amount of principal and/or (as the case may be) interest and/or (as the case may be) premium falling due in respect of the Notes on such Due Date (the “Notes Component”) and (ii) the amount of any payments owed by the Trust in respect of the Trust Beneficial Interest falling due on such date (the “Beneficial Interest Component”). In the event that Principal Life fails to make payment of any such amount on or prior to 4 --------------------------------------------------------------------------------       the Due Date, Principal Life shall pay to or at the direction of the Agreement Holder, on demand by the Agreement Holder, (i) if the failure relates to the Notes Component, an amount in the currency specified in the Notes equal to the amount of default interest (or other amount) which becomes due and payable by the Trust in accordance with the Notes as a consequence of any delay in the Trust making the relevant payment of principal, interest or premium (as the case may be) to the holders of the of Notes and (ii) if the failure relates to the Beneficial Interest Component, such amount or default interest, if any, determined in the same manner as default interest on the Notes Component.       Interest shall accrue on the Fund in the same amount and pursuant to the same terms as interest accrues on the Notes secured by this Agreement and on the Trust Beneficial Interest related to the Notes.       If any amount is withdrawn from the Fund in order to make a payment under this Section 7, interest will cease to be credited with regard to such amount as of the end of the day immediately preceding the date on which such withdrawal is made.       All payments made by Principal Life to the Agreement Holder hereunder shall be paid in same-day, freely transferable funds to such account as has been specified for such purpose by the Agreement Holder.       Notwithstanding anything to the contrary in this Section 7, if Principal Life shall, with respect to any scheduled amount due and payable under any of the Notes, comply in all respects with the requirements of this Section 7, but an event of default has occurred with respect to the Notes and as a result payments with respect to the Notes have been accelerated, otherwise than by reason of any default under this Agreement by Principal Life, no Event of Default (as defined below) under this Funding Agreement shall be deemed to have occurred, no payments with respect to this Agreement shall be accelerated and Principal Life will remain obligated to make payments under this Agreement as if no event of default had occurred with respect to the Notes.   8.   Termination of Agreement       Subject to the provisions of the following paragraph and the Annex, this Agreement shall terminate and cease to be of any further force or effect on the day and at the time upon which all amounts have been withdrawn from the Fund pursuant to this Agreement.       Upon the occurrence of any of the following events (each, an “Event of Default”) and following a written demand by the Agreement Holder, Principal Life shall pay to, or at the direction of, the Agreement Holder all amounts that the Trust is required to pay in such event under the Notes and the Trust Beneficial Interest:   (i)   Principal Life’s failure to make any payment of interest, premium (if applicable) or installment payments (if applicable) in accordance with this Agreement, if such failure to pay is not corrected within seven (7) Business Days after such payment becomes due and payable; or 5 --------------------------------------------------------------------------------     (ii)   Principal Life’s failure to make any payment of principal (other than any installment payment) in accordance with this Agreement, if such failure to pay is not corrected within one (1) Business Day after such payment becomes due and payable; or     (iii)   if Principal Life (a) is dissolved (other than pursuant to a consolidation, amalgamation or merger in which the resulting entity assumes its obligations); (b) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (c) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (d) institutes or has instituted against it an administrative or legal proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any supervision, rehabilitation, liquidation, bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (1) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its rehabilitation, winding-up or liquidation or (2) is not dismissed, discharged, stayed or restrained in each case within 60 days of the institution or presentation thereof; (e) has a resolution passed for its rehabilitation, winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger in which the resulting entity assumes the obligations of Principal Life); (f) seeks or becomes subject to the appointment of an administrator, supervisor, rehabilitator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (g) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 60 days thereafter; (h) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (a) to (g) (inclusive); or (i) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts.     Notwithstanding anything to the contrary in this Section 8, if an event described in clause (iii) above occurs, this Agreement will automatically terminate and the amount of the Fund will be immediately due and payable by Principal Life to the Agreement Holder, or the account specified by the Agreement Holder.       Principal Life will promptly notify the Agreement Holder and the Rating Agencies in writing of the occurrence of any of (i) through (iii) above.   9.   Withholding; Additional Amounts       All amounts due in respect of this Agreement will be made without withholding or deduction for or on account of any present or future taxes, duties, levies, assessments or 6 --------------------------------------------------------------------------------       other governmental charges of whatever nature imposed or levied by or on behalf of any governmental authority in the United States unless the withholding or deduction is required by law, regulation or official interpretation thereof. Unless otherwise specified in the Annex, Principal Life will not pay any additional amounts to the Agreement Holder in the event that any withholding or deduction is so required by law, regulation or official interpretation thereof, and the imposition of a requirement to make any such withholding or deduction will not give rise to an Event of Default or any independent right or obligation to redeem this Agreement.   10.   Currency       Except as may be specifically noted in the Annex, the Net Deposit and all payments under Section 7 of this Agreement shall be made using the currency or currencies as specified in the Notes.   11.   Tax Treatment       Principal Life and the Agreement Holder agree that this Agreement shall be disregarded for U.S. Federal income tax purposes. Principal Life and the Agreement Holder further agree that if this Agreement is not so disregarded, it will and is intended to be treated as a debt obligation of Principal Life issued in registered form within the meaning of Treasury Regulations Section 1.871-14(c)(1)(i), except to the extent provided in Treasury Regulations Section 1.163-5T (or any subsequent similar regulation).   12.   Amendment and Modification       This Agreement may be amended or modified in whole or in part, at any time and from time to time, for any period or periods (a) by mutual written agreement by such officers of Principal Life, the Agreement Holder and, where such Agreement Holder is the Indenture Trustee upon an assignment by way of security of this Agreement by the Trust, the Trust and (b) without the consent of any other person affected thereby.   13.   Notice       Except as otherwise provided herein, all notices given pursuant to this Agreement shall be in writing, and shall either be delivered, mailed or telecopied to the locations listed below or at such other address or to the attention of such other persons as such party shall have designated for such purpose in a written notice complying as to delivery with the terms of this Section 13. Each such notice shall be effective (i) if given by telecopy, when transmitted to the applicable number so specified in this Section 13 (if required herein, such notice shall also be sent by mail, with first class postage prepaid), (ii) if given by mail, three days after deposit in the mails with first class postage prepaid, or (iii) if given by any other means, when actually delivered at such address. 7 --------------------------------------------------------------------------------   If to Principal Life: Principal Life Insurance Company 711 High Street Des Moines, Iowa 50392-0001 Attention: General Counsel Telephone: (515) 247-5111 Telecopy: (515) 248-3011 Principal Life Insurance Company 711 High Street Des Moines, Iowa 50392-0001 Attention: Jim Fifield, Counsel Telephone: (515) 248-9196 Telecopy: (515) 235-9353 If to the Agreement Holder: Principal Life Income Fundings Trust 2006-35 c/o U.S. Bank Trust National Association 100 Wall Street, 16th Floor New York, NY 10005 Attention: Thomas E. Tabor Telephone: (212) 361-6184 Facsimile: (212) 809-5459 with a copy to: Citibank, N.A. Citibank Agency and Trust 388 Greenwich Street, 14th Floor New York, NY 10013 Attention: Nancy Forte Telephone: (212) 816-5685 Telecopy: (212) 816-5527 3.   Business Day       For purposes of this Agreement, “Business Day” means any day that is a Business Day as specified in the Notes or the Indenture.   4.   Business Day Convention       If the date on which any payment is due to be made under this Agreement shall occur on a day on which is not a Business Day, such payment shall be made in accordance with the Business Day Convention as specified in the Notes or the Indenture. 8 --------------------------------------------------------------------------------   16.   Jurisdiction       The parties to this Agreement hereby consent to the non-exclusive jurisdiction of any State or Federal Court of competent jurisdiction located within the State of New York, in the Borough of Manhattan, in connection with any actions or proceedings arising directly or indirectly from this Agreement.   17.   Waiver       The obligations of Principal Life or the Agreement Holder under this Agreement may be waived only in writing by the party to this Agreement whose interests are adversely affected by such waiver. No failure or delay, on the part of the party adversely affected, in exercising any right or remedy hereunder shall operate as a waiver thereof.   18.   Tax Redemption.       If a Tax Event (defined below) occurs, Principal Life will have the right to redeem this Agreement by giving not less than 30 and no more than 60 days prior written notice to the Agreement Holder and by paying to the Agreement Holder an amount equal to the Fund. The term “Tax Event” means that Principal Life shall have received an opinion of independent legal counsel stating in effect that as a result of (a) 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 (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any governmental authority in the United States, which amendment or change is enacted, promulgated, issued or announced on or after the Effective Date of this Agreement, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date thereof, subject to U.S. federal income tax with respect to interest accrued or received on this Agreement or (ii) the Trust is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges. 9 --------------------------------------------------------------------------------   ANNEX This Annex will become effective as of the Effective Date, subject to the requirements of Section 1.           Trust:   Principal Life Income Fundings Trust 2006-35           Net Deposit:   The Net Deposit is $1,707,750.00.           Deposit:   Regardless of the amount of the Net Deposit, the Deposit is deemed to be $1,725,015.00.           Bank and Account:   Wells Fargo Bank Iowa, N.A. ABA No.: 121000248 For credit to Principal Life Insurance Company Account #XXXXXXXXX           Title of Notes:   Principal Life Income Fundings Trust 2006-35 5.55% Principal® Life CoreNotes® Due 2011           Survivor’s Option:   Unless this Agreement has been declared due and payable prior to the Maturity Date of the related Notes by reason of any Event of Default, or has been previously redeemed or otherwise repaid, the Agreement Holder may request repayment of this Agreement upon the valid exercise of the Survivor’s Option in the Notes by the Representative of the deceased Beneficial Owner of such Notes (a “Survivor’s Option”). Except as provided below, upon the tender to and acceptance by Principal Life of this Agreement (or portion thereof) securing the Notes as to which the Survivor’s Option has been exercised, Principal Life shall repay to the Agreement Holder the amount of the Fund equal to (i) 100% of the principal amount of the Notes as to which the Survivor’s Option has been validly exercised and accepted, plus accrued and unpaid interest on such amount to the date of repayment, or (ii) in the case of Discount Notes, the Issue Price of the Notes as to which the Survivor’s Option has been validly exercised and accepted, plus accrued discount and any accrued and unpaid interest on such amount to the date of repayment. However, Principal Life shall not be obligated to repay:               •   more than the greater of $2,000,000 or 2% of the aggregate deposit for all funding agreement contracts securing all outstanding notes issued under the Principal® Life CoreNotessm program as of the end of the most recent calendar year; A-1 --------------------------------------------------------------------------------     •   more than $250,000 in aggregate deposit of funding agreement contracts securing outstanding notes issued under the Principal® Life CoreNotesSM program as to which the Survivor’s Option has been exercised on behalf of any single beneficial owner in any calendar year; or     •   more than 2% of the Deposit under this Agreement which secures the related Notes, as of the end of the most recent calendar year.           Principal Life shall not make repayments pursuant to the Agreement Holder’s request for repayment upon exercise of the Survivor’s Option in amounts that are less than $1,000, and, in the event that the limitations described in the preceding sentence would result in the partial repayment of this Agreement, the principal amount of this Agreement remaining outstanding after repayment must be at least $1,000 (the minimum authorized denomination of this Agreement). A request for repayment by the Agreement Holder upon an otherwise valid election to exercise the Survivor’s Option may not be withdrawn.           This Agreement (or portion thereof) accepted for repayment shall be repaid on the first Interest Payment Date for the related Notes that occurs 20 or more calendar days after the date of such acceptance.           In order to obtain repayment of this Agreement (or portion thereof) upon exercise of the Survivor’s Option, the Agreement Holder must provide to Principal Life (i) a written request for repayment signed by the Agreement Holder, and (ii) any additional information Principal Life requires to evidence satisfaction of any conditions to the repayment of this Agreement (or portion thereof). A-2 --------------------------------------------------------------------------------             PRINCIPAL LIFE INSURANCE COMPANY           By:   /s/ Christopher P. Freese                         Name:   Christopher P. Freese                         Title:   Officer                         PRINCIPAL LIFE INCOME FUNDINGS TRUST 2006-35           By:   U.S. Bank Trust National Association, not in its individual capacity, but solely in its capacity as trustee               By:   Bankers Trust Company, N.A., under Limited Power of Attorney, dated February 16, 2006.                         By:   /s/ Angela C. Brick                         Name:   Angela C. Brick                         Title:   Vice President               A-3

Exhibit 10.29   COMPENSATION AND INDEMNIFICATION AGREEMENT   This COMPENSATION AND INDEMNIFICATION AGREEMENT is made as of the 18th day of April, 2006 (this “Agreement”) by and among Bruker BioSciences Corporation, a Delaware corporation (the “Corporation”), and each of William A. Linton, M. Christopher Canavan, Jr., Taylor J. Crouch and Daniel S. Dross (each, a “Director” and collectively, the “Directors”).   WHEREAS, the Corporation’s Board of Directors (the “Board of Directors”), at a meeting held on January 31, 2006, appointed the Directors as members of a Special Committee of the Board of Directors of the Corporation (the “Special Committee”) to consider, evaluate, investigate, negotiate the terms and conditions of, recommend to the entire Board of Directors if it considers it in the best interests of the stockholders of the Corporation unaffiliated with the Laukien family to do so, and reject it if it considers it in the best interests of the stockholders to do so, a possible acquisition by the Corporation of Bruker Optics Inc., a Delaware corporation (the “Transaction”), and to make such reports to the entire Board of Directors at such times and in such manner as the Special Committee considers appropriate with respect to such possible transaction;   WHEREAS, in order to induce the Directors to serve on the Special Committee and to accept the additional duties, responsibilities and burdens of such service, the Corporation wishes to provide them with the compensation and indemnification arrangements set forth herein; and   WHEREAS, the Directors are willing to serve and continue to serve on the Special Committee on the terms set forth herein.   NOW, THEREFORE, in consideration of the foregoing, the parties hereto do hereby agree as follows:   Section 1.    Service on the Special Committee.  Each Director hereby agrees to serve as a member of the Special Committee on the terms provided for herein so long as such appointment by the Board shall remain in effect.  Each Director may, however, resign from such position at any time and for any reason.  The Corporation’s obligation to indemnify each such Director as set forth in this Agreement shall continue in full force and effect notwithstanding any such termination of appointment or resignation.   Section 2.    Compensation and Expense Reimbursement.  In return for his services as a member of the Special Committee, each Director shall be entitled to receive from the Corporation compensation in the amount of $60,000 ($70,000 in the case of Mr. Linton, Chairman of the Special Committee).  In addition, each Director shall be reimbursed by the Corporation for his reasonable out-of-pocket travel and other expenses incurred in connection with his service on the Special Committee.   --------------------------------------------------------------------------------   Section 3.    General Indemnification.   (a)   Article 10 of the Corporation’s By-Laws currently provides members of the Board of Directors with the following general right to indemnification:   The Corporation shall indemnify any 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 Corporation) by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.   (b)   The Corporation hereby confirms that the rights conferred upon the members of its Board of Directors pursuant to Article 10 of its By-Laws are fully applicable to the Directors in their capacity as members of the Special Committee.  Any subsequent amendment to such By-Laws which is intended to diminish, or has the effect of diminishing, the rights of directors to indemnification shall not be applicable to the Directors for their service on the Special Committee, whether such service was rendered before or after the adoption of such amendment.   (c)   The Corporation hereby agrees to indemnify and hold harmless (including, without limitation, by advancement of expenses) each Director with respect to his service on, and any matter or transaction considered by, the Special Committee to the fullest extent authorized or permitted by law.   (d)   In addition to (but not in duplication of) the general right to indemnification set forth in Article 10 of its By-Laws and this Section 3, and any other rights to indemnification to which the Directors are entitled under applicable law or otherwise, the Corporation hereby agrees to provide each Director with respect to his service on, and any matter or transaction considered by, the Special Committee the specific rights to indemnification set forth in Section 4 through Section 11 of this Agreement.   2 --------------------------------------------------------------------------------   Section 4.    Indemnification for a Proceeding, etc.   (a)   Proceedings Other Than Proceedings by or in the Right of the Corporation.  Each Director shall be entitled to the rights of indemnification provided in this Section 4(a) if, by reason of his status as a person who is or was a member of the Special Committee or was otherwise a director of the Company (“Corporate Status”), he is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Corporation.  Pursuant to this Section 4(a), each Director shall be indemnified against all expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful.  For purposes of this Agreement, “fines” shall include, without limitation, excise taxes assessed against the Director with respect to an employee benefit plan.   (b)   Proceedings by or in the Right of the Corporation.  Each Director shall be entitled to the rights of indemnification provided in this Section 4(b) if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Corporation to procure a judgment in its favor.  Pursuant to this Section 4(b), each Director shall be indemnified against all expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that, if applicable law so provides, no indemnification against such expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which such Director shall have been finally adjudged to be liable to the Corporation unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.   (c)   Indemnification for Expenses of a Party Who is Wholly or Partly Successful.  Notwithstanding any other provision of this Agreement, to the extent that a Director is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law against all expenses actually and reasonably incurred by him or on his behalf in connection therewith.  If a Director is not wholly successful in such Proceeding, but is successful, on the merits or otherwise, as to one or more, but less than all claims, issues or matters in such Proceeding, the Corporation shall indemnify such Director against all expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter.  For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.   (d)   Additional Indemnity. In addition to, and without regard to any limitations on, the indemnification provided for in Section 4(a)-(c), the Corporation shall   3 --------------------------------------------------------------------------------   and hereby does indemnify and hold harmless each Director against all expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status he is, or is threatened to be made, a party to or participant in any Proceeding (including, without limitation, a Proceeding by or in the right of the Corporation).  The only limitation that shall exist upon the Corporation’s obligations pursuant to this Agreement shall be that the Corporation shall not be obligated to make any payment to a Director that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6, 7 and 8 hereof) to be unlawful under Delaware law.   (e)   Contribution in the Event of Joint Liability.   (i)            Whether or not the indemnification provided in Section 4(a)-(d) hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which Corporation is jointly liable with any Director (or would be if joined in such action, suit or proceeding), Corporation shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring such Director to contribute to such payment and the Corporation hereby waives and relinquishes any right of contribution it may have against such Director.  The Corporation shall not enter into any settlement of any action, suit or proceeding in which the Corporation is jointly liable with a Director (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against such Director.   (ii)           Without diminishing or impairing the obligations of the Corporation set forth in the preceding subparagraph, if, for any reason, a Director shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which Corporation is jointly liable with such Director (or would be if joined in such action, suit or proceeding), the Corporation shall contribute to the amount of expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by such Director in proportion to the relative benefits received by the Corporation and all officers, directors or employees of the Corporation other than such Director who are jointly liable with him (or would be if joined in such action, suit or proceeding), on the one hand, and the Director, on the other hand, from the transaction from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Corporation and all officers, directors or employees of the Corporation other than such Director who are jointly liable with the Director (or would be if joined in such action, suit or proceeding), on the one hand, and the Director, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the law may require to be considered.  The relative fault of the Corporation and all officers, directors or employees of the Corporation other than the Director who are jointly liable with him (or would be if joined in such action, suit or proceeding), on the one hand, and the Director, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit   4 --------------------------------------------------------------------------------   or advantage, the degree to which their liability is primary or secondary, and the degree to which their conduct is active or passive.   (iii)          The Corporation hereby agrees to fully indemnify and hold each Director harmless from any claims of contribution which may be brought by officers, directors or employees of the Corporation who may be jointly liable with such Director.   Section 5.    Advancement of Expenses and Costs.  If a Director is made or threatened to be made a party to a Proceeding, the Director is entitled, upon written request to the Corporation, to payment or reimbursement by the Corporation, within ten (10) days of receipt of the request, of all reasonable expenses, including, without limitation, attorneys’ fees and disbursements, incurred by the Director, whether prior to or after the final disposition of the Proceeding. Such request shall reasonably evidence the expenses incurred by the Director and shall include or be preceded or accompanied by an undertaking by or on behalf of such Director to repay any expenses advanced if it shall ultimately be determined that such Director is not entitled to such expenses.  Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free and shall be accepted without reference to financial ability to make the repayment.  A Director’s entitlement to such expenses shall include those incurred in connection with any Proceeding by such Director seeking an adjudication pursuant to this Agreement.   Section 6.    Determination of Entitlement to Indemnification or Advances.  It is the intent of this Agreement to secure for each Director rights of indemnity that are as favorable as may be permitted under the law and public policy of the State of Delaware.  Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether a Director is entitled to indemnification under this Agreement:   (a)   To obtain indemnification (including, without limitation, the advancement of expenses and contribution by the Corporation) under this Agreement, a Director shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to such Director and is reasonably necessary to determine whether and to what extent a Director is entitled to indemnification.  The Secretary of the Corporation shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that such Director has requested indemnification.   (b)   Upon written request by a Director for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination, if required by applicable law, with respect to a Director’s entitlement thereto shall be made in the specific case by one of the following three methods, which shall be at the election of such Director:  (i) by a majority vote of the Disinterested Directors, even though less than a quorum, or (ii) by Independent Legal Counsel in a written opinion or (iii) by the stockholders.   (c)   If the determination of entitlement to indemnification is to be made by Independent Legal Counsel pursuant to Section 6(b) hereof, the Independent Legal   5 --------------------------------------------------------------------------------   Counsel shall be selected as provided in this Section 6(c).  The Corporation and its Board of Directors agree that, in the event of an election to use an Independent Legal Counsel under Section 6(b), that such election shall, by virtue of, among other things, their approval of this Agreement, be deemed at the direction of the directors of the Corporation.  The Independent Legal Counsel shall be selected by the Director (unless such Director shall request that such selection be made by the Board of Directors).  Such Director or the Corporation, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Corporation or to the Director, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Legal Counsel so selected does not meet the requirements of “Independent Legal Counsel” as defined in Section 16(b) of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Legal Counsel.  If a written objection is made and substantiated, the Independent Legal Counsel selected may not serve as Independent Legal Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit.  If, within thirty (30) days after submission by a Director of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Legal Counsel shall have been selected and not objected to, either the Corporation or the Director may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Corporation or such Director to the other’s selection of Independent Legal Counsel and/or for the appointment as Independent Legal Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Legal Counsel under Section 6(b) hereof.  The Corporation shall pay any and all reasonable fees and expenses of Independent Legal Counsel incurred by such Independent Legal Counsel in connection with acting pursuant to Section 6(b) hereof, and the Corporation shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c), regardless of the manner in which such Independent Legal Counsel was selected or appointed.   (d)   The Corporation acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty.   In the event that any action, claim or proceeding to which a Director is a party is resolved in any manner other than by adverse judgment against such Director (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed (unless there is a preponderance of competent evidence to the contrary) that such Director has been successful on the merits or otherwise in such action, suit or proceeding.   (e)   Each Director shall reasonably cooperate with the person, persons or entity making such determination with respect to such Director’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to such Director and   6 --------------------------------------------------------------------------------   reasonably necessary to such determination.  Any Independent Legal Counsel, member of the Board of Directors, or stockholder of the Corporation shall act reasonably and in good faith in making a determination under the Agreement of a Director’s entitlement to indemnification.  Any costs or expenses (including, without limitation, attorneys’ fees and disbursements) incurred by a Director in so cooperating with the person, persons or entity making such determination shall be borne by the Corporation (irrespective of the determination as to such Director’s entitlement to indemnification) and the Corporation hereby indemnifies and agrees to hold each Director harmless therefrom.   Section 7.    Presumptions and Effect of Certain Proceedings. In making a determination with respect to entitlement or indemnification hereunder, the persons or entity making such determination shall presume (unless there is clear and convincing evidence to the contrary) that a Director is entitled to indemnification under this Agreement if such Director has submitted a request for indemnification in accordance with this Agreement.  If the person(s) so empowered to make such determination shall have failed to make the requested determination within sixty (60) days after receipt by the Corporation of such request, the requisite determination of entitlement to indemnification shall be deemed to have been made and such Director shall be absolutely entitled to such indemnification absent actual and material fraud.  A Director shall be deemed to have acted in good faith if such Director’s action is based on the records or books of account of the Corporation, including, without limitation, financial statements, or on information supplied to such Director by the officers of the Corporation in the course of their duties, or on the advice of legal counsel for the Corporation or the Special Committee or on information or records given or reports made to the Corporation or the Special Committee by an independent certified public accountant, by a financial advisor or by an appraiser or other expert selected with reasonable care by the Corporation or the Special Committee.  In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Corporation shall not be imputed to a Director for purposes of determining the right to indemnification under this Agreement.  Whether or not the foregoing provisions of this Section 7 are satisfied, it shall in any event be presumed (unless there is clear and convincing evidence to the contrary) that each Director has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation.  Neither the failure of the Company (including by its directors or Independent Legal Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because a Director has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Legal Counsel) that such Director has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that such Director has not met the applicable standard of conduct.  The termination of a Proceeding described in Section 4 hereof by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, (a) establish that the Director does not meet the criteria for entitlement to indemnification set forth in Section 4 hereof or (b) otherwise adversely affect the rights of such Director to indemnification except as may be provided herein.  The knowledge and/or actions, or failure to act, of any other director, officer, trustee, partner, managing member, fiduciary, agent or employee of the   7 --------------------------------------------------------------------------------   Corporation shall not be imputed to a Director for purposes of determining the right to indemnification under this Agreement.   Section 8.    Remedies of Director in Cases of Determination not to Indemnify or to Advance Expenses.  In the event that (a) a determination is made that a Director is not entitled to indemnification hereunder, (b) advancement of expenses is not timely made pursuant to Section 5 hereof, (c) no determination of entitlement to indemnification shall have been made pursuant to Section 6 hereof within ninety (90) days after receipt by the Corporation of the request for indemnification, (d) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Corporation of a written request therefor or (e) payment of indemnification is not made within ten (10) days following a determination of entitlement to indemnification pursuant to Section 6 and Section 7 hereof, such Director shall be entitled to a final adjudication in an appropriate court of the State of Delaware or any other court of competent jurisdiction of his entitlement to such indemnification or advance.  Such judicial proceeding shall be made de novo and such Director shall not be prejudiced by reason of a determination (if so made) that he is not entitled to indemnification.  If a determination is made or deemed to have been made pursuant to the terms of Section 6 or Section 7 hereof that a Director is entitled to indemnification, the Corporation shall be bound by such determination and shall be precluded from asserting that such determination has not been made or that the procedure by which such determination was made is not valid, binding and enforceable.  The Corporation further agrees to stipulate in any such court that the Corporation is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary.  If the court shall determine that a Director is entitled to any indemnification hereunder, the Corporation shall pay all reasonable expenses (including attorneys’ fees) and costs actually incurred by such Director in connection with such adjudication (including, without limitation, any appellate proceedings).   If a director commences a judicial proceeding or arbitration pursuant to this Section 8, such Director shall not be required to reimburse the Corporation for any advances pursuant to Section 5 hereof until a final determination is made with respect to such Director’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).  The Corporation shall indemnify and hold harmless each Director to the fullest extent permitted by law against all expenses and, if requested by such Director, shall (within ten (10) days after the Corporation’s receipt of such written request) advance such expenses to such Director, which are incurred by the Director in connection with any judicial proceeding or arbitration brought by the Director (a) to enforce his rights under, or to recover damages for breach of, this Agreement or any other indemnification, advancement or contribution agreement or provision of the Corporation’s Certificate of Incorporation or By-Laws now or hereafter in effect or (b) for recovery or advances under any insurance policy maintained by any person for the benefit of the Director, regardless of whether the Director ultimately is determined to be entitled to such indemnification, advance, contribution or insurance recovery, as the case may be.  Interest shall be paid by the Corporation to a Director at the legal rate under Delaware law for amounts which the Corporation indemnifies or is obliged to indemnify for the period commencing with the date on which Indemnitee requests indemnification (or reimbursement or advancement   8 --------------------------------------------------------------------------------   of any expenses) and ending with the date on which such payment is made to the Director by the Corporation.   Section 9.    Reimbursement for Expenses of Witness.  To the extent that a Director has served as a witness in any Proceeding at a time when such Director has not been made a party to the Proceeding, the Corporation shall reimburse such Director for all expenses actually and reasonably incurred by him or on his behalf in connection therewith.   Section 10.  Other Rights of Indemnification and Insurance.   (a)   The indemnification and advancement of expenses (including, without limitation, attorneys’ fees) and costs provided by this Agreement shall not be deemed exclusive of any other rights to which any Director may now or in the future be entitled under any agreement, provision of the By-Laws, or provision of the Articles of Incorporation, vote of stockholders or Disinterested Directors of the Corporation, provision of law or otherwise.   (b)   To the extent that the Corporation maintains an insurance policy or policies providing liability insurance for directors, officers, employees or agents or fiduciaries of the Corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Corporation, including, without limitation, the Directors and Officers Liability Insurance Policy, dated August 4, 2005, issued to the Corporation by Genesis Insurance Company (the “Current D&O Policy”), each Director shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies.  The Corporation hereby covenants and agrees to maintain the Current D&O Policy on terms and subject to conditions at least as favorable to the Directors as the terms and conditions that exist as of the date of this Agreement.  In the event that, notwithstanding the foregoing, the Current D&O Policy is no longer in full force and effect or is otherwise unavailable, the Corporation shall obtain and maintain a policy or policies of insurance providing liability insurance for the Directors on terms and subject to conditions not materially different from, and in no way less favorable to the Directors than, the Current D&O Policy; provided that the Corporation shall not be required to pay an aggregate premium for such insurance coverage in excess of 200% of the amount of the premium for the Current D&O Policy on the date of this Agreement, but shall, in such case, purchase as much coverage as possible for such amount.   Section 11.  Attorneys’ Fees and Other Expenses to Enforce Agreement.  In the event that a Director is subject to or intervenes in any Proceeding in which the validity or enforceability of this Agreement is at issue or seeks an adjudication or award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, such Director, if he prevails in whole or in part in such action, shall be entitled to recover from the Corporation and shall be indemnified by the Corporation against, any actual expenses for attorneys’ fees and disbursements reasonably incurred by him.   9 --------------------------------------------------------------------------------   Section 12.  Duration of Agreement.  This Agreement shall continue until and terminate upon the later of:  (a) ten (10) years after a Director has completed his service as a member of the Special Committee or (b) the final termination of all pending or threatened actions, suits, Proceedings or investigations with respect to the Special Committee.  This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of each Director and his spouse, assigns, heirs, devisees, executors, administrators or other legal representatives.   Section 13.  Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or rceable for any reason whatsoever:  (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.   Section 14.  Identical Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.   Section 15.  Headings.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.   Section 16.  Definitions.  For purposes of this Agreement:   (a)   “Disinterested Directors” shall mean a director of the Corporation who is not a member of the Special Committee and who is not at the time a party to the Proceeding in respect of which indemnification is being sought by a Director.   (b)   “Independent Legal Counsel” means a law firm or a member of a law firm that is experienced in matters of corporation law and who has not represented the Corporation or related organization, or a director, officer, member of a committee of the board or employee, whose indemnification is in issue.  Notwithstanding the foregoing, the term “Independent Legal Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or any Director in an action to determine such Director’s right to indemnification under this Agreement. The Corporation agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.   10 --------------------------------------------------------------------------------   (c)   “Proceeding” means a threatened, pending or completed civil, criminal, administrative, arbitration or investigative proceeding, including, without limitation, a proceeding by or in the right of the Corporation.   Section 17.  Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by all of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.   Section 18.  Notice by Director.  Each Director agrees promptly to notify the Corporation in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter which may be subject to indemnification covered hereunder, either civil, criminal or investigative.   Section 19.  Notices.  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:   (a)   If to Mr. Linton, to:   c/o Bruker BioSciences Corporation 40 Manning Road Billerica, Massachusetts 01821     with a copy to:   Frederick W. Kanner, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019   (b)   If to Mr. Canavan, to:   c/o Bruker BioSciences Corporation 40 Manning Road Billerica, Massachusetts 01821     with a copy to:   Frederick W. Kanner, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019   11 --------------------------------------------------------------------------------   (c)   If to Mr. Crouch, to:   c/o Bruker BioSciences Corporation 40 Manning Road Billerica, Massachusetts 01821   with a copy to:   Frederick W. Kanner, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019   (d)   If to Mr. Dross, to:   c/o Bruker BioSciences Corporation 40 Manning Road Billerica, Massachusetts 01821   with a copy to:   Frederick W. Kanner, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019   (e)   If to the Corporation, to:   Richard M. Stein, Esq. Nixon Peabody LLP 101 Federal Street Boston, Massachusetts 02110   or to such other address as may have been furnished to the Directors by the Corporation or to the Corporation by a Director, as the case may be.   Section 20.  Governing Law.  The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware.   12 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.       BRUKER BIOSCIENCES CORPORATION           By:  /s/ William J. Knight       Name: William J. Knight     Title:  Chief Financial Officer         /s/ William A. Linton     William A. Linton           /s/ M. Christopher Canavan     M. Christopher Canavan           /s/ Taylor J. Crouch     Taylor J. Crouch           /s/ Daniel S. Dross     Daniel S. Dross     13 --------------------------------------------------------------------------------

Exhibit 10.2 GLOBALOPTIONS GROUP, INC. 75 Rockefeller Plaza 27th Floor New York, NY 10019 CONFIDENTIAL December 19, 2006 Jeffrey 0. Nyweide PO Box 1426. Manchester Center, VT 05255 Re: Agreement dated January 8, 2003 and Assignment dated June 2005 (the "Agreement") Dear Jeff: This letter is to amend the Agreement between GlobalOptions Group, Inc. ("Global") and you, effective as of the above date, and to extend the term of the Agreement between you and Global, through January 31, 2010. For the purposes of that period of time beginning from the date hereof and continuing through January 31, 2010 or earlier termination of the Agreement, Sections 4. A and 5 are hereby deleted in their entirety and the following new Sections 4.A. and 5 are substituted in lieu thereof: 4.A. TERM OF AGREEMENT. The Company hereby agrees to continue the Agreement and you hereby accept, upon the terms set forth in this Agreement, for the period commencing on the date hereof and ending upon January 31, 2010, unless otherwise terminated pursuant to the terms hereof. The term shall automatically extend for an additional one year period on the first day of the final year of the term, or any extension thereof, as the case may be, on the same terms and conditions as set forth herein, unless either the Company or you gives written notice to the other within 90 days before the first day of the final year that the term shall not automatically be extended; provided, however, that the Company and you may amend this Agreement during such 90 day period to provide for such additional or modified terms and conditions as they shall mutually agree in writing. The end of such term shall be the "Expiration Date". 5. PAYMENT. 5.a. Starting effective January 1, 2007, the Company shall pay you at the beginning of each month via wire transfer $27,083.33 for 2007, $29,166.67 for 2008, and $31,250 for 2009 and you shall be entitled to participate in all of the benefit plans and programs offered and paid by the Company to its executive officers. Additional time required and mutually agreed upon in advance will be at a rate of $2500 per day to be paid monthly. Jeffrey 0. Nyweide December 19, 2006 Page two of three You will be reimbursed for all out of pocket expenses for travel to the Company's site and other travel and business expenses as required to perform the above Services. Other non-budgeted non-travel related expenses greater than $1000 per month must be pre-approved by the Company. All expense reimbursements to be paid upon receipt by the Company. 5.b. Starting January 1, 2007, you shall be eligible for a performance bonus payable 50% in cash and 50% in vested restricted stock established from the 2007-2009 Annual Incentive Plan, based upon mutually agreed to goals, established by the Compensation Committee formed by the Board of Directors of GlobalOptions Group, Inc. (the "Compensation Committee"). The performance bonus and payment for 2007 - 2009 shall be based upon achieving certain goals as set forth in Exhibit 1 to this Amendment. 5.c. You will be awarded a one-time restricted stock grant upon the execution of this Agreement in the amount of six hundred thousand (600,000) shares subject to performance vesting under the 2007 - 2009 Annual Incentive Plan and subject to the approval of the Long Term Incentive Plan by the stockholders. The Company will use its reasonable efforts to include all securities issued to you on a registration statement registering the resale of such securities. 5.d. You, at your option, shall have the ability to exercise in a cashless manner any securities granted to you pursuant to the Company's 2005 Stock Option Plan, 2006 Stock Option Plan, 2006 Long-Term Incentive Plan or any other employee benefit plan which is approved by stockholders and provides for cashless exercises, for the purpose of exercising the purchase of options and/or withholding taxes for options and/or restricted stock. 5.e. Not withstanding anything to the contrary in this Agreement, upon a Change in Control of the Company, all stock options and restricted stock shall vest immediately upon such Change in Control and all performance conditions for any performance stock options or restricted stock shall be deemed to be met and the term to exercise any stock options will be equal to the term of the stock option originally granted. For purposes of this Agreement, the term "Change of Control" shall mean: (i) the sale, transfer, exchange, conveyance or other disposition (other than by way of merger, consolidation, recapitalization or reorganization), in one or a series of related transactions, of all or substantially all of the assets of the Company or more than fifty percent (50%) of the combined voting power of the outstanding securities of the Company held by persons who are stockholders of the Company on the date hereof to any person or entity; (ii) the adoption of a plan relating to the liquidation or dissolution of the Company; or (iii) a Jeffrey 0. Nyweide December 19, 2006 Page three of three merger or consolidation of the company with or into another corporation or entity or a recapitalization or reorganization of the Company if, immediately upon the consummation of such merger, consolidation, reorganization or recapitalization, the holders of the outstanding voting securities of the Company, determined immediately prior to such merger, consolidation, reorganization or recapitalization do not immediately thereafter own more than fifty percent (50%) of the combined voting power of the merged, consolidated, reorganized or recapitalized company's outstanding securities entitled to vote generally in the election of directors. The Company hereby agrees during, and after termination of this Agreement, to indemnify you and hold you harmless, both during the Term and thereafter, to the fullest extent permitted by law and under the certificate of incorporation and by-laws of the Company against and in respect of any and all actions, suits, proceedings, claims, demands, judgments, costs, expenses (including reasonable attorney's fees), losses, amounts paid in settlement to the extent approved by the company, and damages resulting from your good faith performance of your duties as an officer or director of the Company or any affiliate. The Company shall reimburse you for expenses incurred by you in connection with any proceeding hereunder upon written request from you for such reimbursement and the submission by you of the appropriate documentation associated with these expenses. Such request shall include an undertaking by you to repay the amount of such advance or reimbursement if it shall ultimately be determined that you are not entitled to be indemnified hereunder against such costs and expenses. The Company shall use commercially reasonable efforts to obtain and maintain directors' and officers' liability insurance covering you to the same extent as the Company covers its other officers and directors. Except as hereby amended, the Agreement and all of its terms and conditions shall remain in full force and effect and are hereby confirmed and ratified. This amendment shall be governed and construed under the laws of the District of Columbia. Please sign below to acknowledge your agreement to and acceptance of this amendment to the Agreement. Sincerely, /s/ Harvey W. Schiller ----------------------------- Harvey W. Schiller Chairman & CEO Agreed to: /s/ Jeffrey 0. Nyweide ----------------------------- Jeffrey 0. Nyweide Date: December 19, 2006

  Exhibit 10(T) The Goodrich Corporation Management Incentive Program is not currently set forth in a formal plan document. The following is a written description of the terms and conditions of the program as in effect on December 31, 2005. Purpose The Goodrich Corporation Management Incentive Program (the “Program”) has been established to provide opportunities to certain key employees to receive incentive compensation as a reward for high levels of personal performance above the ordinary performance standards compensated by base salary, and for their contributions to strong performance of the Company. The Program is designed to provide competitive awards when relevant performance objectives are achieved and reduced or no awards when such objectives are not achieved. Eligibility Participation in the Program will be limited to those key employees that have the potential to influence significantly and positively the performance of the Company or the business unit to which they are assigned. Participants will be selected by management annually. Inclusion of a key employee as a Participant does not, however, assure that an incentive award will be paid to the Participant for the year since actual awards are determined at the sole discretion of the Compensation Committee of the Board of Directors (the “Committee”). To be eligible for participation in a Program Year (as defined below), a key employee must have assumed the duties of an incentive-eligible position and have been selected for participation in the Program by September 30 of that Program Year. To receive an award, the Participant must remain employed by the Company through December 15 of the Program Year, subject to the Change in Control provisions described below. Incentive Categories Each year the Committee will assign each Participant to an incentive category based on organizational level and potential impact on important Company or business unit results. The incentive categories define the target level of incentive opportunity, stated as a percentage of salary as determined by the Committee, that will be available to the Participant if the Company’s target performance levels are met for the Program Year (the “Target Incentive Amount”). Maximum and Threshold Awards Each Participant will be assigned maximum and threshold award levels. Maximum award levels represent the maximum amount of incentive award that may be paid to a Participant for a Program Year. Threshold award level represents the level above which an incentive award will C-1 --------------------------------------------------------------------------------   be paid to a Participant. Performance at or below threshold level will earn no incentive payments. Each Participant’s maximum award level will be 200% of his or her Target Incentive Amount. Performance Measures Performance measures that may be used under the Program shall be based upon one or more or the following criteria: operating income; net income; earnings (including earnings before interest, taxes, depreciation and/or amortization); earnings per share; sales; costs; profitability of an identifiable business unit or product; maintenance or improvement of profit margins; cost reduction goals; operating cash flow; free cash flow (operating cash flow less capital expenditures); working capital; improvements in capital structure; debt reduction; credit ratings; return on assets; return on equity; return on invested capital; stock price; total shareholder return; completion of joint ventures, divestitures, acquisitions or other corporate transactions; new business or expansion of customers or clients; strategic plan development and implementation; succession plan development and implementation; customer satisfaction indicators; employee metrics; or other objective individual or team goals. The performance measures may relate to the Company, on an absolute basis and/or relative to one or more peer group companies or indices, or to a particular Participant, subsidiary, division or operating unit, or any combination of the foregoing, all as the Committee shall determine. In addition, the Committee may adjust, modify or amend the above criteria, either in establishing any performance measure or in determining the extent to which any performance measure has been achieved. Without limiting the generality of the foregoing, the Committee shall have the authority, at the time it establishes the performance measures for the applicable Program Year, to make equitable adjustments in the criteria in recognition of unusual or non-recurring events, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a business or related to a change in accounting principles, or as the Committee determines to be appropriate to reflect a true measurement of the performance of the Company or any subsidiary, division or operating unit, as applicable, and to otherwise satisfy the objectives of the Program. Partial Program Year Participation Subject to the Change in Control provisions described below, incentive awards to Participants who terminate during the Program Year for reasons of death or disability or at a time when eligible for normal or early retirement will be calculated as specified above and will be paid pro rata based on a fraction, the numerator of which is the number of full and partial months of the Program Year during which the Participant was employed by the Company, and the denominator of which is the total number of months in the Program Year. Subject to the Change in Control provisions described below, Participants who terminate prior to December 15 of a Program Year for reasons other than death, disability, or normal or early retirement will receive no incentive award payments for such Program Year. 2 --------------------------------------------------------------------------------   Performance Goals The Committee will designate, prior to or within 90 days of the beginning of each Program Year: •   The incentive category and percentage of salary for each Participant to determine his or her Target Incentive Amount: •   The performance measures and calculation methods to be used for the Program Year for each Participant; •   A schedule for each performance measure relating achievement levels for the performance measure to incentive award levels as a percentage of Participants’ Target Incentive Amounts; and •   The relative weightings of the performance measures for the Program Year. Performance Certification As soon as practicable following the end of each Program Year, the Committee will certify the performance with respect to each performance measure used in that Program Year. Award Calculation and Payment Individual incentive awards will be calculated and paid as soon as practicable following the Committee’s certification of performance for each Program Year. The amount of a Participant’s incentive award to be paid based on each individual performance measure will be calculated based on the following formula (the “Formula”).                           Participant’s   x   Participant’s Target   x   Percentage of target     salary       Incentive Amount       award to be paid for                     achievement against                     performance measure                       x   Relative weighting of   =   Amount of incentive         performance measure       award based on                 performance measure The incentive amounts to be paid to the Participant based on each performance measure will be summed to arrive at the Participant’s total incentive award payment for the Program Year. Payment upon Change In Control Anything to the contrary notwithstanding, within five days following the occurrence of a Change in Control, the Company shall pay to each Participant an interim lump-sum cash payment (the 3 --------------------------------------------------------------------------------   “Interim Payment”) with respect to his or her participation in the Program. The amount of the Interim Payment shall equal the product of (x) the number of months, including fractional months, that have elapsed until the occurrence of the Change in Control in the calendar year in which the Change of Control occurs and (y) one-twelfth of the greater of (i) the amount most recently paid to each Participant for a full calendar year under the Program , or (ii) the Target Incentive Amount for each Participant in effect prior to the Change in Control for the calendar year in which the Change in Control occurs, under the Program. The Interim Payment shall not reduce the obligation of the Company to make a final payment under the terms of the Program, but any Interim Payment made shall be offset against any later payment required under the terms of the Program for the calendar year in which a Change in Control occurs. Notwithstanding the foregoing, in no event shall any Participant be required to refund to the Company, or have offset against any other payment due any Participant from or on behalf of the Company, all or any portion of the Interim Payment. For purposes of the Program, a Change in Control shall mean      (i) 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”)), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) 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 the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company (other than by exercise of a conversion privilege), (B) any acquisition by the Company or any of its subsidiaries, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (D) any acquisition by any corporation with respect to which, following such acquisition, more than 70% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such acquisition in substantially the same proportions as their ownership, immediately prior to such acquisition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or      (ii) During any period of two consecutive years, individuals who, as of the beginning of such period, 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 beginning of such period 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 either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or 4 --------------------------------------------------------------------------------        (iii) Consummation of a reorganization, merger or consolidation, in each case, with respect to which 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 reorganization, merger or consolidation, do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 70% 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 reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or      (iv) Consummation of (A) a complete liquidation or dissolution of the Company or (B) a sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, more than 70% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by 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 sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be. Program Year The Program Year shall be the fiscal year of the Company. Program Administration The Program will be administered by the Committee. The Committee is empowered to set preestablished performance targets, measure the results and determine the amounts payable according to the Formula. The Committee retains discretionary authority to reduce or increase +the amount of compensation that would otherwise be payable to the Participants if the goals are attained. The Committee is authorized to interpret the Program, to establish, amend and rescind any rules and regulations relating to the Program, and to make any other determinations that it deems necessary or desirable for the administration of the Program. The Board of Directors or the Committee may amend, alter or terminate the Program; provided, however, that any such amendments shall comply with the applicable requirements for exemption (to the extent necessary) under Section 162(m) of the Internal Revenue Code. 5

Exhibit 10.53   January 19, 2006   Christophe Bianchi 120 East 87th Street #P18D New York, New York 10128   Dear Christophe,   This letter supersedes and replaces our original offer letter sent to you, dated December 22, 2005.   On behalf of Millennium Pharmaceuticals, Inc. (the “Company”), I am pleased to offer you the position of Executive Vice President, Commercial Operations in the Commercial Management group reporting to Deborah Dunsire, Chief Executive Officer. We are very excited about the prospect of you joining Millennium and driving the Company’s commercial success. The offer terms are outlined below and please feel free to call me to discuss them:   1.               Salary:  Your base salary will initially be $415,000 per annum. Your salary will be paid periodically in accordance with the Company’s payroll procedures. In addition, in accordance with the Company’s compensation practices, you will receive, approximately annually, a salary review which will be based on your performance, the Company’s performance and such other factors as may be determined by the Company’s Board of Directors.   2.               Effective Date: The Effective Date of your full-time employment with the Company is February 1, 2006 (the “Effective Date”).   3.               Success Sharing:  You will be eligible to participate in the 2006 Millennium Success Sharing cash bonus program, which includes a fixed percentage of salary target for each position. The funding of the target is based on the Company meeting overall goals established at the beginning of each calendar year. In the event of Company performance below or above target, your personal bonus payment may vary. Your individual bonus payment will also vary based on your individual performance. The target for your position is 45% of your annual salary, prorated based on service during the calendar year. Your manager will work with you to establish your individual goals under the Success Sharing program. Bonus payments will be made to eligible and active employees in March of 2007 for the 2006 Success Sharing Plan.   4.               Benefits:  You and your dependents will be eligible for the Company’s standard medical, dental, vision, life insurance, disability benefits and Section 125 cafeteria plan. You will also be eligible to participate in the Company’s 401(k) and Employee Stock Purchase plans. You will accrue vacation at the rate of 1.25 days per month of full-time employment. Standard paid holidays will be observed. Transportation benefits are also available. The Company, however, reserves the right to modify its employee benefit programs from time-to-time.   --------------------------------------------------------------------------------   5.               Equity Participation   Stock Options: You will be granted stock options exercisable for 200,000 shares of the Company’s Common Stock. One third (1/3) of the total number of stock options will be granted on the last day of the calendar month in which you commence full-time employment with the Company, and one third will be granted on the last day of each of the next two succeeding calendar months. The exercise price of these stock options will be equal to the fair market value of Millennium’s Common Stock on the date of each grant. All options will vest as to one fourth (1/4) of the shares on the first anniversary of your commencement of full-time employment with the Company and as to one forty-eighth (1/48) of the shares monthly thereafter until all shares are vested, provided that you remain employed by the Company. In the event of your death while employed by the Company, all options will vest immediately as to all shares. In the event of termination of your employment for any reason (except as set forth in the preceding sentence or, in certain situations, upon a change of control of the Company as provided in the Company’s 2000 Stock Incentive Plan or will be contained in your stock option grant forms), vesting as to all shares shall cease. Provided that you remain employed by the Company, these stock options will be exercisable (as to the vested portion) for 10 years from the date of each grant. A complete description of the terms and conditions of these stock options is contained in the Company’s 2000 Stock Incentive Plan or will be contained in your stock option grant forms.   Restricted Stock:  In addition to the stock options described above, the Company will issue you 30,000 shares of restricted stock under the Company’s 2000 Stock Incentive Plan, which shares will vest one third (1/3) on each of the first, second and third anniversaries of your commencement of employment with the Company, provided that you remain employed by the Company. In the event of your death while employed by the Company, all unvested shares will vest immediately. In the event of termination of your employment for any reason (except as set forth in the preceding sentence or, in certain situations, upon a change of control as provided in the Company’s 2000 Stock Incentive Plan or will be contained in your restricted stock grant form), vesting as to all shares shall cease. A complete description of the terms and conditions of this restricted stock grant is contained in the Company’s 2000 Stock Incentive Plan or will be contained in your restricted stock grant form.   6.               Employment Period:  Your employment with the Company is contingent upon your successful completion of all required background screenings relative to the position you have accepted. Your employment with the Company will be at-will, meaning that you will not be obligated to remain employed by the Company for any specified period of time; likewise, the Company will not be obligated to continue your employment for any specific period and may terminate your employment at any time, with or without cause.   7.               Employment Eligibility Verification:  Please note that all persons employed in the United States, are required to complete an Employment Eligibility Verification Form on the first day of employment and submit an original document or documents that establish identity and employment eligibility within three business days of employment. For your convenience, we are enclosing Form I-9 for your review. You will need to complete Section 1 and present original document(s) of your choice as listed on the reverse side of the form once you begin work. Please note:  the I-9 form and valid identification are legal requirements and must be submitted within 3 days of your start date. If you do not submit the required documentation within the 3-day time frame, by law we cannot allow you to continue to work.   --------------------------------------------------------------------------------   8.               Proprietary Information, No Conflicts:  You agree to execute the Company’s standard form of Invention, Non-Disclosure and Non-Competition Agreement and to be bound by all of the provisions thereof. You hereby represent that you are not presently bound by any employment agreement, confidential or proprietary information agreement or similar agreement with any current or previous employer that would impose any restriction on your acceptance of this offer or that would interfere with your ability to fulfill the responsibilities of your position with the Company.   9.               New Employee Orientation: Orientation is held every other week. You will receive a welcome kit in the mail informing you of your orientation date approximately one week prior to your start date.   If your first day of employment with the company is a Monday and coincides with an orientation day, you should arrive at our University Park, 40 Landsdowne Street location for New Employee Orientation, which begins promptly at 8:30 a.m.; commuting directions are enclosed. If you are driving, please park in the Franklin Street parking garage, which can be accessed either from the Franklin or Green Street entrances (near the Star Market and University Park Hotel); both streets are located off of Sidney Street. Please bring your parking ticket to the Millennium receptionist prior to Orientation for validation.   If your first day of employment with the company does not coincide with an Orientation day, you should arrive at your work location and join your department. Your Orientation will be scheduled for the next session, our staff and/or your manager will advise you of the date.   If you have any questions about your Orientation date, please contact Sara Benyamini at 617-551-8878.   10.         Sign-on Bonus:  The Company will pay you a bonus of $25,000 on the date of the first paycheck following commencement of your full time employment. Should you voluntarily resign or be terminated for cause, within 12 months of your starting date after having received this bonus, the Company reserves the right to seek repayment of all or a pro-rata portion of your bonus. We will also pay you a bonus of $35,000 on the date of the first paycheck following commencement of your second year of fulltime employment. Should you voluntarily resign or be terminated for cause, within 24 months of your starting date after having received this bonus, the Company reserves the right to seek repayment of all or a pro-rata portion of your bonus.   11.         Retirement Benefits:  On the Effective Date, the Company will credit $100,000 to a tax deferred bookkeeping account (the “Account”) maintained by the Company on your behalf. You will be entitled to direct the investment of such Account in a manner similar to the investment opportunities provided under the Company’s 401(k) program, as amended from time to time. The Account will be adjusted, on a daily basis, by the income, gain or loss (realized and unrealized) resulting from such investment. You will become 1/3 vested in the Account on the second anniversary of the Effective Date and will become vested in an additional 1/3 of the Account on each anniversary thereafter (i.e,, 100% vesting after four years), assuming in each case that you have remained employed with the Company. Six months following your termination of employment with the Company for any reason, you (or, in the event of death, your designated beneficiary) will commence receiving ten annual installment payments equal to the vested portion of the Account (1/10, 1/9, 1/8, etc.), as adjusted to reflect the investment returns during such deferral period. Neither you nor the Company shall have the right to accelerate or defer payment from the Account. You   --------------------------------------------------------------------------------   acknowledge that the assets in the Account are the assets of the Company and that your rights to the Account will be no greater than those of a general unsecured creditor of the Company. No right or interest to the Account shall be assignable or transferable or be subject to alienation, anticipation, sale, pledge, encumbrance or similar process or be liable for or subject to any of your debts or liabilities. The provisions of this paragraph are intended to defer the recognition of taxable income by you until the distribution of amounts from the Account without the imposition of any penalties. Accordingly these provisions are intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and will be implemented and interpreted in accordance with that intent.   12.         Relocation Expenses:  Upon your acceptance of this offer, you are eligible for reimbursement of the following expenses associated with your relocation. The enclosed relocation tax information will explain relocation tax treatment. Specific relocation information will follow from MSI, Millennium’s relocation company.   •                  Reimbursement for expenses associated with direct-route transportation to Cambridge. •                  The cost of packing, moving, up to six (6) months temporary storage, and unloading of your household goods and effects using a certified carrier of the Company’s choice. •                  Temporary housing for up to six months upon your arrival in the Boston area or $3,000 (grossed up) lump sum if housing is not used. •                  Destination services provided by Corporate Real Estate Services, a division of Hunneman Coldwell Banker. •                  Closing costs (excluding points) on the purchase of a new home, up to 3% of the purchase price, if purchased within 12 months of your date of hire. •                  Millennium will reimburse you for reasonable and customary closing costs for your existing home, including real estate commission not to exceed 6%, legal and recording fees, title charges, transfer taxes, documentary stamps, etc. •                  The Company will provide a lump sum allowance of $2,000 (grossed up) to cover additional relocation related expenses. This sum will be paid to you by MSI once you submit a request for payment. •                  Up to two house-hunting trips, for up to eight (8) days total, for the purpose of locating suitable housing.   Should you voluntarily resign or be terminated for cause from the Company within one year of relocating, upon request by the Company, you agree to return all or any portion of reimbursed relocation expenses as requested by the Company.   13.         Reimbursement of Relocation Repayment Obligations: In the event that you are required by sanofi-aventis to repay all or a part of the approximately $110,000 previously provided by sanofi-aventis to you as relocation expense, upon receipt by the Company of written documentation evidencing such required repayment to sanofi-aventis, the Company will promptly provide you with a cash payment equal to such required repayment amount. Should you voluntarily resign or be terminated for cause from the Company within one year of the effective date of your full-time employment with the Company, upon request by the Company, you agree to return all or any portion of the reimbursed relocation expenses as requested by the Company.   14.         Severance:  In the event that your employment is terminated by Millennium other than for Justifiable Cause or terminated by you for Good Reason, Millennium will, for the twelve-month period following your termination of employment (the “Severance Period”), pay you a severance payment (the “Severance Payment”) equal to twelve (12) months’ base salary at   --------------------------------------------------------------------------------   your then current rate of pay; The Severance Payment will be payable periodically in accordance with Millennium’s payroll procedures as then in effect, commencing with the first payroll period following termination of employment.  In the event your employment is terminated by Millennium for Justifiable Cause or voluntarily by you without Good Reason, you will not be entitled to any Severance Payment.   “Justifiable Cause” shall mean the occurrence of any of the following events: (i) your conviction of, or plea of  nolo contendere with respect to a felony or a crime involving moral turpitude, (ii) your commission of an act of personal dishonesty or breach of fiduciary duty involving personal profit in connection with the Company, (iii) your commission of an act, or failure to act, which the Board of Directors of the Company shall reasonably have found to have involved willful misconduct or gross negligence on your part, in the conduct of your duties as an employee of the Company, (iv) habitual absenteeism, alcoholism or drug dependence on your part which interferes with the performance of your duties as an employee of the Company, (v) your willful and material failure or refusal to perform your services as an employee of the Company, (vi) any material breach by you to fulfill the terms and conditions under which you are employed by the Company, or (viii) your willful and material failure or refusal to carry out a direct, lawful written request of the Board of Directors or Chief Executive Officer.  In the event that Millennium terminates your employment for Justifiable Cause, Millennium will provide you with a statement of the basis for such termination and an opportunity to respond thereto.   “Good Reason” shall mean any action by the Company without your prior consent which results in (i) any requirement by the Company that you perform your principal duties outside a radius of 50  miles from the Company’s Cambridge location; (ii) any material diminution in your title, position, duties, responsibilities or authority, including your ceasing to report directly to the Chief Executive Officer or to serve as a member of the Company’s executive management team; (iii) any breach by the Company of any material provision contained herein not cured within thirty days’ of written notice thereof; (iv) a reduction in your base salary or a reduction of your target bonus amount to less than 45% of your annual salary (unless such reduction is effected in connection with a general and proportionate reduction of compensation  for all members of the management team); or (v) any acquisition, merger or change of control involving the Company which results in your ceasing to serve as the executive vice president of commercial operations or an equivalent position for the surviving entity.   To signify your acceptance of this offer, please sign the enclosed copy of the offer letter and telephone my assistant Nancy Kennedy at 617-679-7345 to arrange to fax it to me no later than Monday, January 23. After that date, the offer will lapse.   --------------------------------------------------------------------------------   Christophe, all of us here at Millennium are very enthusiastic about your commitment to joining the Company and have the highest expectation of your future contributions.   Very truly yours, MILLENNIUM PHARMACEUTICALS, INC.   /s/ LINDA PINE     Linda Pine SVP, Human Resources   I agree to and accept the terms of this letter as of the date written above:     /s/ CHRISTOPHE BIANCHI   Christophe Bianchi   January 23, 2006   Date   --------------------------------------------------------------------------------

                CONFIDENTIAL   1 of 29 [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. EXHIBIT 10.25 Frame Purchase Agreement hereinafter called “FPA” by and between Endwave Corporation Represented from Complete srl hereinafter referred to as “SUPPLIER“ and Siemens Mobile Communications Spa with offices at via Piero e Alberto Pirelli, 10 20126 Milan Italy hereinafter referred to as “PURCHASER“ SUPPLIER and PURCHASER are hereinafter referred to individually as “PARTY” and collectively as “PARTIES” Contract No: 5/90010 Effective Date: January 16, 2006           FPA Endware   [*]         [*]       --------------------------------------------------------------------------------       CONFIDENTIAL   2 of 29- TABLE OF CONTENT:                     1     Definitions     4     2     Scope of FPA     6     3     Business Relationship     6     4     Prices, Taxes and Currency     7     4.1     Prices     7     4.2     Taxes     7     4.3     Currency     7     5     Payment     7     6     PURCHASE ORDERS, Delivery and Cancellation     8     6.1     PURCHASE ORDERS     8     6.2     PURCHASE ORDER Acceptance     9     6.3     Cancellation     9     6.4     Delivery     9     6.5     Transfer of Risk and Title     10     6.6     Incoming Goods Inspection     10     7     PRODUCT Life Cycle Support     10     7.1     Commitment to Deliver, Maintain and Enhance     10     7.2     PRODUCT Changes     10     7.3     Component’s End of Life     11     7.4     SERVICE LEVEL AGREEMENT     11     7.5     PRODUCT DOCUMENTATION     12     8     Quality Assurance     12     9     Logistics     13     10     SUPPLIER Rating and Improvement Program (Goal Agreement)     13     11     Open Book Policy     13     11.1     Disclosure of PRODUCT Data     13     11.2     Cost Reduction     13     12     Protection of PURCHASER´s IPR and License Grant     13     12.1     Exclusivity     13     12.2     License Grant to SUPPLIER     14     13     Software License Grant by SUPPLIER     15     14     Confidential Information     15     15     Term and Termination     17     15.1     EFFECTIVE DATE     17     15.2     Renewal     17     15.3     Termination     17     15.4     Effect of Termination     18     15.5     Survival     18     16     Liability     18     16.1     Product Liability     18     16.2     Late Delivery     19     16.3     Infringement Indemnification     20     16.4     Insurance     20     17     Warranty     21     17.1     General     21     17.2     Warranty Period     21             FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   3 of 29-                     17.3     Defects of PRODUCTS (Non-Conforming Units)     21     17.4     Liability for Expenses     22     17.5     Exchange of Information     22     17.6     Other Rights     22     18     General Provisions     23     18.1     Notices     23     18.2     Compliance with Laws     24     18.3     Assignment     24     18.4     Force Majeure     24     18.5     Waiver     25     18.6     Captions     25     18.7     General Terms and Conditions     25     18.8     Press Releases     25     18.9     Export Control-, Customs Regulations     26     18.10     Severability     27     18.11     Governing Law     27     18.12     Mediation     27     18.13     Entire FPA     28     18.14     PURCHASER’s Divisions     28     18.15     No Agency or Joint Venture     28     18.16     Order of Precedence     28   LIST OF EXHIBITS:       EXHIBIT A1   PRODUCT AGREEMENT #1 (PA1) EXHIBIT A2   PRODUCT AGREEMENT #2 (PA2)     ... EXHIBIT An   PRODUCT AGREEMENT #n (PAn) EXHIBIT B   LOGISTICS SERVICE AGREEMENT (LSA) EXHIBIT D   QUALITY ASSURANCE AGREEMENT (QAA) EXHIBIT E   Template: ADOPTION AGREEMENT (AA)           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   4 of 29- WHEREAS, PURCHASER has manufacturing sites worldwide and wishes to strengthen its strategic purchasing activities with respect to certain PRODUCTS for worldwide delivery to certain ORDERING PARTIES; and WHEREAS, PURCHASER intends to market the PRODUCTS either in combination with, or as an integral part of its mobile communication product range, and WHEREAS, SUPPLIER wishes to cooperate with PURCHASER in order to fulfill PURCHASER’s worldwide requirements and to provide preferred purchasing conditions to any ORDERING PARTY; NOW, THEREFORE, the PARTIES agree as follows: 1 Definitions The following terms are integral to this FPA and any INDIVIDUAL AGREEMENT and shall have the following meaning: 1.1   “AA” or “ADOPTION AGREEMENT” means a separate bilateral agreement by which ORDERING PARTIES and DESIGNATED SUBSIDIARIES participate in the terms and conditions of this FPA, including its EXHIBITS, and which is to be signed by the respective parties concerned. A template of such AA is attached as EXHIBIT E.   1.2   “CONFIDENTIAL INFORMATION” shall have the meaning as described in Section 15.   1.3   “CONTRACT MANUFACTURER” means any subcontractor of PURCHASER, listed in EXHIBIT B (LSA), which is not a SUBSIDIARY of PURCHASER.   1.4   “DELIVERY DATE” means the date of delivery as indicated in the PURCHASE ORDER and/or as derived from provisons of EXHIBIT B (LSA) or from the respective EXHIBIT Ax (PA).   1.5   “DESIGNATED SUBSIDIARY” means any SUBSIDIARY of SUPPLIER as listed in EXHIBIT B (LSA) designated by SUPPLIER to accept and carry through PURCHASE ORDERS for SUPPLIER.   1.6   “DOCUMENTATION“ means all documentation of a PRODUCT as detailed in this FPA and required by PURCHASER to use such PRODUCT in accordance with this FPA. DOCUMENTATION shall include all future updates.   1.7   “EDI” means Electronic Data Interchange as specified in EXHIBIT B (LSA           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   5 of 29- 1.8   “EFFECTIVE DATE” shall mean the date first mentioned above.   1.9   “EPIDEMIC FAILURE” means the occurrence of complained or returned units caused by identical mistakes, as more specifically defined in EXHIBIT C (QAA).   1.10   “FORCE MAJEURE EVENT” shall have the meaning as described in Section 19.4 below.   1.11   “FPA” means this Frame Purchase Agreement, including any EXHIBITS and ANNEXES, which are incorporated by reference.   1.12   “FRAME ORDER” means a pro forma purchase order placed per part and fiscal year or PRODUCT life cycle. The sole purpose of such FRAME ORDER is to serve as a document for the electronic order processing used by PURCHASER. It is not legally binding and does not represent a volume/price commitment.   1.13   “INDIVIDUAL AGREEMENT” means any PRODUCT AGREEMENT, confirmed PURCHASE ORDER or FRAME ORDER, as part of or with reference to this FPA.   1.14   “LSA” or “LOGISTICS SERVICE AGREEMENT” means the logistics service agreement as specified in EXHIBIT B   1.15   “ORDERING PARTY” means PURCHASER or any of PURCHASER’s worldwide SUBSIDIARIES or CONTRACT MANUFACTURERS listed in EXHIBIT B (LSA). PURCHASER may at its option change EXHIBIT B (LSA) with prior written notice to SUPPLIER.   1.16   “PA” or “PRODUCT AGREEMENT” means the product agreement(s) as specified in EXHIBIT(S) A(x).   1.17   “PRODUCT(S)” means the commodity or commodities as specified in EXHIBIT A (PA). For the avoidance of doubt, PRODUCT(S) shall include hardware, firmware and software of the respective PRODUCT(S), as far as applicable.   1.18   “PURCHASE ORDER” means the document or a written process defined in EXHIBIT B (LSA) or in an INDIVIDUAL AGREEMENT used by an ORDERING PARTY to acquire PRODUCTS under this FPA.   1.19   “QAA” or “QUALITY ASSURANCE AGREEMENT” means the quality assurance agreement as specified in EXHIBIT D.   1.20   “SLA” or “SERVICE LEVEL AGREEMENT” means the service level agreement as specified in EXHIBIT C.   1.21   “SOFTWARE” means the software and/or firmware in machine readable format and, if and to the extent agreed, the source code, which run on the PRODUCT.           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   6 of 29 1.22   “SUBSIDIARY” means any company which any PARTY directly or indirectly owns or controls or which is directly or indirectly owned or controlled by a SUBSIDIARY of any PARTY. Ownership or control shall exist through the direct or indirect ownership of more than fifty per cent (50%) of the nominal value of the issued equity share capital or more than fifty per cent (50%) of the shares giving entitlement to vote at the election of directors or persons performing similar functions, or the right by any other means to elect or appoint directors or persons performing similar functions.   2   Scope of FPA   2.1   SUPPLIER shall supply to ORDERING PARTY the PRODUCTS as specified in the relevant EXHIBIT Ax (PA), and provide services in accordance with the terms and conditions of this FPA.   2.2   This FPA does not constitute and shall not be interpreted as any obligation to purchase any PRODUCT(S). Any such obligation shall only result from PURCHASE ORDERS issued by an ORDERING PARTY and duly accepted by SUPPLIER or a DESIGNATED SUBSIDIARY.   2.3   SUPPLIER assures PURCHASER   (i)   of the allocation of the forecasted quantities of PRODUCTS up to the agreed maximum bandwidth, as defined in   EXHIBIT B (LSA), and     (ii)   of the validity of the prices as defined in the relevant EXHIBIT Ax (PA), as the maximum price which may be   renegotiated on a regular basis according to the respective market situation. 3   Business Relationship If, under a PURCHASE ORDER/FRAME ORDER, a breach of any of the terms and conditions of this FPA occurs (i)   subject to Section (ii) below, such breach shall only be in respect of the parties to such PURCHASE ORDER/FRAME ORDER and shall not be considered as a breach by one PARTY towards the other PARTY. All contractual rights and remedies under this FPA and/or the respective PURCHASE ORDER/FRAME ORDER can only be exercised between the parties of the respective PURCHASE ORDER/FRAME ORDER.           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   7 of 29- (ii)   if a breach referred to in Section 3 (i) above materially and adversely affects the overall cooperation between the PARTIES, the matter may be referred to the senior management level of each PARTY for consideration. If the senior managers cannot agree upon a remedial course of action to the reasonable satisfaction of the SUPPLIER or PURCHASER within [*] days of their first convening for this purpose, the impaired PARTY shall be entitled to terminate this FPA and the foregoing Section 3 (i) shall not apply.   4   Prices, Taxes and Currency   4.1   Prices       Unless otherwise agreed in writing by PURCHASER and SUPPLIER, ORDERING PARTY shall purchase PRODUCTS from SUPPLIER and SUPPLIER shall grant licenses in accordance with the provisions of the FPA at the prices shown in the relevant EXHIBIT A (PA). SUPPLIER agrees and understands that the prices are determined by the cumulative purchase quantities of all ORDERING PARTIES hereunder   4.2   Taxes       The prices as listed in the relevant EXHIBIT A (PA) are net prices, i.e. all taxes, duties and similar charges imposed shall be borne by SUPPLIER, except VAT (Value Added Tax) or sales tax and shipping charges, which shall be calculated on [*] per Incoterms 2000. If VAT or sales tax is applicable, SUPPLIER shall bill such VAT or sales tax as a separate line item on the invoice. Where supplies are tax exempt, SUPPLIER shall not charge any VAT or sales tax. If necessary, ORDERING PARTY shall furnish a valid tax exemption certificate in order to enable SUPPLIER to make use of the tax exemption.   4.3   Currency       The currency under this FPA is the US dollar., unless otherwise stated in the relevant EXHIBIT A (PA).   5   Payment       Prices for PRODUCTS will be invoiced to ORDERING PARTY or credited to SUPPLIER in line with the respective EXHIBIT Ax (PA) and EXHIBIT B (LSA).           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   8 of 29-     Payments or credits shall be due no later than [*] days end of current month from the date of invoice. If the delay in receipt of proper payment by SUPPLYING PARTY will be more than [*] then SUPPLIER shall have the right to withhold future shipments.       If an invoice or credit note is disputed, ORDERING PARTY shall pay or credit the amount not in dispute. ORDERING PARTY shall not be obliged to pay or credit the amount in dispute until the dispute is resolved. No late payment charges shall be applied with regard to the disputed portion of the payment/credit.   6   PURCHASE ORDERS, Delivery and Cancellation   6.1   PURCHASE ORDERS       ORDERING PARTY shall order PRODUCTS in writing or by telefax or electronic mail (e-mail) or by Electronic Data Interchange (EDI), i2-based order management (if agreed upon), or if both PARTIES agreed to vendor managed inventory, call-off via consumption data as defined in EXHIBIT B (LSA). If not otherwise agreed and defined in this FPA, the PURCHASE ORDER shall include the following:   •   Date of issuance     •   PURCHASE ORDER number     •   SUPPLIER part number and/or SIEMENS part number     •   Quantity     •   Price     •   DELIVERY DATES     •   Shipping instructions and destination     •   Reference to this FPA     •   Invoice address     •   Contact person on ORDERING PARTY`s side     In case a vendor managed inventory regime is agreed in EXHIBIT B (LSA), a special PURCHASE ORDER is not needed, however, a FRAME ORDER shall be placed for electronic order-processing purposes. The agreed stock level           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   9 of 29-     with an additional call-off via consumption data shall be deemed a PURCHASE ORDER with all related consequences thereof.   6.2   PURCHASE ORDER Acceptance       All PURCHASE ORDERS are subject to acceptance. SUPPLIER shall itself accept, as well as cause any of its DESIGNATED SUBSIDIARIES to accept, any PURCHASE ORDER which is in conformity with this FPA, and to fully comply with any and all terms and conditions set out in this FPA, as if such DESIGNATED SUBSIDIARY were a PARTY to this FPA and as if any obligations were direct obligations of such DESIGNATED SUBSIDIARY. PURCHASE ORDER acceptance may only be withheld due to reasons of non-conformity with this FPA, or due to a FORCE MAJEURE EVENT. Each PURCHASE ORDER shall be deemed to be accepted unless notice of non-acceptance is communicated to ORDERING PARTY in writing or electronically via email within [*] calendar days after receipt of the PURCHASE ORDER. Notwithstanding the foregoing, in case of non-acceptance, ORDERING PARTY and SUPPLIER shall promptly discuss the further procedure.   6.3   Cancellation       ORDERING PARTY shall have the right to   (i)   postpone any PURCHASE ORDER up to 90 days without charge to ORDERING PARTY, or     (ii)   cancel any PURCHASE ORDER, wholly or partially, but SUPPLIER and ORDERING PARTY shall mutually agree on   the cancellation charges for long lead time parts as indicated in LSA . 6.4   Delivery   6.4.1   The DELIVERY DATE shall indicate the date the PRODUCTS are to be received at the place of destination named by ORDERING PARTY.   6.4.2   If a vendor managed inventory regime is agreed for a PRODUCT in EXHIBIT B (LSA), delivery terms for such PRODUCT shall be [*].   6.4.3   Packing details shall be defined in the respective EXHIBIT Ax (PA). Generally, packing of PRODUCTS for transport (including overseas shipment) and storage shall be made by SUPPLIER in such a manner as to protect PRODUCTS from damage. Such packing shall be included in the agreed prices and shall           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   10 of 29-     comply with all applicable laws and regulations. If special packing is required for storage or extreme conditions, such requirements shall be advised to SUPPLIER with the PURCHASE ORDER and may be priced separately. The dimensions of packing shall be fundamentally suited to its contents in order to avoid unused freight space.   6.5   Transfer of Risk and Title       Risk of loss, damage or destruction of PRODUCTS shall pass to ORDERING PARTY according to the Incoterms as stated in Section 6.4 above. Title to PRODUCTS, except SOFTWARE provided pursuant to the licensing provisions of this FPA, shall pass to ORDERING PARTY simultaneously with transfer of risk.   6.6   Incoming Goods Inspection       ORDERING PARTY may, at its discretion, perform an incoming goods inspection. However, the absence of any incoming goods inspection shall in no way affect or limit ORDERING PARTIES rights under this FPA.   7   PRODUCT Life Cycle Support       Both PARTIES agree that high quality, reliability, and supply-chain excellence can only be achieved through fostering cooperation and close collaboration at all process levels in the spirit of partnership and open-book relationship.   7.1   Commitment to Deliver, Maintain and Enhance       SUPPLIER undertakes to maintain the capability to manufacture and supply each PRODUCT over a period of at least seven (7) years following the effective date of the respective EXHIBIT Ax (PA) according to the terms stipulated therein and to deliver each PRODUCT to ORDERING PARTIES at then agreed prices.   7.2   PRODUCT Changes       PRODUCTS shall be fully compliant with the specifications in the relevant EXHIBIT Ax (PA) and with the requirements defined in EXHIBIT D (QAA).       If SUPPLIER intends to make changes to a PRODUCT which may affect form, fit, function, safety, reliability, performance, maintainability or any type-approval issue, SUPPLIER shall notify PURCHASER. Thereupon, the PARTIES shall in good faith           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   11 of 29-     discuss the consequences of such changes. Notwithstanding the aforesaid, SUPPLIER is only allowed to make such changes of the PRODUCT specifications after a written approval of PURCHASER.       If PURCHASER requests a technical change in writing to a PRODUCT, SUPPLIER shall implement such change following reconciliation between the PARTIES. Upon mutual agreement between the Parties, any changes requested by the PURCHASER will require PURCHASER to pay all costs related to implementing such changes, including tooling and associated fixturing. Furthermore, any work in process (WIP) or finished good inventory (FGI) that has been effectively obsoleted as a result of such change by PURCHASER shall be the sole responsibility of the PURCHASER.       In case any such change to a PRODUCT does affect one or more specifications of the relevant EXHIBIT Ax (PA), such specifications need to be updated by the originating PARTY prior to performing changes to the PRODUCT itself. Further, all changes in respect of the PRODUCT must be proven by sufficiently complete DOCUMENTATION commensurate with the nature of the change (e.g. by a block or circuit diagram, calculation of performance relevant parameters, field change bulletin relating to engineering, manufacturing or retrofitting).       In no event shall the delivery of a changed PRODUCT be made by SUPPLIER prior to PURCHASER’s and SUPPLIER’s written consent to such changes. Such acceptance shall result from PURCHASER’s compliance and type approval testing of corresponding prototypes, as well as from review of all DOCUMENTATION related hereto.   7.3   Component’s End of Life       SUPPLIER agrees to notify PURCHASER in writing [*] months in advance of the end of life of components incorporated in a PRODUCT, or to the best of SUPPLIER’s ability to notify. This notification shall include clarification of technical alternatives to such components, as well as PRODUCT availability.   7.4   SERVICE LEVEL AGREEMENT       SUPPLIER shall undertake to support and maintain each PRODUCT over a time period of [*] years, following the date of delivery of the PRODUCT last delivered. For such time period the regulations of Section 7.2 shall apply. The Parties shall           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   12 of 29-     mutually agree to the scope of Maintenance and support for this time period in a separate agreement.   7.5   PRODUCT DOCUMENTATION       For BTP manufacturing of PURCHASER’s design, and at PURCHASER’s request, SUPPLIER shall make available, free of charge, in the English language, all DOCUMENTATION which will enable PURCHASER to produce its own set of documentation. Such DOCUMENTATION shall comprise of one   (1)   set of electronic files of at least the following documents:     (i)   [*]     (ii)   [*]     (iii)   [*]     (iv)   [*]     (v)   [*]     (vi)   [*]     (vii)   [*]     All DOCUMENTATION requested by PURCHASER shall comply both in form and in content with the latest technical standards of the PRODUCT in question and shall be updated accordingly in the event of changes.       PURCHASER shall be entitled to pass on to its customers all DOCUMENTATION received within the scope of this FPA, as well as to use, to modify or adapt, to translate, to copy and to supply such DOCUMENTATION.   8   Quality Assurance       General Global Quality Objectives:   (i)   EXHIBIT D (QAA) shall be valid for world-wide material sourcing of PURCHASER.     (ii)   The quality of PRODUCTS delivered to each ORDERING PARTY shall be guaranteed by SUPPLIER.     (iii)   Total Quality Management and continuous quality improvement shall be an essential element of the fundamental rules of SUPPLIER.     All further details are specified in EXHIBIT D (QAA).           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   13 of 29- 9   Logistics       Both PARTIES agree that high quality, reliability, and supply-chain excellence can only be achieved through fostering cooperation and close collaboration at all process levels in the spirit of partnership and open-book relationship. EXHIBIT B (LSA) sets out the regulations for such a partnership between PURCHASER and SUPPLIER. It defines the steps needed to streamline and optimize planning and logistics.   10   SUPPLIER Rating and Improvement Program (Goal Agreement)       Not applicable   11   Open Book Policy   11.1   Disclosure of PRODUCT Data       SUPPLIER shall provide, upon PURCHASER’s request, the following data for each individual PRODUCT under this FPA:   (i)   [*]     (ii)   [*]     (iii)   [*]     (iv)   [*] 11.2   Cost Reduction       Savings from cost reduction activities by the Parties with respect to any products shall be mutually negotiated and shared by the PARTIES.   12   Protection of PURCHASER ´s IPR and License Grant For PRODUCTS containing IPRs of PURCHASER the following shall apply: 12.1   Exclusivity           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   14 of 29-     SUPPLIER, within the limitations contained in, and in accordance with, the terms of this FPA, agrees to manufacture PRODUCTS exclusively for sale and delivery to ORDERING PARTIES. Subject to the terms of this FPA, SUPPLIER specifically agrees and warrants not to sell to any third party PRODUCTS.   12.2   License Grant to SUPPLIER       SUPPLIER is aware and acknowledges that the technical specifications provided by or on behalf of PURCHASER contain patented and non patented Intellectual property rights (“IPRs”) of PURCHASER and its licensors and that manufacturing of PRODUCTS according to such technical specifications is only possible by making use of such IPR.       Subject to the terms and conditions of this FPA, PURCHASER grants to SUPPLIER a non-exclusive, non-transferable, royalty-free license, without the right to sublicense, in such IPRs only for the purpose of manufacturing PRODUCTS for ORDERING PARTIES. All other rights not expressly granted in this FPA are reserved. SUPPLIER shall not use or employ such IPRs on any other product for any other purchaser except those products sold to ORDERING PARTIES and/or third party beneficiaries as approved in advance by PURCHASER in writing.       SUPPLIER agrees and acknowledges that violation of this Section 12 is a material breach of this FPA.       PURCHASER and its licensors shall retain full title to the IPRs and all copies thereof, and SUPPLIER and its DESIGNATED SUBSIDIARIES may use the IPRs in accordance with this limited license grant as contained in this Section 12. Without the prior written consent of PURCHASER, SUPPLIER shall not make available to any third party IPRs that PURCHASER may, in its sole discretion, deliver to SUPPLIER. SUPPLIER agrees that it will not modify, decompile, reverse engineer, or otherwise use the IPRs without the express prior written consent of PURCHASER.       PURCHASER is also aware and acknowledges that the products provided by SUPPLIER contain patented and non patented Intellectual property rights (“IPRs”) of SUPPLIER and its licensors and that manufacturing of PRODUCTS according to such technical specifications is only possible by making use of such IPR. Subject           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   15 of 29-     to the terms and conditions of this FPA, SUPPLIER grants to PURCHASER a non-exclusive, non-transferable,non-revocable, royalty-free license, without the right to sublicense, in such IPRs only for the purpose of utilizing such PRODUCTS in systems provide by the ORDERING PARTIES. All other rights not expressly granted in this FPA are reserved. PURCHASER shall not use or employ such IPRs or share these SUPPLIER IPRs with OTHER SUPPLIERS. PURCHASER agrees and acknowledges that violation of this Section 12 is a material breach of this FPA.       In the event Purchaser desires to transfer IPR rights to an outsorced Contract and enable third party use of SUPPLIER’s IPR, SUPPLIER shall have advance consent rights, which shall however not be unreasonably withheld, and shall be intitled to negotiate differing supply terms with the proposed third party transferee .   13   Software License Grant by SUPPLIER       SUPPLIER/DESIGNATED SUBSIDIARY hereby grants to ORDERING PARTY a non-exclusive, non-transferable license, to copy and use the SOFTWARE for development, manufacturing, installation, commissioning, testing purposes (also by SUBSIDIARIES, CONTRACT MANUFACTURERS or subcontractors) and to distribute copies of the SOFTWARE as a component of a PRODUCT in object code form.       Sale of a PRODUCT (and licensing of each copy of the SOFTWARE component of a PRODUCT) by ORDERING PARTY will carry with it an implied license under the SOFTWARE [*] in a PRODUCT.       All right, title and interest in and to the SOFTWARE portions of the PRODUCTS remain in SUPPLIER and its licensors. No title to or ownership of such SOFTWARE, or any modified part thereof, is transferred to PURCHASER or any ORDERING PARTY under this FPA.   14   Confidential Information       Each PARTY agrees that all business and technical information received from the other PARTY in connection with this FPA and which this other PARTY expressly states to be confidential or the confidential nature of which can be assumed on the           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   16 of 29-     basis of the circumstances (CONFIDENTIAL INFORMATION), will be maintained by the receiving PARTY in confidence and not disclosed to any third party, provided, however, that such receiving PARTY may use such CONFIDENTIAL INFORMATION for the purposes of this FPA or its EXHIBITS and may disclose such CONFIDENTIAL INFORMATION to its officers, and those of its employees and others under its control to whom disclosure is required for the purposes of this FPA, all of whom, if not already done, will be bound in writing to undertake such PARTY’s obligations hereunder.       The receiving PARTY additionally agrees to take all reasonable precautions to safeguard the confidential nature of the disclosing PARTY’s CONFIDENTIAL INFORMATION, provided however, that such receiving PARTY’s normal procedures for protecting its own confidential information shall be deemed reasonable precautions, so long as such normal procedures amount to no less than a commercially reasonable degree of care.       The receiving PARTY shall not be liable for disclosure and/or any use of such CONFIDENTIAL INFORMATION insofar as such CONFIDENTIAL INFORMATION   •   is in, or becomes part of, the public domain other than through a breach of this FPA by such PARTY; or     •   is already known to the receiving PARTY at or before the time it receives the same from the disclosing PARTY or is disclosed to the receiving PARTY by a third party as a matter of right; or     •   is independently developed by the receiving PARTY without the benefit of such information received from the disclosing PARTY; or     •   is disclosed and/or used by the receiving PARTY with the prior written consent of the disclosing PARTY; or     •   is required to be disclosed by law or by any judicial order or decree, provided that, so far as possible the receiving PARTY shall consult with the disclosing PARTY prior to such disclosure and take such steps as the disclosing PARTY may reasonably require to eliminate or reduce the scope of such requirement or to improve the conditions upon which such disclosure is to be made.           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   17 of 29-     Notwithstanding the above, the receiving PARTY has the right to disclose the disclosing PARTY’s CONFIDENTIAL INFORMATION received under this FPA to   •   ORDERING PARTIES, including CONTRACT MANUFACTURERS, and DESIGNATED SUBSIDIARIES; or     •   its licensees and sublicensees insofar as it has the right to license or sublicense same as set forth in this FPA and provided that the receiving PARTY requires such licensee or sublicensee to undertake in writing secrecy and non-use obligations which are at least as stringent as the ones set forth in this Section; or     •   its subcontractors insofar as it has the right to appoint the same as set forth in this FPA and provided that the receiving PARTY requires such subcontractor to undertake in writing secrecy and non-use obligations which are at least as stringent as the ones set forth in this Section; or     •   its end customers insofar and to the extent and subject to such conditions (if any) as is customary in this industry. 15   Term and Termination   15.1   EFFECTIVE DATE       This FPA shall commence on the EFFECTIVE DATE and shall apply to all PURCHASE ORDERS and FRAME ORDERS issued during the term of this FPA.   15.2   Renewal       This FPA shall expire three (3) years after the EFFECTIVE DATE. At the end of the fixed term, this FPA shall extend automatically for further one (1) year periods without prior written notice, unless nine (9) months prior to the end of the fixed term or any further one year period, one PARTY notifies the other PARTY in writing that the FPA shall not be automatically extended.   15.3   Termination   15.3.1   This FPA and any INDIVIDUAL AGREEMENT may be terminated at any time prior to expiration by mutual consent of the PARTIES.   15.3.2.   This FPA and any INDIVIDUAL AGREEMENT may be terminated immediately           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   18 of 29-     at any time by any PARTY in the event that the other PARTY becomes the subject of any bankruptcy, insolvency or similar proceedings or is declared bankrupt or insolvent or otherwise cannot fulfill its financial obligations.   15.3.3   Either PARTY may terminate this FPA and/or any INDIVIDUAL AGREEMENT for material breach subject to a prior written notice to the other PARTY. Such notice shall specify the breach complained of and allow the alleged defaulting PARTY to cure such default within [*] calendar days. Failure to effect a cure within this [*] calendar days notice period shall give the non-defaulting PARTY the right to immediately terminate this FPA and/or the respective INDIVIDUAL AGREEMENT.   15.3.4   This FPA and/or any INDIVIDUAL AGREEMENT may be terminated at any time by PURCHASER by giving notice to SUPPLIER or its respective SUBSIDIARIES, if the SUPPLIER and/or its respective SUBSIDIARIES come under direct or indirect control or direction or determinative influence of any other entity competing with PURCHASER;   15.3.5   This FPA may be terminated by PURCHASER if within a reasonable timeframe no mutual agreement can be achieved regarding one or more of the following EXHIBITS:   •   LSA     •   QAA 15.3.6   Any termination shall be made in writing according to Section below.   15.4   Effect of Termination       Notwithstanding any termination or expiry, this FPA shall remain in effect as to any outstanding PURCHASE ORDERS accepted by SUPPLIER or any other obligations accrued prior to the time of termination or expiry.   15.5   Survival       All provisions and obligations which shall survive by their nature shall remain applicable and in full force after termination or expiry of this FPA.   16   Liability   16.1   Product Liability           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   19 of 29-     Subject to the limitation of liability in the insurance clause herein, in the event a proven defective product wholly the responsibility of SUPPLIER causes death or bodily injuries, to third parties, SUPPLIER shall at its own expenses indemnify and hold harmelss Purchaser and Ordering parties as provided by law. If a claim is made, Purchaser shall promptly notify SUPPLIER in writing within [*] days and shall thereafter permit SUPPLIER to control the litigation defense . Failure to promptly notify shall void this indemnity if it compromises the defense.   16.2   Late Delivery       Time shall be of the essence in relation to all delivery deadlines. If SUPPLIER fails to meet a DELIVERY DATE, ORDERING PARTY may, claim liquidated damages in the amount of [*] of the value of the affected PURCHASE ORDER for each calendar week of delay, computed from the DELIVERY DATE plus [*] days grace period, up to an aggregated payment per individual PURCHASE ORDER of [*] of the value of the affected undelivered PURCHASE ORDER items. In addition, SUPPLIER shall use the fastest way of transportation (i. e. express courier service or the like) for the delayed delivery. Such transportation shall be arranged by and the cost shall be borne by SUPPLIER   16.2.2   Cancellation due to Late Delivery       After [*] calendar days of delay, unless the delay is a result of changes/modifications imposed by the PURCHASER, the ORDERING PARTY may cancel the affected PURCHASE ORDER without setting a time limit or grace period. Upon request of ORDERING PARTY or PURCHASER such quantities will be deducted from the forecasted and/or fixed volume of PRODUCTS.   16.2.3   Compensation of Damages due to Late Delivery       In case of cancellation as set out in Section 16.2.2, ORDERING PARTY shall be entitled to receive, at SUPPLIER’s election, either :   (i)   the difference in price between the PRODUCT to be delivered and an acceptable alternative product of another source, including freight, packing and insurance; or     (ii)   the design and manufacturing documentation package from the escrow established at SUPPLIER expense Escrow DOCUMENTATION shall be in           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   20 of 29-       English, in electronic format and such that competent second source manufacturer can successfully manufacture the products. 16.3   Infringement Indemnification       SUPPLIER, at its own expense, shall indemnify and hold harmless PURCHASER and ORDERING PARTIES against any direct or indirect loss or damages sustained by PURCHASER or any ORDERING PARTY as a result of a claim or action brought by any third party for infringement of any intellectual property rights (patent right, copyright, mask work right, trademark, trade secret or other intellectual property right of any third party) by reason of the possession, manufacture, use, offer, import, export, or sale of the PRODUCT, provided that PURCHASER/ORDERING PARTY   •   gives SUPPLIER, without undue delay, written notice of such claim;     •   permits SUPPLIER to defend or settle the claim; and     •   provides SUPPLIER with assistance, information and authority necessary to defend or settle the claim (SUPPLIER shall reimburse PURCHASER and/or ORDERING PARTY for reasonable expenses incurred in providing such assistance and information).     In the event that an adverse judgement or injunction is rendered or in the opinion of SUPPLIER is likely to be rendered, SUPPLIER shall in addition to the aforesaid, at its option,   •   procure for ORDERING PARTY the right to continue to use the PRODUCTS; or     •   modify the PRODUCTS so they become non-infringing; or     •   provide replacements that perform the same functions as the PRODUCTS; or     •   [*].     PURCHASER’s rights under this Section 16.3 are in addition to, and not in lieu of, any other rights PURCHASER or ORDERING PARTY may have under this FPA, including any EXHIBIT, as well as any INDIVIDUAL AGREEMENT and/or at applicable law.   16.4   Insurance       SUPPLIER shall, for the lifetime of the PRODUCTS, secure and maintain a third           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   21 of 29-     party liability insurance, including product liability insurance, providing coverage for product liability exposure for a maximum amount of [*] USD cumulative across all products , including negligence and strict liability, to third parties resulting from defective PRODUCTS (such as design-, manufacture) supplied by SUPPLIER to ORDERING PARTY. On request of PURCHASER, SUPPLIER shall provide a copy of the insurance policy.   17   Warranty   17.1   General       SUPPLIER represents and warrants that the PRODUCTS shall be in conformance with the agreed specifications, as described in the relevant EXHIBIT Ax, (PA) and with EXHIBIT D (QAA). SUPPLIER further represents and warrants that the PRODUCTS are state of the art, newly manufactured solely from new parts and are free from defects in design, material and workmanship.       If SUPPLIER has doubts regarding the correctness of the specifications and/or the quality requirements as defined in EXHIBIT C (QAA) for the PRODUCT, it shall inform PURCHASER immediately in writing of the reservations.   17.2   Warranty Period       Due to the special requirements in the telecommunication industry the warranty period shall run for [*] months from the receipt date of the PRODUCTS at the place of destination   17.3   Defects of PRODUCTS (Non-Conforming Units)       If PRODUCTS fail to conform with the defined specifications or the warranties, at option of ORDERING PARTY and at no cost to ORDERING PARTY   (i)   ORDERING PARTY may return non-conforming units to SUPPLIER and SUPPLIER shall at ORDERING PARTY’s option repair or replace such non-conforming units or     (ii)   ORDERING PARTY may replace the non-conforming units with PRODUCTS in stock and SUPPLIER shall promptly replenish such stock; or     (iii)   ORDERING PARTY may return the non-conforming units to SUPPLIER either for credit or, upon ORDERING PARTY’s request, for a prompt refund of the purchase price ; or           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   22 of 29-   (iv)   ORDERING PARTY may claim prompt replacement of the complete delivery lot if the Failure Rate of Delivery Lot exceeds more than the agreed maximum stated in EXHIBIT C (QAA); or     (v)   ORDERING PARTY may, if PARTYs agree that an epidemic failure is occurred, return all units of the PRODUCT affected by such EPIDEMIC FAILURE, whether non-conforming or not, to SUPPLIER either for credit or, upon ORDERING PARTY’s request, for a prompt refund of the purchase price.     In addition, ORDERING PARTY may itself repair PRODUCTS [*]. Generally, such repair shall be carried out by ORDERING PARTY/[*] only to avoid or reduce further damages or disadvantages for ORDERING PARTY, its customers or to avoid or reduce any obligation on the part of SUPPLIER to provide compensation. In such cases, PURCHASER agrees that having a third party modify PRODUCTS originally manufactured by the SUPPLIER shall immediately make the warranty in Section 17 null and void.   17.4   Liability for Expenses       If ORDERING PARTY, due to defective PRODUCTS, incurs damages and expenses including costs for notification, compensation, stoppages in production, installation and removal work, defect tracing, tests, transport, business trips, recalls, labor, destruction and/or improvement of inventory, SUPPLIER shall reimburse ORDERING PARTY subject to limitation of liability or the the value of the affected PURCHASE ORDERS, whichever shall be lower .   17.5   Exchange of Information       The PARTIES undertake to exchange immediately any information concerning possible damage risks and any cases of damage that have already occurred. They undertake to work together cooperatively in measures taken to avert risks to ensure that these measures are carried out smoothly.   17.6   Other Rights       PURCHASER’S rights under this Section 17 shall not prejudice any other rights PURCHASER or ORDERING PARTY may have under this FPA including any EXHIBITS, as well as INDIVIDUAL AGREEMENTS and/or applicable law.           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   23 of 29 18   General Provisions       The following general provisions shall apply to this FPA, including its EXHIBITS, as well as any INDIVIDUAL AGREEMENT hereunder:   18.1   Notices       All notices or other communications required or permitted hereunder with regard to the existence, interpretation, validity, termination etc. of this FPA to either PARTY shall be deemed to have been duly given if in writing and delivered personally or mailed first class, registered or certified mail, postage prepaid, to the PARTY’s addresses below: if to SUPPLIER: [*] Endwave Corporation [*] Headquarters or delegate [*] 776 Palomar Avenue [*] Sunnyvale, California 94085 [*] USA with a copy to: Endwave Corporation [*] Northeast Operation [*] or delegate [*] 1 Technology Drive, Suite 310 [*] Andover, Massachusetts 01810 [*] USA with a copy to: [*] [*] Milan Office [*] or delegate [*] [*] [*] [*] [*] Italia if to Siemens: Siemens Mobile Communications Spa Mario Donati Material Group Manager SS. Padana Superiore km 158 20060 Cassina de’ Pecchi Milan Italy           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   24 of 29- with a copy to: Siemens Mobile Communications Spa Legal Department Dr. Bruno Felice Duina Via Piero e Alberto Pirelli, 10 20126 Milan Italy     The PARTIES hereby agree that with regard to this Section 19.1 in case of a change in legislation, “in writing” shall only mean first class, registered or certified mail, postage prepaid, unless otherwise explicitly agreed upon by the PARTIES.   18.2   Compliance with Laws       SUPPLIER represents and warrants that the PRODUCTS conform to the relevant legal provisions and the regulations and guidelines of authorities. If, in individual, cases deviations from these regulations become necessary, SUPPLIER must obtain written permission from PURCHASER. In such case, SUPPLIER’s warranties shall apply to the changed requirements.   18.3   Assignment       Neither PARTY shall assign its rights or delegate its duties hereunder without the prior written consent of the other PARTY, except to a third party pursuant to a merger, sale of all or substantially all assets, or other corporate reorganization (however, save to Section 16.3.4). Any attempted assignment or delegation not permitted hereunder shall be void and of no effect.   18.4   Force Majeure       A PARTY shall not be in a material breach of any obligation under this FPA to the extent that its performance is prevented by a FORCE MAJEURE EVENT. If a PARTY claims that a FORCE MAJEURE EVENT has occurred affecting its performance, it shall promptly notify the other PARTY in writing.       For the purpose of this FPA, “FORCE MAJEURE EVENT” shall be deemed to be any cause affecting the performance of this FPA arising from or attributable to acts, events, omissions or accidents beyond the reasonable control of the PARTY to perform and without limiting the generality thereof shall include the following:   •   strikes, lock-outs or other industrial action;           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   25 of 29-   •   civil commotion, riot, invasion, war threat or preparation for war;     •   fire, explosion, storm, flood, earthquake, subsidence, epidemic or other natural physical disaster;     •   general impossibility of the use of railways, shipping, aircraft, motor transport or other means of public or private transport;     •   political interference with the normal operations of any PARTY, including export restrictions.     If the FORCE MAJEURE EVENT continues for a cumulative period of [*] days or more, either PARTY may terminate this FPA and / or any INDIVIDUAL AGREEMENT immediately by giving the other PARTY a written notice. Termination shall be effective upon receipt of the notice. If PURCHASER terminates, PURCHASER’s sole liability and SUPPLIER’s exclusive remedy under this FPA or any INDIVIDUAL AGREEMENT will be payment by PURCHASER of any balance due for PRODUCTS delivered by SUPPLIER before receipt of PURCHASER’s termination notice.   18.5   Waiver       The duly authorized waiver of the breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition.   18.6   Captions       The captions in this FPA are inserted only for the purpose of convenient reference and in no way define or limit the scope or intent of this FPA or any part of this FPA.   18.7   General Terms and Conditions       The terms and conditions of this FPA shall be applicable to and shall govern all INDIVIDUAL AGREEMENTS entered into hereunder regardless of any reference whatsoever. General terms and conditions as well as other pre-printed provisions on documents of either PARTY, including, without limitation, PURCHASE ORDERS, acknowledgments of PURCHASE ORDERS (“General Terms and Conditions”), shall not apply to this FPA and any agreement regarding its performance.   18.8   Press Releases           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   26 of 29-     Press Releases containing informations about this FPA or its EXHIBITS are only allowed to SUPPLIER after written permission by PURCHASER.   18.9   Export Control-, Customs Regulations   18.9.1   General       PRODUCTS and services are subject to customs regulations and to export control in accordance with the export regulations, including but not limited to the export control regulations of the Federal Republic of Germany, the European Union (EU), and/or the USA. The requirements of export control cover also software, technology and know-how. The PARTIES agree to comply with all applicable laws and regulations in that regard. The PARTIES shall provide mutual assistance as required to comply with all such laws and regulations.   18.9.2   Export by SUPPLIER       SUPPLIER shall be responsible for taking appropriate steps to obtain necessary export licenses, if any, relating to the export of PRODUCTS to the location of ORDERING PARTY and/or to the place of destination stated in the PURCHASE ORDER. SUPPLIER shall provide ORDERING PARTY with copies of relevant export licenses.   18.9.3   Re-export by PURCHASER/ORDERING PARTY       SUPPLIER shall provide to PURCHASER/ORDERING PARTY, on request of PURCHASER/ORDERING PARTY, without undue delay, for each PRODUCT any data/documents PURCHASER/ORDERING PARTY needs in order to comply with the laws and regulations above.       Data and documents requested refer to the conditions of export-/re-export licenses (classifications in German / EU / US export regulations, so called AL No, ECCN No), the customs commodity code, net and gross weight, the origin of PRODUCTS (LKZ) (including certificates of origin) and, from case to case, to customs preference regulations (e.g. FORM A, EUR1).       In case of phase in or modifications of a PRODUCT or a part thereof, SUPPLIER shall provide all PRODUCT data and export control data to PURCHASER/ORDERING PARTY in advance.           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   27 of 29-     In case of change of any PRODUCT data or export control data PURCHASER/ORDERING PARTY shall be informed immediately by SUPPLIER.       In case of changes to the certificate of origin, SUPPLIER shall send an updated certificate immediately or if requested by PURCHASER within [*] hours in written form. Such certificate shall be provided by SUPPLIER yearly automatically. In case of an emergency situation, if data were not already provided by SUPPLIER within the regular procedure as described above, SUPPLIER shall provide such missing data, upon PURCHASER`s/ORDERING PARTY`s request, within [*] electronically.       SUPPLIER shall be held liable for any expenses or damages incurred by ORDERING PARTY due to the culpable lack, or inaccuracy or delay of said data and documents, if such expenses or damages are attributable to SUPPLIER.   18.10   Severability       If any provision of this FPA is held invalid or unenforceable under any applicable law or be so held by applicable court decision, the PARTIES agree that such invalidity or unenforceability shall not affect the validity and enforceability of the remaining provisions and further agree to substitute for the invalid or unenforceable provision a valid or enforceable provision which most closely approximates the intent and economic effect of the invalid provision within the limits of applicable law or applicable court decisions.   18.11   Governing Law       This FPA as well as any individual PURCHASE ORDER entered into thereunder shall be governed by and construed in accordance with the laws of the [*] without any reference to the conflict of law rules. The PARTIES agree that the provisions of the Convention on Contracts for the International Sale of Goods (CISG) shall not apply to this FPA.   18.12   Mediation       In the event of any dispute arising out of or in connection with the present contract, the parties agree to submit the matter to settlement proceedings under the ICC ADR Rules of the ICC Paris. If the dispute has not been settled pursuant to the said Rules within 45 days following the filing of a Request for ADR or within such other period as the parties may agree in writing, such dispute shall be finally settled under the Rules of Arbitration of the           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   28 of 29-     International Chamber of Commerce in Paris by one or more arbitrators appointed in accordance with the said Rules of Arbitration.       The seat of the Mediation and Arbitration shall be Zurich, Switzerland. The procedural law of Switzerland shall apply where the Rules are silent. The language to be used in the mediation or the arbitration shall be English. The mediation agreement and/or the arbitral award shall be substantiated in writing.   18.13   Entire FPA       This FPA (including its EXHIBITS) sets forth the entire agreement and understanding between the PARTIES as to the subject matter hereof and merges all prior discussions between them. Neither of the PARTIES shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein or as duly set forth on or subsequent to the date of acceptance hereof in writing and signed by an authorized representative of the PARTY to be bound thereby.   18.14   PURCHASER’s Divisions       The PARTIES understand and agree that this FPA shall not affect any existing or future business relationship SUPPLIER may have or may enter into with other Siemens Groups. SUPPLIER shall inform PURCHASER promptly of any such currently existing or future relationship(s).   18.15   No Agency or Joint Venture       Neither of the PARTIES nor any of their respective agents, employees, independent contractors, or representatives shall:   •   be considered an agent, employee or representative of the other PARTY for any purpose whatsoever,     •   have authority to make any agreement or commitment for the other PARTY, or to incur any liability or obligation in the other PARTY’s name or on its behalf, or     •   represent to third parties that they have any right so to bind the other PARTY hereto.     Nothing contained in this Agreement shall be construed as creating an agency, partnership or joint venture relationship between the PARTIES.   18.16   Order of Precedence       The documents listed below form part of this FPA and in the event of discrepancies shall be valid in the following order of precedence:           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   29 of 29-   •   [*]     •   [*]     •   [*]     •   [*]           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   30 of 29- IN WITNESS WHEREOF, each of the PARTIES hereto have caused this FPA to be signed in duplicate by its respective duly authorized representatives on the dates and at the places mentioned below.               Place, Date :Sunnyvale, California 10/13/05       Place, Date : Milano, 12/1/06               Endwave Corporation       Siemens Mobile Communications Spa /s/ Steve Layton            /s/ Iannetti Pratschke                signature(s)           signatures S. Layton           IANNETTI PRATSCHKE                printed name(s) printed names             Vice-President & General Manager                            title(s)           titles           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------       CONFIDENTIAL   31 of 29- This page left intentionally blank           FPA Endware   [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   1 of 16 EXHIBIT B            LOGISTICS SERVICE AGREEMENT (“LSA”) to the Frame Purchase Agreement (“FPA”) (Contract No.: A.Q. 5.90010) LSA EFFECTIVE DATE: January 16th, 2006                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   2 of 16 TABLE OF CONTENT:               1   DEFINITION     4   2   SCOPE OF THIS LSA     6   3   TERM AND TERMINATION OF THIS LSA     6   3.1   LSA EFFECTIVE DATE     6   3.2   TERMINATION     6   4   PRODUCT(S) COVERED BY THIS LSA     6   5   LOCATIONS OF THE PARTIES     7   5.1   SUPPLIER LOCATIONS     7   5.2   ORDERING PARTY LOCATIONS     7   6   TERMS OF THIS LSA     7   6.1   SUPPLY CLASSES     7   6.2   SERVICE LEVELS     9   6.3   FORECAST     11   6.4   BUFFERING     12   6.5   ORDER PROCESSING, CALL-OFF AND REPLENISHMENT     13   6.6   MANAGING EXCEPTIONS     15   6.7   PHASE-IN AND PHASE-OUT     15   6.8   PROCESS AND OPERATIONS MODEL     16   6.9   CONTACT AND STAND-IN REGULATIONS     16   7   COMPONENTS OF THIS LSA     16   LIST OF ANNEXES: GENERAL ANNEXES ANNEX A CONTACT PERSONS ANNEX B FORECAST AND FLEXIBILITY CORRIDOR ANNEX C PROCESS AND OPERATIONS MODEL ANNEX D MINIMUM DOCUMENTATION REQUIREMENTS ANNEX E LOCATIONS OF THE PARTIES ANNEX F CONSIGNMENT STOCK TERMS                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   3 of 16 SPECIFIC ANNEXES PER ORDERING PARTY LOCATION ANNEX G STAND-IN REGULATIONS ANNEX H LIST OF SR PRODUCTS ANNEX I LIST OF DR-1 PRODUCTS ANNEX J LIST OF DR-2 PRODUCTS ANNEX K STOCK LEVELS RELATED TO SR PRODUCTS ANNEX L STOCK LEVELS RELATED TO DR-1 PRODUCTS ANNEX M STOCK LEVELS RELATED TO DR-2 PRODUCTS ANNEX N GOODS RECEIVING ANNEX O LOCATION SPECIFIC AMENDMENT                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   4 of 16 WHEREAS, the PARTIES have signed a FPA regarding the delivery of PRODUCT(S) by SUPPLIER to ORDERING PARTY, and WHEREAS, the SUPPLIER is known by PURCHASER to be a quality-conscious and reliable manufacturer of products for mobile radio infrastructure, and WHEREAS, the PARTIES agree that high quality, reliability and supply-chain excellence can only be achieved through fostering cooperation and close collaboration at all process levels in the spirit of partnership and open-book relationship, and WHEREAS, the PARTIES agree that by implementing this agreement they will move towards supply-chain excellence through defining service levels, stock and forecasting rules, logistic requirements and performance measurements; NOW, THEREFORE, the PARTIES agree as follows: 1 DEFINITION The following terms are integral to this LSA and to any PURCHASE ORDER or FRAME ORDER related to this LSA and shall have the following meaning: 1.1   The term “ANNEX” shall mean any annex attached to this LSA, thus representing an integral part thereof.   1.2   The term “CONSIGNMENT STOCK” also named as “CS” shall mean a stock of PRODUCTS owned by SUPPLIER or by a DESIGNATED SUBSIDIARY and located near by or at a ORDERING PARTY LOCATION as specified in ANNEX K (Stock Levels) and ANNEX F (CONSIGNMENT STOCK Terms).   1.3   The term “DIRECT REPLENISHMENT 1” also named as “DR-1” shall mean a specific logistic supply class as defined in this LSA.   1.4   The term “DR-1 PRODUCT” shall mean a PRODUCT for which the supply class DIRECT REPLENISHMENT 1 is defined by this LSA.   1.5   The term “DIRECT REPLENISHMENT 2” also named as “DR-2” shall mean a specific logistic supply class as defined in this LSA.   1.6   The term “DR-2 PRODUCT” shall mean a PRODUCT for which the supply class DIRECT REPLENISHMENT 2 is defined in this LSA.   1.7   The term “DISTRIBUTION CENTER” also named as “DC” shall mean a stock of PRODUCTS owned by SUPPLIER or by a DESIGNATED SUBSIDIARY from which PRODUCTS are supplied to at least one ORDERING PARTY LOCATION. Such DC shall be located in the geographical area of the ORDERING PARTY LOCATIONS it supplies to and there shall be no customs duty handling required for such supply.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   5 of 16 1.8   The term “FLEXIBILITY CORRIDOR” shall mean a limited area of delivery flexibility versus time and shall be calculated in accordance with ANNEX B of this LSA.   1.9   The term “FORECAST° shall mean the forecast procedure as described in this LSA   1.10   The term “EDI” shall mean a specific way of electronic data interchange between ORDERING PARTY and SUPPLIER or DESIGNATED SUBSIDIARY as required by this LSA.   1.11   The term “LOCAL BUFFER” shall mean a stock of PRODUCTS owned by ORDERING PARTY and located near by or at ORDERING PARTY LOCATION.   1.12   The term “LSA EFFECTIVE DATE” shall mean the date mentioned first above.   1.13   The term “PHASE IN” also named as “RAMP UP” shall mean the limited time period agreed by the PARTIES during which SUPPLIER and/or DESIGNATED SUBSIDIARY prepares itself for production and delivery of a PRODUCT as defined by a service level of this LSA.   1.14   The term “PHASE OUT” also named as “RAMP DOWN” shall mean the time period during which the delivery quantity of a PRODUCT decreases to zero (0) either planned by PURCHASER and agreed by the PARTIES or due to unforeseeable requirements of PURCHASERS market.   1.15   The term “ORDERING PARTY LOCATION” shall mean any location of ORDERING PARTY relevant for the implementation of the replenishment classes.   1.16   The term “STANDARD REPLENISHMENT” also named as “R” shall mean a specific logistic supply class as defined in this LSA.   1.17   The term “SUPPLIER DELIVERY LEAD TIME” also named as “SDLT” shall mean the time in calendar days between the date of the receipt of PURCHASE ORDER at SUPPLIER or call off from SUPPLIER STOCK by ORDERING PARTY and the receipt of the PRODUCT at the ORDERING PARTY location or the PRODUCT arrival at the place of consumption.   1.18   The term “SR PRODUCT” shall mean a PRODUCT for which the supply class STANDARD REPLENISHMENT is defined by this LSA.   1.19   The term “SUPPLIER LOCATION” shall mean any location of SUPPLIER or DESIGNATED SUBSIDIARIES accepted by PURCHASER for manufacturing, stocking and/or distribution of the PRODUCT(S) under the FPA.   1.20   The term “SUPPLIER STOCK” shall mean a stock of PRODUCT(S) owned by SUPPLIER or by a DESIGNATED SUBSIDIARY and located near by or at a SUPPLIER LOCATION. Such SUPPLIER STOCK shall buffer PRODUCT(S) in higher quantity than the cumulated PRODUCT quantity pulled by all ORDERING PARTYS. In addition to the above Definitions, all Definitions made in the FPA shall apply to this LSA.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   6 of 16                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   7 of 16 2 SCOPE OF THIS LSA 2.1   To define the contribution of the PARTIES to an integrated supply chain with best-in class performance levels.   2.2   The formalization of all logistic processes between SUPPLIER and/or DESIGNATED SUBSIDIARY and PURCHASER and/or ORDERING PARTY and all information related hereto shall be subject to the terms and conditions of this LSA.   2.3   To set-up collaboration rules for such logistic processes. 3 TERM AND TERMINATION OF THIS LSA 3.1   LSA EFFECTIVE DATE This LSA shall commence on the LSA EFFECTIVE DATE and shall apply to all PURCHASE ORDERS and FRAME ORDERS issued after the LSA EFFECTIVE DATE. 3.2   Termination In case of termination of the FPA this LSA shall automatically also terminate at the same time. The regulations of Article 16 of the FPA shall correspondingly apply to this LSA. 4 PRODUCT(S) COVERED BY THIS LSA This LSA covers all PRODUCTS listed in ANNEX H, ANNEX I and ANNEX J hereto. A new PRODUCT will be added to this LSA only after the appropriate service level has been agreed between PURCHASER and SUPPLIER. The criteria for application of the regulations of this LSA to a PRODUCT are as following: (i)   Existence of a respective PA   (ii)   Qualification by PURCHASER for series production achieved PURCHASER and SUPPLIER will review, at least on a quarterly basis, the status of PRODUCTS included in this LSA.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   8 of 16 5 LOCATIONS OF THE PARTIES 5.1 SUPPLIER LOCATIONS All SUPPLIER LOCATIONS shall be listed in ANNEX E of this LSA. A new SUPPLIER LOCATION shall be added to this LSA only after mutual agreement between the PARTIES and acceptance of such SUPPLIER LOCATION by PURCHASER. Deletion of a SUPPLIER LOCATION from this LSA shall be based on a mutual agreement between the PARTIES. 5.2 ORDERING PARTY LOCATIONS All ORDERING PARTY LOCATIONS (including CONSIGNMENT STOCK locations) shall be listed in ANNEX E of this LSA. PURCHASER shall be allowed to add a new ORDERING PARTY LOCATION to and to delete an existing ORDERING PARTY LOCATION from ANNEX E of this LSA at any time. In case of such adding or deletion SUPPLIER shall be informed by PURCHASER at least six (6) weeks in advance and the PARTIES shall discuss in good faith all influence on the integrated supply chain. 6 PROVISIONS OF THIS LSA 6.1 Supply Classes Different supply processes shall be put in place between PURCHASER and SUPPLIER to provide the agreed service levels as described in Article 6.2 below. Such different supply processes are defined by supply classes as following: 6.1.1 Supply Class STANDARD REPLENISHMENT [*] Operating principles for a SR-PRODUCT shall be:   •   vendor managed inventory     •   issuance of a FRAME ORDER     •   FORECAST from PURCHASER as per Article 6.3 below     •   ship to stock delivery by SUPPLIER into a CONSIGNMENT STOCK as specified in ANNEX F                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   9 of 16   •   SUPPLIER calculates the trigger for on time replenishment (replenishment planning) via consumption data and stock level from the CONSIGNMENT STOCK (Min/Max Levels)     •   SUPPLIER DELIVERY LEAD TIME no longer than one (1) week     •   defined service level as per Article 6.2.1 below     •   performance measurement as per Article 6.2.1 below     •   payment as per ANNEX C 6.1.2 Supply Class DIRECT REPLENISHMENT 1 [*] Operating principles for DR-1 PRODUCTS shall be:   •   vendor managed inventory     •   issuance of a FRAME ORDER or call-of via PURCHASER ORDER     •   FORECAST from PURCHASER as per Article 6.3 below     •   SUPPLIER STOCK and/or DISTRIBUTION CENTER     •   ship to stock delivery by SUPPLIER into a LOCAL BUFFER     •   regular delivery frequency     •   defined service level as per Article 6.2.2 below     •   performance measurement as per Article 6.2.2 below     •   payment as per ANNEX C 6.1.3 Supply Class DIRECT REPLENISHMENT 2 [*] Operating principles for a DR-2 PRODUCT shall be:   •   FORECAST from PURCHASER as per Article 6.3 below     •   delivery by SUPPLIER at the location specified in the respective PURCHASE ORDER     •   call-off via PURCHASE ORDERS     •   confirmation of PURCHASER ORDERS by SUPPLIER     •   no specific stocks defined by this LSA     •   defined service level as per Article 6.2.3 below     •   performance measurement as per Article 6.2.3 below     •   payment as per ANNEX C                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   10 of 16 6.2 Service Levels 6.2.1 Service Level for STANDARD REPLENISHMENT SUPPLIER shall meet the following criteria and both PARTIES agree to monitor the following performance metrics each month:       Material/replenishment planning   under full responsibility of SUPPLIER       Contact Persons and stand-in regulation in place   according to ANNEX A and ANNEX I       Early-warning system in place   according to Article 6 6.1 below       Metric   SUPPLIER Commitment CONSIGNMENT STOCK   SUPPLIER maintains the stock level at any time within the minimum and maximum stock level defined in ANNEX K by refilling the CONSIGNMENT STOCK up to the maximum stock level on each delivery       Caused line-breakdown   zero (0) times at ORDERING PARTY       Minimum inventory violation   zero (0) times at CONSIGNMENT STOCK, meaning the stock level must not fall below the minimum stock level defined in ANNEX K Any violation of the minimum stock level at CONSIGNMENT STOCK or any caused line-break-down at ORDERING PARTY shall be deemed as a DELIVERY DATE not met by SUPPLIER and thus shall be regarded as a late delivery like provided for in the FPA. 6.2.2 Service Level for DIRECT REPLENISHMENT 1 SUPPLIER shall meet the following criteria and both PARTIES agree to monitor the following performance metrics each month:       Material/replenishment planning   under full responsibility of SUPPLIER       Contact Persons and stand-in regulation in place   according to ANNEX A and ANNEX I       Early-warning system in place   according to Article 6.6.1 below                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   11 of 16       Metric   SUPPLIER Commitment Maximum SDLT   as defined in ANNEX L.       LOCAL BUFFER   SUPPLIER maintains the stock level at any time within the minimum and maximum stock level defined in ANNEX L by refilling the LOCAL BUFFER up to the maximum stock level on each delivery or delivers according to the call-offs via PURCHASER ORDERS       On-time delivery           Emergency replenishment   meet the determined delivery time slot at each day of delivery as specified in ANNEX L       SUPPLIER STOCK and/or DC   SUPPLIER maintains the stock level at any time according to ANNEX L       Caused line-break-down   zero (0) times at ORDERING PARTY       Minimum inventory violation   zero (0) times at BUFFER STOCK, meaning the stock level must not fall below the minimum stock level defined in ANNEX L Any violation of the minimum stock level at LOCAL BUFFER, any caused line-break-down at ORDERING PARTY or any non-successful emergency replenishment shall be deemed as a DELIVERY DATE not met by SUPPLIER and thus shall be regarded as a late delivery like provided for in the FPA. 6.2.3 Service Level for DIRECT REPLENISHMENT 2 SUPPLIER shall meet the following criteria and both PARTIES agree to monitor the following performance metrics each month:       Ordering/replenishment planning Stock   under full responsibility of each ORDERING PARTY according to ANNEX M       Contact Persons and Stand-in regulation in place   according to ANNEX A and ANNEX I       Early-warning system in place   according to Article 6.6.1 below                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   12 of 16       Metric   SUPPLIER Commitment Maximum SDLT   according to ANNEX M       On-time delivery   to meet the DELIVERY DATE as per PURCHASE ORDER       Material availability   according to FORECAST and FLEXIBILITY CORRIDOR       Caused line-break-down   zero (0) times at ORDERING PARTY Any missed on-time delivery or any caused line-break-down at ORDERING PARTY shall be deemed as a DELIVERY DATE not met by SUPPLIER and thus shall be regarded as a late delivery like provided for in the FPA. 6.3 FORECAST A FORECAST is a planning tool intended to improve the demand visibility for a period of at least six (6) months. The FORECAST together with the respective FLEXIBILITY CORRIDOR as defined in ANNEX B shall reflect the cumulative demand of a PRODUCT by all ORDERING PARTIES as predicted by PURCHASER, status as of the date of issue. PURCHASER shall issue such FORECAST at least [*] and shall send it to SUPPLIER electronically. The FORECAST last issued by PURCHASER shall supersede all FORECASTS issued before. SUPPLIER shall give feedback to PURCHASER regarding feasibility of the FORECAST via e-mail within [*] working days from receipt of such FORECAST, otherwise such FORECAST shall be deemed as accepted. In case the demand of PURCHASER/ORDERING PARTIES is higher than specified by the FLEXIBILITY CORRIDOR both PARTIES shall mutually agree on a solution. 6.3.1 FORECAST for SR PRODUCTS The quantities shown in the FORECAST as per ANNEX B are planned gross demands. The FORECAST together with the respective FLEXIBILITY CORRIDOR shall be used as a guideline and planning tool by SUPPLIER to manage his production and to replenish each CONSIGNMENT STOCK. The FORECAST is binding with regard to the quantities and the validity of defined flexibility, but is not binding with regard to the chronological demand. SUPPLIER must take the flexibility range shown in ANNEX B into consideration when using the FORECAST. The replenishment of a CONSIGNMENT STOCK shall be consumption driven only.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   13 of 16                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   14 of 16 6.3.2 FORECAST for DR-I PRODUCTS The quantities shown in the FORECAST as per ANNEX B are planned gross demands. The FORECAST together with the respective FLEXIBILITY CORRIDOR shall be used as a guideline and planning tool by SUPPLIER to manage his production, his SUPPLIER STOCK and/or DISTRIBUTION CENTERS and to replenish each LOCAL BUFFER. The FORECAST is binding with regard to the quantities and the validity of defined flexibility, but is not binding with regard to the chronological demand. SUPPLIER must take the flexibility range shown in ANNEX B into consideration when using the FORECAST. The replenishment of a LOCAL BUFFER shall be consumption driven only. 6.3.3 FORECAST for DR-2 PRODUCTS The quantities shown in the FORECAST as per ANNEX B are planned gross demands. The FORECAST together with the respective FLEXIBILITY CORRIDOR shall be used as a guideline and planning tool by SUPPLIER to manage his production and to guarantee the defined SDLT. SUPPLIER must take the FLEXIBILITY CORRIDOR shown in ANNEX B into consideration when using the FORECAST. Delivery shall be based on individual PURCHASE ORDERS only. 6.4 Buffering 6.4.1 Buffering for SR PRODUCTS SUPPLIER agrees to build up and maintain an agreed stock level of SR PRODUCTS on each CONSIGNMENT STOCK. The stock levels agreed for each CONSIGNMENT STOCK are listed in ANNEX K. Both PARTIES agree to revise and adjust ANNEX K at least quarterly in order to adapt the stock levels to changes in demand requirements. 6.4.2 Buffering for DR-1 PRODUCTS SUPPLIER agrees to build and carry a SUPPLIER STOCK and/or at least one DISTRIBUTION CENTER dedicated to DR-1 PRODUCTS. The agreed stock levels are listed in ANNEX L. SUPPLIER agrees to maintain the stock levels in the SUPPLIER STOCK and/or DISTRIBUTION CENTERS, as listed in ANNEX L, at all times. SUPPLIER is responsible for all aspects of managing the SUPPLIER STOCK and/or DISTRIBUTION CENTERS including, but not limited to, planning, carrying costs and replenishment.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   15 of 16 SUPPLIER shall report the stock levels held in the SUPPLIER STOCK and DISTRIBUTION CENTERS to PURCHASER and ORDERING PARTY at least once a month. This data is necessary for PURCHASER and ORDERING PARTY to execute material availability calculations. PURCHASER reserves the right to inspect the SUPPLIER STOCK and the DISTRIBUTION CENTERS at any time with twenty four (24) hour prior written notice to SUPPLIER. Furthermore, SUPPLIER guarantees to replenish and maintain the agreed stock levels of each LOCAL BUFFER, as per ANNEX L, at all times. Both PARTIES agree to revise and adjust ANNEX L at least quarterly in response to changes in demand requirements. Notwithstanding the above, ORDERING PARTY shall be allowed to revise and adjust the stock levels of each LOCAL BUFFER monthly. 6.4.3 Buffering for DR-2 PRODUCTS No specific SUPPLIER STOCK is defined in this LSA, see ANNEX M. 6.5 Order Processing, Call-Off and Replenishment 6.5.1 Order Processing, Call-Off and Replenishment for SR ORDERING PARTY shall place a FRAME ORDER per each SR PRODUCT. Such FRAME ORDER shall be for order-processing purposes only, and shall not represent a volume/price commitment on the part of ORDERING PARTY. The call-off of a SR PRODUCT shall be initiated by consuming such SR PRODUCT from the CONSIGNMENT STOCK, i.e. by decreasing the stock level. ORDERING PARTY shall daily provide consumption and inventory data per each SR PRODUCT. Such data shall be exchanged electronically between SUPPLIER and ORDERING PARTY. SUPPLIER shall manage the delivery process in such way that the stock level of the CONSIGNMENT STOCK will never fall below the agreed minimum stock level. The CONSIGNMENT STOCK must not be replenished beyond the agreed maximum stock level listed in ANNEX K. If the quantity of a SR PRODUCT consumed from the CONSIGNMENT STOCK is not covered by the respective FORECAST and FLEXIBILITY CORRIDOR, SUPPLIER shall inform ORDERING PARTY within [*] after receipt of the consumption and inventory data. Further, if SUPPLIER is not able to replenish according to the agreed minimum level as per ANNEX K, SUPPLIER shall inform ORDERING PARTY within [*] after receipt of the consumption and inventory data.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   16 of 16 ORDERING PARTY” shall pay for each SR PRODUCT consumed from the CONSIGNMENT STOCK the price valid on the date of the respective credit note. 6.5.2 Order Processing, Call-Off and Replenishment for DR-1 ORDERING PARTY shall place a FRAME ORDER per each DR-1 PRODUCT. Such FRAME ORDER shall be for order-processing purposes, and shall not represent a volume/price commitment on the part of ORDERING PARTY. The call-off of a DR-1 PRODUCT shall be initiated by consuming such DR-1 PRODUCT from the LOCAL BUFFER, i.e. by decreasing the stock level. ORDERING PARTY shall daily provide consumption and inventory data per each DR-1 PRODUCT. Such data shall be exchanged electronically between SUPPLIER and ORDERING PARTY. SUPPLIER shall manage the stock levels of his SUPPLIER STOCK and/or DISTRIBUTION CENTERS and shall trigger regular deliveries in such way that the stock level of each LOCAL BUFFER is maintained in between the minimum and maximum stock level as defined in ANNEX L. Such regular deliveries shall replenish each LOCAL BUFFER up to the maximum stock level by using full transportation units. If SUPPLIER is not able to replenish each LOCAL BUFFER according to the agreed levels as per ANNEX L, SUPPLIER shall inform all ORDERING PARTY affected within one (1) working day after receipt of the consumption and inventory data ORDERING PARTY shall pay for each DR-1 PRODUCT received in the LOCAL BUFFER the price valid on the date of the respective credit note. 6.5.3 Order Processing, Call-Off and Replenishment for DR-2 ORDERING PARTY shall issue a PURCHASE ORDER to call off a DR-2 PRODUCT. SUPPLIER shall deliver the ordered quantities on the DELIVERY DATE and in line with the SDLT as defined in ANNEX M. All information shall be exchanged electronically between SUPPLIER and ORDERING PARTY. If ordered quantities are not covered by the respective FORECAST and FLEXIBILITY CORRIDOR, SUPPLIER shall inform ORDERING PARTY in accordance with the order acceptance provisions of the FPA. ORDERING PARTY shall pay for each DR-2 PRODUCT based on an invoice to be issued by SUPPLIER.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   17 of 16 6.6 Managing Exceptions 6.6.1 Early Warning, Notification In case SUPPLIER becomes aware that he will not be able to meet a DELIVERY DATE, or a SDLT for what reason so ever, SUPPLIER shall notify each ORDERING PARTY affected in writing without undue delay. Furthermore, SUPPLIER agrees to notify ORDERING PARTIES immediately of any developments in his material supply chain that could put deliveries to ORDERING PARTIES at risk. PURCHASER/ORDERING PARTY as well shall inform SUPPLIER if any changes occur concerning the volumes of PRODUCTS to be delivered by SUPPLIER, not covered by the FORECAST. 6.6.2 Underperformance The SUPPLIER’S primary responsibility is to keep its commitments regarding to SUPPLIER DELIVERY LEAD TIMES and DELIVERY DATES and to achieve the performance and logistic service levels defined in this LSA. Otherwise SUPPLIER shall be liable for all PURCHASER’S and ORDERING PARTY’S damages in accordance with the provisions of the FPA. In the event of SUPPLIER’S delay in delivery of PRODUCTS, SUPPLIER may — based on a written approval by PURCHASER — deliver PRODUCTS fulfilling or exceeding the approved specifications, without any additional costs. 6.7 PHASE-IN and PHASE-OUT Any information related to PHASE IN and/or PHASE OUT of a PRODUCT and known to PURCHASER will be considered in the FORECAST. During PHASE IN and/or PHASE OUT the FLEXIBILITY CORRIDOR provisions of ANNEX B and the provisions of ANNEX K, L and M for such PRODUCT shall not be applicable. During PHASE IN or PHASE OUT the communication between PURCHASER and SUPPLIER will be intensified both in frequency and in level of detail. Therefore, SUPPLIER agrees to allow PURCHASER to manage such PHASE IN or PHASE OUT on a weekly basis meaning that especially, but not limited to, demand figures per each ORDERING PARTY, DELIVERY TIME, SDLT, and stock levels may be adjusted once a week. These specific regulations concerning PHASE IN and PHASE OUT shall be stated in a separate document to be mutually agreed and signed by the PARTIES.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   18 of 16 In case of PRODUCT changes PURCHASER and SUPPLIER shall mutually agree on an implementation time schedule, based on the provisions of the FPA hereto. 6.8 Process and Operations Model As defined in ANNEX C to this LSA. 6.9 Contact Persons and Deputy Regulations As defined in ANNEX A and ANNEX G to this LSA. 7 COMPONENTS OF THIS LSA The documents listed below form part of this LSA and in case of discrepancies shall be valid in the following sequence: (i)   [*]   (ii)   [*]   (iii)   [*]                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   1 of 12 GENERAL ANNEXES         ANNEX A: Contact Persons       SIEMENS   SUPPLIER       Name: Rudolf Mazzoli   Name: Steve McGowan       Phone: +39 (0) 2 2437 2255   Phone: +1 408 522 3121       E-Mail: [email protected]   E-mail: [email protected]       Document approved:   Document approved:       1st December 2005 /s/ Rudolf Mazzoli   10/17/05 /s/ Steve Layton Date, Rudolf Mazzoli   Date, Steve Layton Senior Director ICM MW OP I SLO   Vice President Sales                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   2 of 12 GENERAL ANNEXES         ANNEX B: FORECAST and FLEXIBILITY CORRIDOR The FORECAST shall be sent by PURCHASER to SUPPLIER each month on a specific day. With regards to the agreed flexibility, it shall be assumed that the quantity in a month frame is equally distributed over the four weeks.      1 FLEXIBILITY CORRIDOR rebated to PRODUCT DR2: Week 1-2:            [*] Week 3-4:            [*] Week 5-8:            [*] Week 9-12:          [*] Week > 12:          [*]      2 Rules for defining a FLEXIBILITY CORRIDOR: R1   The Absolute Maximum Quantity can be maximally equal to the Physical Maximum Capacity. R2   The Absolute Maximum / Minimum is determined by the Base Quantity and the Maximum / Minimum Flexibility when reaching a new Flexibility Zone. R3   The new Absolute Maximum / Minimum can not be higher / lower than the Absolute Maximum / Minimum of the zone before. When defining a FLEXIBILITY CORRIDOR the following terms shall apply:       Flexibility Zone   Area with the same flexibility       Maximum Flexibility   Percentage maximum per Flexibility Zone       Minimum Flexibility   Percentage minimum per Flexibility Zone       Base Quantity   Absolute quantity, when Flexibility Zone is entered the first time       Absolute Maximum   Absolute maximum quantity for each Flexibility Zone       Absolute Minimum   Absolute minimum quantity for each Flexibility Zone       Absolute Weekly Increase   Absolute quantity increase from week to week       Absolute Weekly Decrease   Absolute quantity decrease from week to week       Physical Maximum Capacity   Maximum applicable capacity of SUPPLIER                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   3 of 12 GENERAL ANNEXES              3 FLEXIBILITY CORRIDOR Example: (LINE GRAPH) [f17884f1788407.gif]      4 PURCHASER’s Liability The PARTIES agree to meet and find a solution in order to share the costs raising from any unexpected unstable business or in an unexpected sudden phase out. Such costs shall/may include:   •   WIP     •   Finished goods     •   Materials as per list LSA Annex J     •   Custom parts Supplier must provide evidence of costs and necessary documentation (i.e. PO’s , invoices, etc.)                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   4 of 12 GENERAL ANNEXES         ANNEX C: Process and Operations Model      1 STANDARD REPLENISHMENT: (Not applicable) (FLOW CHART) [f17884f1788408.gif] Rough description of the process:   •   The stock level of the CONSIGNMENT STOCK shall be replenished by SUPPLIER to maintain the stock level according to ANNEX K.     •   Daily consumption and inventory data related to the CONSIGNMENT STOCK shall be provided to SUPPLIER by ORDERING PARTY.     •   SUPPLIER shall initiate the delivery process in such way that the stock level will never fall below the agreed minimum level as per ANNEX K.     •   All kind of information, including but not limited to consumption and inventory data, shall be exchanged via EDI 98.B (DELFOR, INVRPT).     •   Payment process:       ™ Payment for consumption from the CONSIGNMENT STOCK shall be calculated and paid monthly. For the future it is foreseen to implement the SAP-credit-note system. Then no invoice shall be issued by SUPPLIER.         ™ Accounting shall take place on a specific day of each month for the quantities consumed from the CONSIGNMENT STOCK and at the price valid on the issue date of the respective credit note.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   5 of 12 GENERAL ANNEXES               ™ Payment shall be made in line with the provisions of the FPA.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   6 of 12 GENERAL ANNEXES              2 DIRECT REPLENISHMENT 1: (Not applicable) (FLOW CHART) [f17884f1788409.gif] Rough description of the process:   •   SUPPLIER shall maintain a SUPPLIER STOCK and/or DISTRIBUTION CENTER in order to supply into ORDERING PARTY LOCATIONS.     •   The SUPPLIER STOCK and/or the DISTRIBUTION CENTERS are controlled according to the agreed stock levels following ANNEX L by SUPPLIER in such a way that deliveries can be made within the specified SDLT to each ORDERING PARTY LOCATION.     •   SUPPLIER replenishes the consumed PRODUCT quantities into each LOCAL BUFFER by regular deliveries.     •   Daily consumption and inventory data related to each LOCAL BUFFER shall be provided to SUPPLIER by the ORDERING PARTY.     •   All kind of information, including but not limited to consumption and inventory data, shall be exchanged via EDI 98-B (DELFOR, INVRPT) and via EDI 96.B (ORDERS, ORDRSP, INVOIC)     •   Payment process:   o   Payment for LOCAL BUFFER receipts shall be calculated and paid monthly. For the future it is foreseen to implement the SAP-credit-note system. Then no invoice shall be issued by SUPPLIER.     o   Accounting shall take place on a specific day of each month for the quantities received in the LOCAL BUFFER and at the price valid on the issue date of the respective credit note.     o   Payment shall be made in line with the provisions of the FPA.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   7 of 12 GENERAL ANNEXES              3 DIRECT REPLENISHMENT 2: (FLOW CHART) [f17884f1788410.gif] Rough description of the process:   •   After receiving a PURCHASE ORDER from ORDERING PARTY SUPPLIER shall deliver the ordered PRODUCTS to the location specified in the PURCHASE ORDER and within the SDLT specified in ANNEX M     •   To ensure timely delivery SUPPLIER may keep a SUPPLIER STOCK, if necessary.     •   The PURCHASE ORDER shall be issued by ORDERING PARTY and confirmed by SUPPLIER electronically.     •   Payment process:       o   SUPPLIER shall issue an invoice to ORDERING PARTY.         o   ORDERING PARTY shall pay the invoice according to the provisions of the FPA.                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   8 of 12 GENERAL ANNEXES         ANNEX D: Minimum Documentation Requirements The following information must exist:       Delivery note:   Delivery note number and date     Order number     Quantity     PURCHASER material number     PURCHASER part number     PURCHASER description     SUPPLIER product description     Order unit if different from “pieces”       [*]           Product packaging:   SUPPLIER part number     Quantity, if more than one (1)     SUPPLIER PRODUCT description in plain text     PURCHASER part number     Date code       [*] in plain text                       Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   9 of 12 GENERAL ANNEXES         ANNEX E: Locations of the PARTIES      1 ORDERING PARTY LOCATIONS, CONSIGNMENT STOCK locations           a. ORDERING PARTY LOCATION Cassina       Legal Entity   Siemens Mobile Communications S.p.a       Street   V.Ie Piero e Alberto Pirelli, 10       Postal Code, City   20126 Milano       Country   Italy                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   CONFIDENTIAL   10 of 12 GENERAL ANNEXES              2 SUPPLIER LOCATIONS, DISTRIBUTION CENTER locations a. SUPPLIER LOCATION #1 Legal Entity: Endwave Corporation Street: 776 Palomar Avenue Postal Code: 94085 City: Sunnyvale State: California Country: USA b. SUPPLIER LOCATION #2 Legal Entity: Street: Postal Code: City: State: Country:                   Page Initialed by the PARTIES     [*]         [*]     [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   11 of 12 GENERAL ANNEXES         ANNEX F – CONSIGNMENT STOCK (“CS”) Terms (Not applicable) A       Delivery of CONSIGNMENT STOCK PRODUCTS 1.   The subject of this ANNEX F is the performance of services relating to the receipt, the storage, the transportation and any commercial administration of CS PRODUCTS. SUPPLIER shall deliver CS PRODUCTS in accordance with ANNEX J to the CONSIGNMENT STOCK locations as specified in ANNEX E. Details of the CONSIGNMENT STOCK regulations at specific locations may be specified in an additional location specific CONSIGNMENT STOCK agreement.   2.   The CS inventory shall remain the property of SUPPLIER until withdrawn by ORDERING PARTY from such CS inventory. Risk of loss or damage to the CS PRODUCT shall pass to ORDERING PARTY at the time SUPPLIER has delivered the PRODUCT into the CONSIGNMENT STOCK in accordance with the terms and conditions of this LSA, except if the damages or losses have been caused by SUPPLIER and/or SUPPLIER’S freight forwarder.   3.   ORDERING PARTY may perform incoming goods inspections based on SUPPLIER’S delivery notes regarding quantity and identity of the delivered units of CS PRODUCTS as well as inspections on apparent defects. Loss or defects which have been detected during such an incoming goods inspection shall be documented by ORDERING PARTY and reported to SUPPLIER. Quantity variances of delivered CS PRODUCTS which have been detected by ORDERING PARTY during an incoming goods inspection shall be notified by ORDERING PARTY to SUPPLIER within [*] days of receipt of the relevant units of CS PRODUCTS. Whenever loss or damage has occurred to a CS PRODUCT prior to receipt by ORDERING PARTY at the CONSIGNMENT STOCK and becomes apparent to ORDERING PARTY within the incoming goods inspection, ORDERING PARTY should mark the delivery receipt with a description of the damage or loss before signing and shall do reasonable efforts to request the carrier to inspect and confirm such loss or damage by signing such marked receipt.   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   12 of 12 GENERAL ANNEXES         B       Consigned Inventory Storage and Management 1.   ORDERING PARTY will provide a secure and separated space for CS PRODUCTS at the CONSIGNMENT STOCK, Storage of the goods is to occur in suitable, dry rooms. The CS PRODUCTS are to be protected from unauthorized access through suitable means.   2.   ORDERING PARTY may at it’s own discretion subcontract any of its obligations under this ANNEX F to a third party, whereby subcontracting of Storage of the CS PRODUCTS by ORDERING PARTY at a third party warehouse and/or subcontracting of related services to a third party shall not affect any of the contractual obligations of SUPPLIER and ORDERING PARTY under the framework of the FPA and this LSA.   3.   ORDERING PARTY will perform the receipt of goods, stocking, storage and withdrawal of CS PRODUCTS at no charge to SUPPLIER. ORDERING PARTY shall safeguard that the inventory management method FIFO (“First In, First Out’) will be used by its personnel and/or its subcontractors. ORDERING PARTY will maintain accurate and complete records with regard to the custody and care of the CONSIGNMENT STOCK. Such records shall be maintained in accordance with recognized commercial accounting practices, so that they may be readily audited. The records shall be held until all payments or final adjustments of payments have been made. ORDERING PARTY shall permit SUPPLIER to examine and audit such records, provided that [*] working days prior written notice has been given to SUPPLIER. C.       Withdrawal and Invoicing 1.   ORDERING PARTY will send to SUPPLIER electronically the actual inventory, receipts, and withdrawals, on each day having any inventory activity (i.e., receipts or withdrawals). SUPPLIER will submit invoices to ORDERING PARTY which shall identify the total quantities of CS PRODUCTS withdrawn from the inventory. SUPPLIER may issue EDI 98.8 (INVOIC) transactions. Invoices will be due and payable by ORDERING PARTY in full via electronic funds transfer to the account number specified by SUPPLIER in accordance with the respective regulations of the FPA. For the future it is foreseen to implement the SAP-credit-note system. Then no invoice shall be issued by SUPPLIER.   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   13 of 12 GENERAL ANNEXES         2.   PRODUCTS withdrawn from CONSIGNMENT STOCK cannot be returned to CONSIGNMENT STOCK, unless mutually agreed by the PARTIES in writing. Defective CS PRODUCT shall be subject to warranty terms of the FPA.   3.   ORDERING PARTY agrees that CS PRODUCTS shall be withdrawn from the CONSIGNMENT STOCK only on a FIFO process. D.       Inspection and Audit SUPPLIER shall have the right to enter the CONSIGNMENT STOCK locations of ORDERING PARTY as listed in ANNEX E, during normal local business hours and upon [*] hours prior written notice, to conduct a physical inspection of the CONSIGNMENT STOCK and/or of the books and records for the respective CONSIGNMENT STOCK location. In the event SUPPLIER becomes aware of any problems with the CONSIGNMENT STOCK inventory, SUPPLIER will notify ORDERING PARTY in writing of any such problem without any delay. ORDERING PARTY is responsible for adjusting any deviations in inventory unless ORDERING PARTY is able to offer proof of having used sound stock maintenance principles. Deviations will be immediately accounted for as inventory corrections.   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   1 of 10 SPECIFIC ANNEXES FOR ORDERING PARTY LOCATIONS     ANNEX G: Stand-in regulation in place Contacts Logistics:       ORDERING PARTY   SUPPLIER       Name: [*]   Name: Steve McGowan       Phone: [*]   Phone: 1 408 522 3121       E-Mail: [*]   E-mail: [email protected]             Document approved:   Document approved:             1st December 2005 /s/ Rudolf Mazzoli   10/17/05 /s/ Steve Layton       Date, Rudolf Mazzoli   Date, Steve Layton       Senior Director   Vice President Sales       ICM MW OP I SLO       Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   2 of 10 SPECIFIC ANNEXES FOR ORDERING PARTY LOCATIONS     ANNEX H: List of SR PRODUCTS (Not applicable)                       Part no.   SAP no.   Supplier no.   Product Class   Description   Product Critical Component List:           Material   Lead time in weeks1)   Value in % of         assembly price   1) [*]   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   3 of 10 SPECIFIC ANNEXES FOR ORDERING PARTY LOCATIONS     ANNEX I: List of DR-1 PRODUCTS (Not applicable)                       Part no.   SAP no.   Supplier no.   Product Class   Description   Product Critical Component List:           Material   Lead time in weeks1)   Value in % of         assembly price   1) [*]   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   4 of 10 SPECIFIC ANNEXES FOR ORDERING PARTY LOCATIONS     ANNEX J: List of DR-2 PRODUCTS                       Part no.   SAP no.   Supplier no.   Product Class   Description   Product [*]               38 GHz ND [*]     [*]               38 GHz ND [*]     [*]               38 GHz ND [*]     [*]               38 GHz ND [*]     [*]               38 GHz ND [*]     [*]               38 GHz ND [*]     Critical Component List:                               Value in % of     Material   Lead time in weeks1)   assembly price   End Product Usage [*]       [*]   [*]   38 GHz ND [*]       [*]   [*]   38 GHz ND [*]       [*]   [*]   38 GHz ND [*]       [*]   [*]   38 GHz ND [*]       [*]   [*]   38 GHz ND [*]       [*]   [*]   38 GHz ND [*]       [*]   [*]   38 GHz ND and 38 HD [*]       [*]   [*]   38 GHz ND and 38 HD [*]       [*]   [*]   38 GHz ND [*]       [*]   [*]   38 GHz ND [*]       [*]   [*]   38 GHz ND   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   5 of 10 SPECIFIC ANNEXES FOR ORDERING PARTY LOCATIONS                           Value in % of     Material   Lead time in weeks1)   assembly price   End Product Usage [*]   [*]   [*]   38 GHz ND [*]   [*]   [*]   38 GHz ND [*]   [*]   [*]   38 GHz ND 1) [*] 2) ORDERING PARTY shall monthly provide, an informal forecast with [*] months visibility. The SUPPLIER shall monthly provide, for the defined critical components. inventory and on order status.   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   6 of 10 SPECIFIC ANNEXES FOR ORDERING PARTY LOCATIONS     ANNEX K: Stock Levels related to SR PRODUCTS (Not applicable) The quantity of 1 DOS shall be calculated as follows: First (1st) month’s quantity of each FORECAST issued divided by the number of working days during this month.       ORDERING PARTY LOCATION:       Minimum stock level in CONSIGNMENT STOCK   [*] Maximum stock level in CONSIGNMENT STOCK   [*]   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   7 of 10 SPECIFIC ANNEXES FOR ORDERING PARTY LOCATIONS     ANNEX L: Stock Levels related to DR-1 PRODUCTS (Not applicable) The quantity of 1 DOS shall be calculated as follows: First (1st) month’s quantity of each FORECAST issued divided by the number of working days during this month.       ORDERING PARTY LOCATION:     Maximum SDLT   within [*] Minimum stock level in LOCAL BUFFER   [*] Maximum stock level in LOCAL BUFFER   [*] Stock level of SUPPLIER STOCK or DC   at least [*] for daily delivery, in order to ensure [*] upside flexibility in short term Emergency replenishment:   [*] within [*] hours out of SUPPLIER STOCK or DC   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   8 of 10 SPECIFIC ANNEXES FOR ORDERING PARTY LOCATIONS     ANNEX M: Stock Levels related to DR-2 PRODUCTS The quantity of 1 DOS shall be calculated as follows: First (1st) month’s quantity of each FORECAST issued divided by the number of working days during this month.       ORDERING PARTY LOCATION:     Minimum stock level of SUPPLIER STOCK   No specific stock levels required, SUPPLIER has to guarantee to replenish the material within the required replenishment time, thus it may be necessary to hold a stock level on SUPPLIER site       Maximum SDLT   [*]   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   9 of 10 SPECIFIC ANNEXES FOR ORDERING PARTY LOCATIONS     ANNEX N: Goods Receiving If not otherwise specified below, all deliveries shall take place during the opening hours of the goods-receiving department of the ORDERING PARTY LOCATION. All times defined in this LSA are stated in a 24-hour format and as local time of the respective ORDERING PARTY LOCATION.      1 STANDARD REPLENISHMENT (Not applicable) SUPPLIER shall deliver PRODUCTS using the respective standardized containers (in case they have been defined by PURCHASER). A continuous container exchange between SUPPLIER and ORDERING PARTY shall be implemented.      a. Opening hours at ORDERING PARTY LOCATION:       Day   Goods Receiving       Monday – Friday   06.30 – 20.00       Saturday   Special arrangements       Sunday   Special arrangements      b. Logistic Data The logistic data shall include the container quantities and container type for each PRODUCT to be delivered by SUPPLIER. The latest version of the logistic data will be provided to SUPPLIER by ORDERING PARTY and it may be adjusted at short notice. SUPPLIER shall notify ORDERING PARTY immediately in case of missing logistic data.      2 DIRECT REPLENISHMENT 1 (Not applicable) SUPPLIER shall deliver PRODUCTS using the respective standardized containers (in case they have been defined by PURCHASER). A continuous container exchange between SUPPLIER and ORDERING PARTY shall be implemented. Deliveries into each LOCAL BUFFER shall meet the respective delivery time slot defined between ORDERING PARTY and SUPPLIER.   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   10 of 10 SPECIFIC ANNEXES FOR ORDERING PARTY LOCATIONS          a. Opening hours at ORDERING PARTY LOCATION:       Day   Goods Receiving       Monday – Friday   06.30 – 20.00       Saturday   Special arrangements       Sunday   Special arrangements      b. Logistic Data The logistic data shall include the container quantities and container type for each PRODUCT to be delivered by SUPPLIER. The latest version of the logistic data will be provided to SUPPLIER by ORDERING PARTY and it may be adjusted at short notice. SUPPLIER shall notify ORDERING PARTY immediately in case of missing logistic data.      3 DIRECT REPLENISHMENT 2: SUPPLIER shall deliver all DR-2 PRODUCTS packed as agreed with PURCHASER/ORDERING PARTY.      a. Opening times at ORDERING PARTY LOCATION:       Day   Goods Receiving       Monday – Friday   06.30 – 20.00       Saturday   Special arrangements       Sunday   Special arrangements      b. Logistic Data The logistic data shall include the container quantities and container type for each PRODUCT to be delivered by SUPPLIER. The latest version of the logistic data will be provided to SUPPLIER by ORDERING PARTY and it may be adjusted at short notice. SUPPLIER shall notify ORDERING PARTY immediately in case of missing logistic data.   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   1 of 10 ANNEX O                                                Location specific Amendment to Logistic Service Agreement (LSA) for ORDERING PARTY Cassina only   Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   2 of 10 In Amendment to the existing LSA to the FPA the following shall exclusively apply for the delivery and logistic of PRODUCTS if PRODUCTS are delivered to MW Cassino, Siemens Mobile Communications S.p.a, S.S.11 Padana Superiore Km 158, 20060 Cassino de’ Pecchi, Italy (ORDERING PARTY). LSA Body The articles from 1.20 to 1.24 shall be added : 1.20   The term “WFS” shall mean a specific technical architecture (Web File Server) provided by ORDERING PARTY to support electronic data interchange between ORDERING PARTY and SUPPLIER or DESIGNATED SUBSIDIARY as required by this LSA.   1.21   The term “FULL CONSIGNMENT” shall be the synonym for “STANDARD REPLENISHMENT”.   1.22   The term “SPLITTED CONSIGNMENT” shall be the synonym for “DIRECT REPLENISHMENT 1”   1.23   The term “SUPPLIER SAFETY BUFFER “ shall be the synonym for “DIRECT REPLENISHMENT 2”.   1.24   The term “SCHEDULING” shall mean the period of [*] days starting with the 1st day on which a demand is indicated to SUPPLIER.   1.25   The term “SAFETY BUFFER” shall mean a defined SUPPLIER stock at supplier site or in DC The article 2.3 shall be added : In the event of a conflict between this LSA and the FPA, the terms of the FPA shall control In the article 6.1.1 the item “• issue of a FRAME ORDER” is not relevant. The item “• no call-off for CONSIGNMENT STOCK replenishment” shall be added. In the article 6.1.2 the following items are not relevant:   •   issue of a FRAME ORDER     •   ship to stock delivery by SUPPLIER into a LOCAL BUFFER      The following items shall be added: Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   3 of 10   •   delivery by SUPPLIER into a LOCAL BUFFER at ORDERING PARTY LOCATION on a consignment basis.     •   call-off for LOCAL BUFFER at ORDERING PARTY LOCATION on a consignment basis.     •   SDLT no longer than one (1) week. In the article 6.1.3 Supply Class DIRECT REPLENISHMENT 2 This supply class shall apply to all PRODUCTS listed in ANNEX J. Operating principles for a DR-2 PRODUCT shall be:   •   FORECAST from PURCHASER as per Article 6.3 below     •   delivery by SUPPLIER at the location specified in the respective PURCHASE ORDER     •   call-off via PURCHASE ORDERS     •   SAFETY BUFFER at SUPPLIER or DC     •   defined service level as per Article 6.2.3 below     •   performance measurement as per Article 6.2.3 below     •   payment as per ANNEX C In the article 6.2.2 the definitions for “LOCAL BUFFER” and “On-time delivery” shall be superseded by the following wording :       LOCAL BUFFER   SUPPLIER refills the CONSIGNMENT STOCK according to call-off issued by ORDERING PARTY       On-time delivery   meet the DELIVERY DATE as per call-off In the article 6.2.3 Service Level for DIRECT REPLENISHMENT 2 SUPPLIER shall meet the following criteria and both PARTIES agree to monitor the following performance metrics each month:       Ordering/replenishment planning   under full responsibility of each ORDERING PARTY       SAFETY BUFFER   according the List A       Contract contacts and     stand-in regulation in place   according to ANNEX A and ANNEX J Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   4 of 10       Early-warning system in place   according to Article 6.6.1 below Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   6 of 10       Metric   SUPPLIER Commitment Maximum SDLT   according to ANNEX M On-time delivery   to meet the DELIVERY DATE as per PURCHASE ORDER Material availability   according to FORECAST and FLEXIBILITY CORRIDOR Caused line-break-down   zero (0) times at ORDERING PARTY Any missed on-time delivery or any caused line-break-down at ORDERING PARTY shall be deemed as a DELIVERY DATE not met by SUPPLIER and thus shall be regarded as a late delivery like provided for in the FPA. The article 6.3 shall be superseded in its’ entirety and replaced by the following wording : 6.3 FORECAST and SCHEDULING A FORECAST is a planning tool intended to improve the demand visibility for a period of at least four weeks, depending on the respective PRODUCT family. The FORECAST together with the respective FLEXIBILITY CORRIDOR as defined in ANNEX B shall reflect the cumulative demand of a PRODUCT in specified timeframe by all ORDERING PARTIES as predicted by PURCHASER, status as of the date of issue. PURCHASER shall issue such FORECAST fortnightly and shall send it to SUPPLIER via WFS. The FORECAST last issued by PURCHASER shall supersede all FORECASTS issued before. SUPPLIER shall give feedback to PURCHASER regarding feasibility of the FORECAST via WFS within [*] days from receipt or such FORECAST, otherwise such FORECAST shall be deemed as accepted. The FORECAST and SCHEDULING shall not constitute and shall not be interpreted as any obligation of PURCHASER/ORDERING PARTIES to purchase PRODUCTS. In case the demand of PURCHASER/ORDERING PARTIES is higher than specified by the FLEXIBILITY CORRIDOR both PARTIES shall mutually agree on a solution. 6.3.1. FORECAST and SCHEDULING for SR PRODUCTS (Not applicable) The quantities shown in the FORECAST as per ANNEX B are planned gross demands. The FORECAST together with the respective FLEXIBILITY CORRIDOR shall be used as a guideline and planning tool by SUPPLIER to manage his production and to replenish each CONSIGNMENT STOCK. The FORECAST is binding according to the quantities and the validity of defined flexibility, but is not binding referring to the chronological demand. SUPPLIER must take the flexibility range shown in ANNEX B into consideration when using the FORECAST. The replenishment of CONSIGNMENT STOCK shall be consumption driven only. 6.3.2. FORECAST and SCHEDULING for DR-1 PRODUCTS (Not applicable) The replenishment of a LOCAL BUFFER (at ORDERING PARTY LOCATION) on a consignment basis is driven via call-off The quantities shown in the FORECAST and scheduling as per ANNEX B are planned gross demands. The FORECAST and scheduling together with the respective FLEXIBILITY Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   6 of 10 CORRIDOR shall be used as a guideline and planning tool by SUPPLIER to manage his production, Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   7 of 10 procurement of components, his SUPPLIER STOCK and/or DISTRIBUTION CENTERS. SUPPLIER must take the flexibility range shown in ANNEX B into consideration when using the FORECAST and scheduling. Delivery shall be based on individual PURCHASE ORDERS only. The flexibility range with defined upward and downward flexibility has to start latest on the DELIVERY DATE. 6.3.3. FORECAST and SCHEDULING for DR-2 PRODUCTS The quantities shown in the FORECAST as per ANNEX B are planned gross demands. The FORECAST together with the respective FLEXIBILITY CORRIDOR shall be used as a guideline and planning tool by SUPPLIER to manage his production and to guarantee the defined minimum SDLT. SUPPLIER must take the flexibility range shown in ANNEX B into consideration when using the FORECAST. Delivery shall be based on individual PURCHASE ORDERS only. The flexibility range with defined upward and downward flexibility has to start latest on the DELIVERY DATE. The article 6.4 shall be superseded in its’ entirety and replaced by the following wording: 6.4 Buffering 6.4.1 Buffering for SR Products (Not applicable) SUPPLIER agrees to build up and maintain an agreed stock level of SR PRODUCTS on each CONSIGNMENT STOCK. The stock levels agreed for each CONSIGNMENT STOCK are listed in ANNEX K. Both PARTIES agree to revise and adjust ANNEX K at least quarterly in order to adapt the stock levels to changes in demand requirements. 6.4.2 Buffering for DR-1 PRODUCTS (Not applicable) SUPPLIER agrees to build and carry a SUPPLIER STOCK and/or at least one DISTRIBUTION CENTER dedicated to DR1 PRODUCTS. The agreed stock levels are listed in ANNEX L. SUPPLIER agrees to manage its internal production and supply processes to maintain the stock levels in the SUPPLIER STOCK and/or DISTRIBUTION CENTERS, as listed in ANNEX L, at all times. SUPPLIER is responsible for all aspects of managing the SUPPLIER STOCK and/or DISTRIBUTION CENTERS including, but not limited to, planning, carrying costs and replenishment. SUPPLIER shall report the stock levels held in the SUPPLIER STOCK and DISTRIBUTION CENTERS to PURCHASER and ORDERING PARTY at least once a week. This data is necessary for PURCHASER and ORDERING PARTY to execute material availability calculations. PURCHASER reserves the right to inspect the SUPPLIER STOCK and the DISTRIBUTION CENTERS at any time with [*] prior written notice to SUPPLIER. Both PARTIES agree to revise and adjust ANNEX L at least quarterly in response to changes in demand requirements. Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   8 of 10 6.4.3 Buffering for DR-2 PRODUCTS SUPPLIER has to guarantee to replenish the material within the SDLT. [*] SUPPLIER shall inform ORDERING PARTY about SAFETY BUFFER stock levels held in the SUPPLIER site and /or DISTRIBUTION CENTERS at least once a week. PURCHASE ORDERS shall be issued in accordance with the FPA. Example of List A: (SUPPLY CHAIN) [f17884f1788411.gif] The article 6.5 shall be superseded in it’s entirety and replaced by the following wording : 6.5. Order Processing, Call-Off and Replenishment 6.5.1. Order Processing, Call-Off and Replenishment for SR (Not applicable) The replenishment of a SR PRODUCT shall be initiated by consuming such SR PRODUCT from the CONSIGNMENT STOCK, that is by decreasing the stock level. PURCHASER shall daily provide consumption and inventory data per each SR PRODUCT. Such data shall be exchanged electronically between SUPPLIER and PURCHASER. SUPPLIER shall manage the delivery process in such way that the stock level of the CONSIGNMENT STOCK will never fall below the agreed minimum stock level. The CONSIGNMENT STOCK must not be replenished beyond the agreed maximum stock level listed in ANNEX K. If the quantity of a SR PRODUCT consumed from the CONSIGNMENT STOCK is not covered by the respective FORECAST and FLEXIBILITY CORRIDOR, SUPPLIER shall inform PURCHASER within [*] working day after receipt of the consumption and inventory data. Further, if SUPPLIER is not able to replenish according to the agreed minimum level as per ANNEX K, SUPPLIER shall inform PURCHASER within [*] after receipt of the consumption and inventory data. Not withstanding the above, the order acceptance provisions of the FPA shall apply. PURCHASER shall pay for each SR PRODUCT consumed from the CONSIGNMENT STOCK at the price valid on the date of consumption. 6.5.2. Order Processing, Call-Off and Replenishment for DR-1 (Not applicable) ORDERING PARTY shall issue a call off of DR1 PRODUCT into LOCAL BUFFER (at ORDERING PARTY LOCATION) on a consignment basis at ORDERING PARTY LOCATION. SUPPLIER shall deliver the required quantities on DELIVERY DATE and in line with the maximum SDLT as defined in ANNEX L. All information shall be exchanged via WFS between SUPPLIER and ORDERING PARTY. SUPPLIER shall manage the stock levels of his SUPPLIER STOCK and/or DISTRIBUTION CENTERS. Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   9 of 10 If required quantities are not covered by the respective FORECAST and FLEXIBILITY CORRIDOR, SUPPLIER shall inform ORDERING PARTY in accordance with the order acceptance provisions of the FPA. ORDERING PARTY will pay for each DR1 PRODUCT consumed from the LOCAL BUFFER on a consignment basis at the price valid on the date of consumption. 6.5.3. Order Processing, Call-Off and Replenishment for DR-2 ORDERING PARTY shall issue a PURCHASE ORDER to call off a DR2 PRODUCT into LOCAL BUFFER (at ORDERING PARTY LOCATION). SUPPLIER shall deliver the required quantities on DELIVERY DATE and in line with the maximum SDLT as defined in ANNEX M. All information shall be exchanged via WFS between SUPPLIER and ORDERING PARTY. SUPPLIER shall manage the stock levels of his SAFETY BUFFER If required quantities are not covered by the respective FORECAST and FLEXIBILITY CORRIDOR, SUPPLIER shall inform ORDERING PARTY in accordance with the order acceptance provisions of the FPA. ORDERING PARTY shall pay for each DR-2 PRODUCT based on an invoice to be issued by SUPPLIER LSA, ANNEX B ANNEX B shall be superseded in it’s introduction and replaced by the following wording : The FORECAST shall be sent by PURCHASER to SUPPLIER weekly. With regards to the agreed flexibility, it shall be assumed that the quantity in a monthly frame is equally distributed over the four weeks. Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   10 of 10 LSA, ANNEX C ANNEX C shall be superseded in its entirety and replaced by the following wording : STANDARD REPLENISHMENT (within MW named as FULL CONSIGNMENT) – (Not applicable) Rough description of the process: (SUPPLY PROCESS) [f17884f1788412.gif] All kind of information, including but not limited to consumption and inventory data, shall be exchanged via Web File Server. Payment process : Payment for consumption from the CONSIGNMENT STOCK shall be calculated and paid monthly. Invoices issued by SUPPLIER shall be based on consumption data provided by ORDERING PARTY and submitted by SUPPLIER via WFS to ORDERING PARTY. Then, no invoice’s hardcopy shall be sent by SUPPLIER. Accounting shall take place on a specific day of each month for the quantities consumed from the CONSIGNMENT STOCK and at the price valid on the consumption. Payment shall be made in line with the provisions of FPA Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   11 of 10 DIRECT REPLENISHMENT 1 (within MW named as SPLITTED CONSIGNMENT) – (Not applicable) (SUPPLY PROCESS) [f17884f1788413.gif] Rough description of the process: After receiving the call-off from ORDERING PARTY, SUPPLIER shall deliver the required PRODUCTS to the ORDERING PARTY LOCATION and within the SDLT specified in ANNEX L Daily consumption and inventory data related to each Local Buffer on a Consignment basis shall be provided to SUPPLIER by the ORDERING PARTY. All kind of information, including but not limited to consumption and inventory data, shall be exchanged via Web File Server. Payment process: Payment for consumption from the Local Buffer on a Consignement basis shall be calculated and paid monthly. Invoices issued by SUPPLIER shall be based on consumption data provided by ORDERING PARTY and submitted via WFS to ORDERING PARTY. Then, no invoice’s hardcopy shall be sent by SUPPLIER. Accounting shall take place on a specific day of each month for the quantities consumed from the Local Buffer on a Consignement basis and at the price valid on the consumption. Payment shall be made in line with the provisions of the FPA. Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.   --------------------------------------------------------------------------------   EXHIBIT B (LSA)   C O N F I D E N T I A L   12 of 10 (SUPPLY PROCESS) [f17884f1788412.gif] DIRECT REPLENISHMENT 2 (within MW named as SUPPLIER SAFETY BUFFER)      Rough description of the process:   •   After receiving a PURCHASE ORDER from ORDERING PARTY SUPPLIER shall deliver the ordered PRODUCTS to the location specified in the PURCHASE ORDER and within the SDLT specified in ANNEX M     •   To ensure timely delivery SUPPLIER must keep a SAFETY BUFFER at Supplier Site     •   The PURCHASE ORDER shall be issued by ORDERING PARTY and confirmed by SUPPLIER electronically.     •   Payment process:       o SUPPLIER shall issue an invoice to ORDERING PARTY.         o ORDERING PARTY shall pay the invoice according to the provisions of the FPA. Page Initialed by the PARTIES [*] [*] [*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.  

Exhibit 10.68 SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT This SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (“Amendment”) is effective as of October 30, 2006, by and between RESORTS INTERNATIONAL HOTEL, INC., a New Jersey corporation (“Borrower”), and COMMERCE BANK, N.A., a national banking association (“Lender”). BACKGROUND A. Borrower and Lender are parties to that certain Loan and Security Agreement dated November 4, 2002 (as the same has been or may be supplemented, restated, superseded, amended or replaced from time to time, the “Loan Agreement”). All capitalized terms used herein without further definition shall have the respective meaning set forth in the Loan Agreement and all other Loan Documents. B. The Obligations are secured by continuing perfected security interests in the Collateral. C. Borrower has requested that Lender extend the Revolving Credit Maturity Date and modify the terms of the Loan Agreement to reflect such extension, and Lender has agreed to such extension and modification in accordance with and subject to the satisfaction of the conditions hereof. NOW, THEREFORE, with the foregoing Background incorporated by reference and intending to be legally bound hereby, the parties agree as follows: 1. Amendments to Loan Agreement. Upon the effectiveness of this Amendment, the Loan Agreement shall be amended as follows: a. Section 1 of the Loan Agreement shall be amended by deleting the definition of “Revolving Credit Maturity Date,” and replacing it as follows: Revolving Credit Maturity Date –November 30, 2006. 2. Representations and Warranties and Covenants. Borrower warrants and represents to Lender that: a. No Default or Event of Default exists. b. The making and performance of this Amendment will not violate any law, government rule or regulation, court or administrative order or other such order, or the charter, minutes or bylaw provisions of Borrower or violate or result in a default (immediately or with the passage of time) under any contract, agreement or instrument (including without limitation, the Indenture Agreement), to which Borrower is a party, or by which Borrower is bound. c. Borrower has all requisite power and authority to enter into and perform this Amendment, and to incur the obligations herein provided for, Borrower has taken all proper and necessary action to authorize the execution, delivery and performance of this Amendment. -------------------------------------------------------------------------------- d. This Amendment, when delivered, will be valid and binding upon Borrower, and enforceable in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles. 3. Ratification of Loan Documents. This Amendment is hereby incorporated into and made a part of the Loan Agreement and all other Loan Documents respectively, the terms and provisions of which, except to the extent modified by this Amendment are each ratified and confirmed and continue unchanged in full force and effect. Any reference to the Loan Agreement and all other Loan Documents respectively in this or any other instrument, document or agreement related thereto or executed in connection therewith shall mean the Loan Agreement and all other Loan Documents respectively as amended by this Amendment. As security for the payment of the Obligations, and satisfaction by Borrower of all covenants and undertakings contained in the Loan Agreement, Borrower hereby confirms its prior grant to Lender of a continuing first lien on and security interest in, upon and to all of Borrower’s now owned or hereafter acquired, created or arising Collateral as described in Section 3 of the Loan Agreement. 4. Confirmation of Surety. By their execution below, each Surety hereby consents to, and acknowledges the terms and conditions of this Amendment, and agrees that its Surety Agreement dated November 4, 2002, is ratified and confirmed, and shall continue in full force and effect, and shall continue to cover all obligations of Borrower outstanding from time to time, under the Loan Agreement as amended hereby. 5. Effectiveness Conditions. This Amendment shall become effective upon the following: a. Execution and delivery by Borrower of this Amendment to Lender; b. Payment by Borrower of an amendment fee in the amount of Twenty-Five Thousand Dollars ($25,000), which fee is fully earned on the date hereof, and is non-refundable; and c. Payment by Borrower of all of Lender’s Expenses. Borrower directs Lender to charge Barrower’s account for such Expenses. 6. Limitations. In consideration of Lender’s prior agreement to suspend compliance with the financial covenants contained in Sections 6.8 (a), (b) and (c) of the Loan Agreement solely for the periods ended June 30, 2006 and September 30, 2006, Borrower agrees that any further cash Advances or issuances of Letters of Credit under the Loan Agreement will require specific approval from Lender. In order to facilitate such request, Lender will require information regarding the purpose and nature of the borrowing, plans for payment and adequate time to consider the request. Lender may, in its sole discretion, refuse any such requests; provided, however, in the event Lender refuses any such request Borrower’s obligation to pay the Unused Line Fee under Section 2.7(c) of the Loan Agreement shall be suspended from the date of any such refusal until the date of any subsequent cash Advance or issuance of a Letter of Credit.   2 -------------------------------------------------------------------------------- 7. Confirmation of Indebtedness. Borrower confirms and agrees that as of October 27, 2006, the total principal amount of cash Advances outstanding under the Revolving Credit is $8,296,000 and the aggregate face amount of Letters of Credit outstanding is $4,386,698.59, all of which amounts, together with all accrued and unpaid interest, fees and Expenses, are owing or outstanding without any setoff, defense, counterclaim or deduction of any nature. 8. GOVERNING LAW. THIS AMENDMENT, AND ALL MATERS ARISING OUT OF OR RELATING TO THIS AMENDMENT, AND ALL RELATED AGREEMENTS AND DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF NEW JERSEY. THE PROVISIONS OF THIS AMENDMENT AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION SHALL NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT. 9. Modification. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed by Borrower and Lender. 10. Duplicate Originals: Two or more duplicate originals of this Amendment may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. 11. Waiver of Jury Trial: BORROWER AND LENDER EACH HEREBY WAIVE ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION, PROCEEDING OR COUNTERCLAIM ARISING WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS OR WITH RESPECT TO ANY CLAIMS ARISING OUT OF ANY DISCUSSIONS, NEGOTIATIONS OR COMMUNICATIONS INVOLVING OR RELATED TO ANY PROPOSED RENEWAL, EXTENSION, AMENDMENT, MODIFICATION, RESTRUCTURE, FORBEARANCE, WORKOUT, OR ENFORCEMENT OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS. [REMAINDER OF PAGE LEFT BLANK]   3 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the undersigned parties have executed this Amendment the day and year first above written.   BORROWER: RESORTS INTERNATIONAL HOTEL, INC. By:   /s/ Francis X. McCarthy Name:   Francis X. McCarthy Title:   Senior Vice President-Finance and Administration LENDER: COMMERCE BANK, N.A. By:   /s/ Peter L. Davis   Peter L. Davis, Senior Vice President SURETIES: RESORTS INTERNATIONAL HOTEL & CASINO, INC. By:   /s/ Francis X. McCarthy Name:   Francis X. McCarthy Title:   Senior Vice President-Finance and Administration COLONY RIH HOLDINGS, INC. By:   /s/ Francis X. McCarthy Name:   Francis X. McCarthy Title:   Senior Vice President-Finance and Administration NEW PIER OPERATING COMPANY, INC. By:   /s/ Francis X. McCarthy Name:   Francis X. McCarthy Title:   Senior Vice President-Finance and Administration   4

Exhibit 10(b) Liz Claiborne Inc. Executive Severance Agreement   This Executive Severance Agreement (this “Agreement”), dated as of the 1st day of March, 2006 (the “Effective Date”), is by and between LIZ CLAIBORNE, INC., a Delaware corporation (the “Company”), and TRUDY SULLIVAN (the “Executive”).   WHEREAS, the Company’s Board of Directors (the “Board”) has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Executive to her assigned duties in the face of possible distraction of the Executive by virtue of the personal uncertainties and risks created by the possibility of termination of, or adverse change to, her employment prior to a change in control situation; and   WHEREAS, the Board believes it is in the Company’s best interests to assure that Executive will refrain from certain competitive activities with the Company as described herein;   NOW, THEREFORE, to assure the Company that it will have the continued undivided attention and services of the Executive and the availability of her advice and counsel, and to induce the Executive to remain in the employ of the Company hereinafter, for the benefit of the Company and its shareholders, and for other good and valuable consideration, the Company and the Executive agree as follows:     1. Term of Agreement   The term of this Agreement shall commence immediately upon the Effective Date and end on December 31, 2007, unless terminated sooner in accordance with Section 2, provided, however, that such term shall be automatically renewed for successive one-year terms. The phrase “Employment Period” as used herein shall refer to the initial term as well as any renewal terms.     2. Termination   (a)        Cause. The Employment Period will terminate at the election of the Company for Cause immediately upon notice from the Company to Executive. As used herein, the term “Cause” means:   (i)           Executive’s willful and intentional repeated failure or refusal, continuing after notice that specifically identifies the breach(es) complained of, to perform substantially her material duties, responsibilities and obligations (other than a failure resulting from Executive’s incapacity due to physical or mental illness or other reasons beyond the control of Executive), and which failure or refusal results in demonstrable direct and material injury to the Company;   (ii)          Any willful or intentional act or failure to act involving fraud, misrepresentation, theft, embezzlement, dishonesty or moral turpitude (collectively, “Fraud”) which results in demonstrable direct and material injury to the Company; or   (iii)         Conviction of (or a plea of nolo contendere to) an offense which is a felony in the jurisdiction involved or which is a misdemeanor in the jurisdiction involved but which involves Fraud;   (b)        Standard. For purposes of this Section 2, no act, or failure to act, on Executive’s part shall be deemed “willful” or “intentional” unless done, or omitted to be done, by Executive without reasonable belief that Executive’s action or omission was in the best interests of the Company.   (c)        Cause Determination. Executive’s termination for Cause must be pursuant to a resolution (a “Cause Resolution”) duly adopted by the affirmative vote of not less than two thirds (2/3) of the Board then in office at a meeting of the Board called upon reasonable notice to all directors and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with her counsel (if the Executive so chooses), to be heard before the Board at such meeting, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting “cause” as herein defined and specifying the particulars thereof in detail.   1       (d)        Death; Disability. The Employment Period will terminate forthwith upon Executive’s death or, at the Company’s option, by written notice to Executive (or Executive’s legal representative) upon Executive’s Disability. As used herein the term “Disability” means any physical or mental condition that would qualify Executive for a disability benefit under the long-term disability plan maintained by the Company, or, if there is no such plan, a physical or mental condition that prevents Executive from performing the essential functions of Executive’s position (with or without reasonable accommodation) for a period of six consecutive months. A determination of Disability will be made by a physician satisfactory to both Executive and the Company; provided that if Executive and the Company cannot agree as to a physician, then each will select a physician and these two together will select a third physician, whose determination as to Disability will be binding on Executive and the Company. Executive, Executive’s legal representative or any adult member of Executive’s immediate family shall have the right to present to the Company and such physician such information and arguments on Executive’s behalf as Executive or they deem appropriate, including the opinion of Executive’s personal physician.     3. Severance   (a)        Termination For Cause; Voluntary Termination Without Good Reason; Termination Due to Death or Disability. In the event that the Employment Period is terminated due to (i) a termination by the Company for Cause, (ii) Executive’s resignation without Good Reason (as defined herein), or (iii) a termination of Executive’s employment due to Executive’s death or Disability, the Company will pay to Executive an amount equal to Executive’s accrued but unpaid base salary through the date of such termination, and, in the case of death or Disability, shall continue the medical and dental insurance coverage for Executive’s family as provided in Section 3(b) below.   (b)        Termination Without Cause; Voluntary Termination For Good Reason. Subject to Section 3(d), in the event that the Employment Period is terminated (i) by the Company other than for Cause and other than upon Executive’s death or Disability or (ii) by Executive for Good Reason (as defined herein), then (A) the Company shall pay to Executive an amount equal to Executive’s accrued but unpaid base salary through the date of such termination, (B) so long as Executive shall not have breached Executive’s obligations to the Company under Sections 4 and 5 hereof (without limitation to any other remedy available to the Company), the Company shall provide Executive and Executive’s family with coverage substantially identical to that provided to other senior executives of the Company in its medical, dental, vision, and executive life insurance programs (subject in the case of life insurance to insurability at standard rates) for 6 months following the date of such termination, and (C) the Company shall pay to Executive, as and for a severance payment, the product of one and one-half (1.5) and the sum of Executive’s then current annual base salary and Executive’s then current Target Bonus (but in no case less than 85% of base salary) as soon as practicable (but in no event later than 20 days after the termination date), subject to Section 3(f).   For the purposes of this Agreement, “Good Reason” shall mean the occurrence of one or more of the following events: (1) Executive’s being assigned duties inconsistent with Executive’s position at the applicable date, without Executive’s consent; (2) the Company’s moving its principal executive offices by more than 20 miles if such move increases Executive’s commuting distance by more than 20 miles; (3) a material reduction in Executive’s base salary; (4) a material breach by the Company of any of its material obligations under any employment agreement between Executive and the Company then in effect; or (5) upon the Executive’s resignation from the Company at any time during the thirty day period beginning on the first anniversary of the date on which the Company names as its Chief Executive Officer a person other than Executive or Paul R. Charron. Except as provided in subsection 3(b)(5), unless Executive shall give the Company notice of any event which, after any applicable notice and the lapse of any applicable 20-day grace period, would constitute Good Reason within 180 days of Executive’s first knowing of the event, such event shall cease to be an event constituting Good Reason. Notwithstanding the foregoing, in the event that Executive’s employment is terminated under circumstances constituting a Covered Termination (as defined in the Executive Termination Benefits Agreement between Executive and the Company dated August 30th, 2001 (the “Change in Control Agreement”)) during the Protected Period (as defined in the Change in Control Agreement), this Section 3(b) shall be of no force.   (c)         General. In the event that the Employment Period is terminated for any reason, the Company’s payment of severance as provided in the previous paragraphs of this Section 3 (together with reimbursement of Executive’s reasonable and necessary out-of-pocket business expenses   2     incurred through such date in accordance with the Company’s standard policy in effect at such time), the maintenance of continued participation in the Company’s medical, dental, vision, and executive life insurance programs, if applicable, under this Section 3, and the vesting, continuation and payment of the other compensation, perquisites and benefits as provided in any other Company plans shall constitute complete satisfaction of all obligations of the Company to Executive pursuant to this Agreement. Upon any such termination, Executive shall cease to be an employee of the Company for all purposes and except as otherwise expressly set forth in this Section 3 or Section 9 of this Agreement the Company shall have no obligation under this Agreement to provide Executive with any employee benefits or perquisites hereunder.   (d)        Release Requirement. The Company expressly conditions its provision of all payments and benefits due to Executive pursuant to this Section 3 on receipt from Executive of a full release of all claims against the Company, and its officers, directors, and affiliates, in a form and manner reasonably acceptable to the Company.   (e)        Sole Remedy. Executive’s rights set out in this Section 3 (including rights in the other sections of this Agreement and the other Company plans referred to in Section 3(c)) shall constitute Executive’s sole and exclusive rights and remedies as a result of Executive’s actual or constructive termination of employment without Cause, and Executive hereby waives any such other claims against the Company in such event.   (f)         Compliance with Section 409A. Notwithstanding anything to the contrary, to the extent necessary to prevent Executive from being subject to tax under Section 409A of the Internal Revenue Code of 1986, as amended, payments to be made following termination of employment shall not be paid until the six-month anniversary of the Executive’s termination of employment.     4. Confidentiality   (a)        The Company owns and has developed and compiled, and will own, develop and compile, certain proprietary techniques and confidential information which have great value to its business (referred to in this Agreement, collectively, as “Confidential Information”). Confidential Information includes not only information disclosed by the Company to Executive, but also information developed or learned by Executive during the course or as a result of employment hereunder, which information Executive acknowledges is and shall be the sole and exclusive property of the Company. Confidential Information includes all proprietary 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 proprietary information of which the unauthorized disclosure could be detrimental to the interests of the Company, whether or not such information is specifically labeled as Confidential Information by the Company. By way of example and without limitation, Confidential Information includes any and all information developed, obtained or owned by the Company concerning trade secrets, techniques, know-how (including designs, plans, procedures, merchandising know-how, processes and research records), software, computer programs, innovations, discoveries, improvements, research, development, test results, reports, specifications, data, formats, marketing data and plans, business plans, strategies, forecasts, unpublished financial information, orders, agreements and other forms of documents, price and cost information, merchandising opportunities, expansion plans, designs, store plans, budgets, projections, customer, supplier and subcontractor identities, characteristics and agreements, and salary, staffing and employment information. Notwithstanding the foregoing, Confidential Information shall not in any event include information which (i) was generally known or generally available to the public prior to its disclosure to Executive; (ii) becomes generally known or generally available to the public subsequent to disclosure to Executive through no wrongful act of any person or (iii) which Executive are required to disclose by applicable law, regulation, or legal process (provided that, unless prohibited by law, Executive provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company at the Company’s expense in seeking a protective order or other appropriate protection of such information).   (b)        Executive acknowledges and agrees that in the performance of Executive’s duties hereunder the Company will from time to time disclose to Executive and entrust Executive with Confidential Information. Executive also acknowledges and agrees that the unauthorized disclosure of Confidential Information, among other things, may be prejudicial to the Company’s interests, an invasion of privacy and an improper disclosure of trade secrets. Executive agrees that Executive shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any corporation, partnership, individual or other third party, other than in the course of Executive’s   3   assigned duties and for the benefit of the Company, any Confidential Information, either during the Employment Period or thereafter.   (c)        In the event Executive’s employment with the Company ceases for any reason, Executive will not remove from the Company’s premises without its prior written consent any records, files, drawings, documents, equipment, materials or writings received from, created for or belonging to the Company, including those which relate to or contain Confidential Information, or any copies thereof. Upon request or when Executive’s employment with the Company terminates, Executive will immediately deliver the same to the Company.   (d)        During the Employment Period, Executive will disclose to the Company all designs, inventions and business strategies or plans developed by Executive during such period which relate directly or indirectly to the business of the Company, including without limitation any process, operation, product or improvement. Executive agrees that all of the foregoing are and will be the sole and exclusive property of the Company and that Executive will at the Company’s request and cost do whatever is necessary to secure the rights thereto, by patent, copyright or otherwise, to the Company.   (e)        Executive and the Company agree that Executive shall not disclose to the Company or use for the Company’s benefit, any information which may constitute trade secrets or confidential information of third parties, to the extent Executive have any such secrets or information.   (f)         The provisions of this Section 4 shall survive the termination of this Agreement and the Employment Period.   5. Restrictive Covenants   (a)        Executive acknowledges and agrees (i) that the services to be rendered by Executive for the Company are of a special, unique, extraordinary and personal character, (ii) that Executive has and will continue to develop a personal acquaintance and relationship with one or more of the Company’s customers, employees, suppliers and independent contractors, which may constitute the Company’s primary or only contact with such customers, employees, suppliers and independent contractors, and (iii) that Executive will be uniquely identified by customers, employees, suppliers, independent contractors and retail consumers with the Company’s products. Consequently, Executive agrees that it is fair, reasonable and necessary for the protection of the business, operations, assets and reputation of the Company that Executive make the covenants contained in this Section 8.   (b)        Executive agrees that, during the Employment Period and for a period of 18 months thereafter, Executive shall not, directly or indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be connected or associated with, in any manner, including as an officer, director, employee, partner, consultant, advisor, proprietor, trustee or investor, any Competing Business in the United States; provided however that nothing contained in this Section 5(b) shall prevent Executive from owning less than 2% of the voting stock of a publicly held corporation for investment purposes. For purposes of this Section 5(b), the term “Competing Business” shall mean any of the companies listed in Exhibit A or their affiliates.   (c)         Executive agrees that, during the Employment Period and for a period of 18 months thereafter, Executive shall not, directly or indirectly,   (i)            persuade or seek to persuade any customer of the Company to cease to do business or to reduce the amount of business which any customer has customarily done or contemplates doing with the Company, whether or not the relationship between the Company and such customer was originally established in whole or in part through Executive’s efforts;   (ii)            seek to employ or engage, or assist anyone else to seek to employ or engage, any person who at any time during the year preceding the termination of Executive’s employment hereunder was in the employ of the Company or was an independent contractor providing material manufacturing, marketing, sales, financial or management consulting services in connection with the business of the Company and with whom Executive had regular contact; or     (iii) interfere in any manner in the relationship of the Company with any of its     4   suppliers or independent contractors, whether or not the relationship between the Company and such supplier or independent contractor was originally established in whole or in part by Executive’s efforts.   As used in this Section 5, the terms “customer” and “supplier” shall mean and include any individual, proprietorship, partnership, corporation, joint venture, trust or any other form of business entity which is then a customer or supplier, as the case may be, of the Company or which was such a customer or supplier at any time during the one-year period immediately preceding the date of termination of employment.   (d)        Executive agrees that, during the Employment Period and for a period of 18 months thereafter, Executive will take no action which is intended, or would reasonably be expected, to harm the Company or its reputation or which would reasonably be expected to lead to unwanted or unfavorable publicity to the Company.   (e)        The provisions of this Section 5 shall survive the termination of this Agreement and the Employment Period.   6. Specific Performance   Executive acknowledges that the Company would sustain irreparable injury in the event of a violation by Executive as of any of the provisions of sections 4 or 5 hereof, and by reason thereof Executive consents and agrees that if Executive violates any of the provisions of said Sections 4 or 5, in addition to any other remedies available, the Company shall be entitled to a decree specifically enforcing such provisions, and shall be entitled to a temporary and permanent injunction restraining Executive from committing or continuing any such violation, from any arbitrator duly appointed in accordance with the terms of this Agreement or any court of competent jurisdiction, without the necessity of proving actual damages, posting any bond, or seeking arbitration in any forum.   7. Withholding   The parties understand and agree that all payments to be made by the Company pursuant to this Agreement shall be subject to all applicable tax withholding obligations of the Company.   8. Notices   All notices required or permitted hereunder will be given in writing by personal delivery; by confirmed facsimile transmission; by express delivery via any reputable express courier service; or by registered or certified mail, return receipt requested, postage prepaid. Any notice to the Company shall be addressed to the Chief Financial Officer, Liz Claiborne, Inc., One Claiborne Avenue, North Bergen, NJ 07047, or at such other address as the Company may hereafter designate to the Executive by notice as provided in this Section 8. Any notice to be given to the Executive shall be addressed to the Executive’s home address of record, or at such other address as the Executive may hereafter designate to the Company by notice as provided herein. Notices which are delivered personally, by confirmed facsimile transmission, or by courier as aforesaid, will be effective on the date of delivery. Notices delivered by mail will be deemed effectively given upon the fifth calendar day subsequent to the postmark date thereof.   9. Miscellaneous.   (a)        The failure of either party at any time to require performance by the other party of any provision hereunder will in no way affect the right of that party thereafter to enforce the same, nor will it affect any other party’s right to enforce the same, or to enforce any of the other provisions in this Agreement; nor will the waiver by either party of the breach of any provision hereof be taken or held to be a waiver of any prior or subsequent breach of such provision or as a waiver of the provision itself.   (b)        Each of the covenants and agreements set forth in this Agreement are separate and independent covenants, each of which has been separately bargained for and the parties hereto intend that the provisions of each such covenant shall be enforced to the fullest extent permissible. Should the whole or any part or provision of any such separate covenant be held or declared invalid, such invalidity shall not in any way affect the validity of any other such covenant or of any part or provision of the same covenant not also held or declared invalid. If any covenant shall be found to be   5   invalid but would be valid if some part thereof were deleted or the period or area of application reduced, then such covenant shall apply with such minimum modification as may be necessary to make it valid and effective.   (c)        This Agreement has been made and will be governed in all respects by the laws of the State of New York applicable to contracts made and to be wholly performed within such state and the parties hereby irrevocably consent to the jurisdiction of the courts of the State of New York and federal courts located therein for the purpose of enforcing this Agreement.   (d)        Any controversy arising out of or relating to this Agreement or the breach hereof shall be settled by arbitration in the City of New York in accordance with the rules then obtaining of the American Arbitration Association and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except that in the event of any controversy relating to any violation or alleged violation of any provision of Section 4 or 5 hereof, the Company in its sole discretion shall be entitled to seek injunctive relief from a court of competent jurisdiction without any requirement to seek arbitration. The parties hereto agree that any arbitral award may be enforced against the parties to an arbitration proceeding or their assets wherever they may be found. In the event that (i) Executive makes a claim against the Company under this Agreement, (ii) the Company disputes such claim, and (iii) Executive prevails with respect to such disputed claim, then the Company shall reimburse Executive for Executive’s reasonable costs and expenses (including reasonable attorney’s fees) incurred by Executive in pursuing such disputed claim.   (e)        The Section headings contained herein are for purposes of convenience only and are not intended to define or list the contents of the Sections.   (f)         The provisions of this Agreement which by their terms call for performance subsequent to termination of the Employment Period, or of this Agreement, shall so survive such termination.   (g)        Executive shall not be required to mitigate, by seeking employment or otherwise, the amount of any payment or benefit provided for in this Agreement, or under the Incentive Plan, RIAP, Section 162(m) Cash Bonus Plan, or other plan maintained by the Company, including without limitation any payment or benefit made or vested upon or as a result of the termination of Executive’s employment, nor will any compensation, income, or other benefit from any source whatsoever create any mitigation, offset or reduction against any such payment or benefit.   IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above set forth.       LIZ CLAIBORNE, INC.     By: /s/ Paul R. Charron        Paul R. Charron     Chairman of the Board and Chief Executive Officer         TRUDY SULLIVAN     /s/ Trudy Sullivan     6      

Exhibit 10.83 AGREEMENT TO PURCHASE PROMISSORY NOTE This Agreement is between XFone, Inc. (XFone”) and the undersigned creditor (“Creditor”) of I-55 Telecommunications, LLC (“Telecom”) and is effective as of October 31, 2005. WHEREAS, XFone, Xfone USA, Inc., a wholly-owned subsidiary of XFone, and Telecom have entered into an Agreement and Plan of Merger dated as of August 26, 2005 (the “Merger Agreement”); and WHEREAS, the Merger Agreement provides Xfone USA, Inc. and Telcom will enter into a Management Services Agreement (the “Management Agreement”); and WHEREAS, the effective date of the Management Agreement shall be referred to herein as the “Management Date”; and WHEREAS, Creditor is the holder of a promissory note dated February 3, 2006 from Telecom in the aggregate principal amount of $76,782.02 (the “Promissory Note”). NOW THEREFORE, the parties hereby agree as follows: 1. Defined Terms. Terms defined in the Merger Agreement shall have the same meaning when used herein.   2. Purchase of Promissory Note. Creditor agrees to sell and assign the Promissory Note to XFone and XFone agrees to the purchase the Promissory Note on the terms and conditions set forth herein.   3. Consideration. As consideration, XFone shall issue to Creditor a number of shares of restricted XFone common stock (the “XFone Common Stock”), with a value equal to the outstanding principal balance of the Promissory Note of the Creditor determined using the weighted average price of the XFone common stock as reported on the website of the American Stock Exchange for the ten (10) trading days preceding the trading date immediately prior to the Management Date, and warrants for one-half the number of XFone stock issued for the purchase of the Promissory Note. The warrants shall have a term of five (5) years, a strike price that is 10% above the weighted average price of the XFone common stock as reported for the ten (10) trading days preceding the trading date immediately prior to Management Date and the XFone common stock into which the warrants are convertible shall be restricted stock. The XFone Common Stock and the XFone warrants are referred to together as the “XFone Securities.”   4. Closing Date. The purchase of the Promissory Note shall be consummated on the Closing Date as defined in the Merger Agreement, unless XFone, in his sole discretion, elects to consummate the purchase on an earlier date.   5. Termination. If the Merger Agreement terminates without consummation of the Merger prior to the purchase of the Promissory Note by XFone, this Agreement shall terminate, and neither party shall have any further obligations hereunder.   6. General Representations. Creditor hereby represents and warrants as follows:   (a) Creditor has full power and authority to enter into this Agreement and to sell and deliver the Promissory Note on the terms as provided herein.   (b) There is no legal impairment which prevents Creditor from selling, conveying, assigning and transferring the Promissory Note and all rights thereunder to XFone.   (c) Creditor has good and marketable title to the Promissory Note subject to no existing mortgage, pledge, lien, security interest, encumbrance, restriction or any other type of charge or lien whatsoever.   (d) Except for the Promissory Note there are no liabilities, claims or obligations (whether accrued, absolute, contingent, unliquidated or otherwise, and whether due to become payable and regardless of when or by whom asserted) owed by Telecom to Creditor.   7. Investment Representations. Creditor represents that:   (a) Creditor has received a copies of XFone Annual Report on Form 10-KSB and Quarterly Report on Form 10QSB for the quarter ending June 30, 2005.   (b) Creditor has such knowledge and experience in business and financial matters, or competent professional advice concerning XFone, and Creditor is capable of evaluating the merits and risks of the prospective investment in XFone and is able to bear the substantial economic risks of the investment and can afford the complete loss of the investment.   (c) Creditor has had and continues to have the opportunity to obtain from XFone any additional information, to the extent possessed or obtainable without unreasonable effort and expense, necessary to evaluate the merits and risks of this proposed investment and Creditor has concluded, based on the information presented to Creditor, Creditor’s own understanding of investments of this nature and of this investment in particular, and the advice of such consultants as Creditor has deemed appropriate, that Creditor wishes to acquire XFone Securities as indicated above.   (d) Creditor is an "Accredited Investor" as defined in Securities and Exchange Commission Rule 501.   (e) Creditor understands that the XFone Securities being acquired hereby have not been registered under the Securities Act, or under the Blue Sky or other securities laws of certain states, and, therefore, that Creditor must bear the economic risk of the investment for an indefinite period of time as the XFone Securities cannot be sold or offered for sale unless the XFone Securities are subsequently so registered or an exemption from registration is available.   (f) Creditor understands that the certificate evidencing the XFone Securities will bear a restrictive legend in substantially the following form:   THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED THE "ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT AND SUCH LAWS OR IN COMPLIANCE WITH AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. IN ADDITION, THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN SALE RESTRICTIONS AS PROVIDED IN THAT CERTAIN AGREEMENT TO PURCHASE PROMISSORY NOTE DATED AS OF OCTOBER 31, 2005.   (g) Creditor understands that the records of the transfer agent for XFone common stock will indicate the restrictions on transferability and sale noted above and stop transfer instructions have been or will be placed with respect to the stock so as to restrict the transfer thereof.   (h) Creditor is the sole party in interest in Creditor’s participation and in this Agreement and is acquiring the XFone common stock solely for investment for Creditor’s own account; Creditor has no present agreement, understanding, intent or arrangement to subdivide, sell, assign or transfer any part or all of the stock, or any interest therein, to any other person. Creditor further represents that it has sufficient and adequate means to provide for Creditor’s current needs and personal contingencies and has no need for liquidity with respect to Creditor’s investment in XFone.   8. No Further Claims. Creditor does hereby acknowledge and agree upon consummation of the purchase of the Promissory Note, Creditor shall have no further claims relating to or under the Promissory Note against the maker of the Promissory Note and any such claims which may have existed or may exist in the future under the Promissory Note shall be assigned to XFone upon purchase of the Promissory Note.   9. Registration Rights. For a period of one year from the date of insurance of the XFone Common Stock to Creditor, if XFone registers any shares of its common stock with the Securities and Exchange Commission (“SEC”) for sale in a secondary offering, then XFone will register the XFone Common Stock issued to Creditor under this Agreement with the SEC at XFone’s expense.   10. Shareholder's Post Closing Sale Restrictions. The Creditor agrees that the total shares of common stock of XFone sold by him/her in any one month period shall not exceed 1,350 shares. The Creditor agrees that this XFone common stock sales restriction shall apply to any XFone common stock owned as a result of this Agreement but not to any other XFone stock owned by Creditor.   11. Miscellaneous.   (a) Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial messenger or courier service, or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice); provided, however, that notices sent by mail will not be deemed given until received:   (i) if to XFone, Inc., to:   XFone, Inc. Britannia House 960 High Road London, N129RY United Kingdom USA   Attention: Guy Nissenson   Telephone: +44 208-446-9494   Facsimile: +44 208-446-7010 Email:  [email protected]   and   Xfone USA, Inc. 2506 Lakeland Drive Suite 100 Jackson, Mississippi 39232   Attention: Wade Spooner   Telephone: 601-420-6500   Facsimile: 509-271-7741 Email:  [email protected] and   Watkins Ludlam Winter & Stennis, P.A. 633 North State Street (39202) P. O. Box 427 Jackson, MS 39205-0427 Attention: Gina M. Jacobs Telephone: 601-949-4705 Facsimile: 601-949-4804   Email:   [email protected]   (ii) if to the Creditor, to:   Danny Acosta C-1 Fairway View, #2 Hammond, LA 70401 (b) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original and all of which, when taken together, shall be considered one and the same agreement.   (c) Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings both written and oral, among the parties with respect to the subject matter hereof.   (d) Governing Law; Dispute Resolution. This Agreement shall be governed by and construed in accordance with the laws of the State of Mississippi, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.   (e) Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefor, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.   CREDITOR: /s/ Danny Acosta      Danny Acosta XFONE: XFone, Inc. By: /s/ Guy Nissenson     Guy Nissenson, President

Exhibit 10.1 BINDING LETTER OF INTENT LETTER OF INTENT ELSIE and LC SOUTH PROJECT, MINERAL COUNTY, NEVADA Timberline Resources (TBLC), an Idaho corporation, its successors and assigns enters a Lease and Option to Purchase Agreement with Susan K. and Larry L. McIntosh, both Nevada residents, husband and wife. and legal owners (Owner) of  the Elsie and LC South  twenty-two (22) unpatented mining claims located in Mineral County, Nevada. Said claims (Property) are located in Sections 8, 9, 20, 21, 28, & 29, T5N, R36E. The following outlines the terms and intent of the parties and will serve as the basis for the definitive and formal “Mining Lease and Option to Purchase Agreement”: · Lease and Option – Owner leases the Property to TBLC for the purpose of mineral exploration. TBLC must exercise its Option to Purchase upon making a Production Decision, giving written notice to Owner, and submitting Purchase Payment to Owner of US$500,000. Upon such conveyance TBLC will be the sole owner of said Property subject to the Production Royalty reserved by the Owner; · Term – The initial term of this Agreement shall commence on the Effective Date and shall expire twenty (20) years thereafter, unless terminated, canceled, or extended. Such extensions may be renewed in five (5) year increments so long as TBLC has met all its obligations under the definitive Agreement and has maintained the Property in good standing;   · Payments – TBLC shall pay to the owner the following Minimum Advance Cash Royalty amounts according to the following schedule: On execution and Effective Date (1July2006)               US$20,000 1July2007                                                                            $25,000 1July2008                                                                            $30,000 Annual increase of US$5,000 until, 1July2012, and each subsequent year until Production        $50,000         Decision. Cash payments will not be credited against the Option to Purchase price of US$500,000. Such Advance Cash Royalty amounts shall be credited cumulatively in favor of TBLC against future Production Royalty. · Production Royalty – TBLC shall pay Production Royalty based on Net Smelter Returns at the rate of two (2%) per cent. Such Production Royalty may be bought down at notification to the Owner by TBLC  per the following:                  1% for US$1,000,000,                   -------------------------------------------------------------------------------- · Claim Maintenance – TBLC shall perform for the benefit of the Property all applicable assessment work requirements of all applicable federal, state, and local laws, regulations, and ordinances and shall be responsible for proper recordation, filing, and payment of necessary fees with the appropriate federal, state, and local agencies. · Termination – TBLC may terminate this Agreement at any time so long as it gives Owner written notification of sixty (60) days, and all of TBLC obligations, as set forth in this Agreement, have been met. Owner may terminate this Agreement by giving  sixty (60) day written notice of any default of TBLC as outlined in this Agreement. If such default is not remedied by TBLC within such sixty (60) day period, said agreement shall be terminated. · Signing Bonus – TBLC shall grant 25,000 share options to purchase to Owner as a signing bonus. Such share options shall be priced at US$1.00 per share. [ex10002.gif] [ex10002.gif] Paul E. Dircksen Susan K.McIntosh VP Exploration Larry L. Mc Intosh Timberline Resources Corporation 1955 Stephen Ct. 1100 East Lakeshore Dr. #301 Gardnerville,NV 89410 Coeur D’ Alene, ID 83814

Exhibit 10.2 TERASEN GAS (VANCOUVER ISLAND) INC. as Borrower - and - ROYAL BANK OF CANADA as Administrative Agent - and - THOSE INSTITUTIONS WHOSE NAMES ARE SET FORTH ON THE EXECUTION PAGES HEREOF UNDER THE HEADING "LENDERS" as Lenders ______________________________________________________________________________ 2005 CREDIT AGREEMENT ______________________________________________________________________________ RBC CAPITAL MARKETS Lead Arranger and Bookrunner NATIONAL BANK FINANCIAL Syndication Agent THE BANK OF NOVA SCOTIA Documentation Agent ______________________________________________________________________________   Dated for reference January 13, 2006 --------------------------------------------------------------------------------    TABLE OF CONTENTS Page ARTICLE 1 INTERPRETATION 1 1.1 Defined Terms 1 1.2 Interpretation 30 ARTICLE 2 THE CREDIT FACILITY 30 2.1 Credit Facility 30 2.2 Amortization 35 2.3 Voluntary Reductions 36 2.4 Payments 36 2.5 Computations 38 2.6 Fees 38 2.7 Interest on Overdue Amounts 39 2.8 Account Debit Authorization 39 2.9 Administrative Agent’s Discretion on Allocation 40 2.10 Funding 40 2.11 Rollover and Conversion 40 ARTICLE 3 ADVANCES 42 3.1 Advances 42 3.2 Making the Advances (except Swingline Advances) 42 3.3 Interest on Advances 42 ARTICLE 4 BANKERS’ ACCEPTANCES 43 4.1 Acceptances 43 4.2 Drawdown Request 44 4.3 Form of Bankers’ Acceptances 44 4.4 Completion of Bankers’ Acceptance 45 4.5 Bankers' Acceptance Marketing 45 4.6 Stamping Fee 46 4.7 Payment at Maturity 47 4.8 Power of Attorney Respecting Bankers’ Acceptances 47 -------------------------------------------------------------------------------- TABLE OF CONTENTS (continued) Page 4.9 Prepayments 47 4.10 Default 48 4.11 Non-Acceptance Lenders 48 ARTICLE 5 LETTERS OF CREDIT 48 5.1 Letters of Credit Commitment 48 5.2 Fronted Letters of Credit 49 5.3 POA Letters of Credit 49 5.4 Notice of Insurance 52 5.5 Form of Letters of Credit 53 5.6 Procedure for Issuance of Letters of Credit 53 5.7 Payment of Amounts Drawn Under Letters of Credit 53 5.8 Fees 54 5.9 Obligations Absolute 55 5.10 Indemnification; Nature of Lenders’ Duties 56 5.11 Default, Maturity, etc 57 ARTICLE 6 CLOSING CONDITIONS 58 6.1 Closing Conditions to Initial Availability 58 6.2 General Conditions for Accommodations 60 6.3 Conversions and Rollovers 61 6.4 Deemed Representation 61 6.5 Conditions Solely for the Benefit of the Lenders 61 6.6 No Waiver 61 ARTICLE 7 REPRESENTATIONS AND WARRANTIES 61 7.1 Existence 61 7.2 Capacity 62 7.3 Authority 62 7.4 Authorization, Governmental Approvals, etc 62 7.5 Enforceability 62 -------------------------------------------------------------------------------- TABLE OF CONTENTS (continued) Page 7.6 No Breach 62 7.7 Subsidiaries 62 7.8 Immunity, etc. 63 7.9 Litigation 63 7.10 Books and Records 63 7.11 Compliance 63 7.12 Latest Annual Financial Statements 64 7.13 Ibid 65 7.14 Contingent Liabilities 65 7.15 Franchises, etc. 65 7.16 Ownership of Property 65 7.17 Intellectual Property 65 7.18 Title 65 7.19 Leases 65 7.20 Material Agreements 66 7.21 Taxes 66 7.22 Material Adverse Effect 66 7.23 Pari Passu 66 7.24 Information 67 ARTICLE 8 COVENANTS 67 8.1 Affirmative Covenants 67 8.2 Negative Covenants 71 8.3 Financial Covenants 73 8.4 Administrative Agent May Perform Covenants 73 ARTICLE 9 CHANGES IN CIRCUMSTANCES 74 9.1 Provisions to Apply 74 9.2 Indemnification re Matching Funds 74 -------------------------------------------------------------------------------- TABLE OF CONTENTS (continued)   Page ARTICLE 10 EVENTS OF DEFAULT 75 10.1 Events of Default 75 10.2 Effect 78 10.3 Right of Set-Off 79 10.4 Currency Conversion After Acceleration 79 ARTICLE 11 THE ADMINISTRATIVE AGENT AND THE LENDERS 79 11.1 Provisions to Apply 79 ARTICLE 12 MISCELLANEOUS 79 12.1 Sharing of Payments; Records 79 12.2 Amendments, etc 83 12.3 Notices, etc 84 12.4 Expenses and Indemnity 85 12.5 Judgment Currency 85 12.6 Governing Law, etc. 86 12.7 Successors and Assigns 86 12.8 Conflict 86 12.9 Confidentiality 86 12.10 Severability 86 12.11 Prior Understandings 87 12.12 Time of Essence 87 12.13 Counterparts 88 -------------------------------------------------------------------------------- SCHEDULES 1 Lenders and Commitments 2 Accommodation Request 3 Repayment/Cancellation Notice 4 Model Credit Agreement Provisions 5 Compliance Certificate 6 Required Notice 7 Form of Opinion 8 Form of Terasen Funding Agreement 9 Form of POA Letter of Credit 10 Form of Power of Attorney -------------------------------------------------------------------------------- THIS AGREEMENT is dated for reference January 13, 2006. AMONG: TERASEN GAS (VANCOUVER ISLAND) INC. as Borrower OF THE FIRST PART AND: ROYAL BANK OF CANADA as Administrative Agent OF THE SECOND PART AND: THOSE INSTITUTIONS WHOSE NAMES ARE SET FORTH ON THE EXECUTION PAGES HEREOF UNDER THE HEADING "LENDERS" as Lenders OF THE THIRD PART WHEREAS the Borrower has requested that the Lenders make available to it the Credit Facility, and the Lenders have agreed to do so on the terms and conditions set forth herein; NOW THEREFORE, in consideration of the mutual covenants and agreements herein set forth and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, the parties agree as follows: ARTICLE 1 INTERPRETATION 1.1 Defined Terms.  As used in this agreement, including the recital and the schedules, unless there is something in the subject matter or the context inconsistent therewith, in addition to the definitions set forth in the Provisions, the following terms shall have the following meanings: (1) "Accommodation" means: -------------------------------------------------------------------------------- - 2 - (a) an Advance by a Lender made on the occasion of a Borrowing pursuant to an Accommodation Request (whether given or deemed to be given) or otherwise made or deemed to have been made pursuant hereto; (b) the creation of Bankers’ Acceptances on the occasion of a Drawing (or the making of a BA Equivalent Loan) pursuant to an Accommodation Request; and (c) the issue of a Letter of Credit, either by the Issuing Bank on behalf of the Lenders or by the Lenders on a several basis, on the occasion of an Issuance pursuant to an Accommodation Request; and includes an Advance and a Bankers’ Acceptance resulting from a Rollover or Conversion (whether requested or deemed to have been requested hereunder) or otherwise effected pursuant hereto.  Each type of Borrowing and each type of Letter of Credit is a "type" of Accommodation, as are Bankers’ Acceptances. (2) "Accommodation Request" means a notice of request for a Borrowing, a Drawing and/or an Issuance substantially in the form of schedule 2 annexed hereto, or such other form as the Administrative Agent may from time to time specify. (3) "Administrative Agent" means RBC and any successor administrative agent appointed in accordance with Article 11. (4) "Advance" means an advance of monies (other than and excluding Discount Proceeds) made or deemed to have been made by a Lender under the Credit Facility and includes an Advance resulting from a Conversion or Rollover (whether requested or deemed to have been requested hereunder) or otherwise effected pursuant hereto, including a Swingline Advance.  An Advance may be denominated in US Dollars (a "US Dollar Advance") or Cdn. Dollars (a "Canadian Dollar Advance").  A Canadian Dollar Advance shall be designated a "Prime Rate Advance" and a US Dollar Advance shall be designated from time to time, as requested or deemed to have been requested by the Borrower, a "LIBOR Advance" or a "Base Rate Advance".  Each of a Prime Rate Advance, a LIBOR Advance and a Base Rate Advance is a "type" of Advance. (5) "Affiliate" has the meaning set forth in the Provisions.  Notwithstanding the foregoing, neither the Administrative Agent nor any Lender shall be deemed to be an Affiliate of the Borrower or any Affiliate thereof solely by reason of its agency function or lending relationship. -------------------------------------------------------------------------------- - 3 - (6) “Applicable Law” has the meaning set forth in the Provisions. (7) "Applicable Margin" means, in respect of the following types of Accommodation or the unadvanced portion of a Commitment, the following corresponding margins and fees expressed as basis points per annum: Level Rating BAs, LIBOR and LCs Prime Rate & Base Rate Standby Fee if < 50% drawn Standby Fee if > 50% drawn I A2/A or higher 40 bps 0 bps 10 bps 8 bps II A3/A (low) 45 bps 0 bps 11.25 bps 9 bps III Baa1/BBB (high) 55 bps 0 bps 13.75 bps 11 bps IV Baa2/BBB 70 bps 0 bps 17.5 bps 14 bps V Baa3/BBB (low) 95 bps 0 bps 25 bps 20 bps VI Lower than Baa3/BBB (low) or unrated 150 bps 50 bps 37.5 bps 30 bps For the purposes of determining the Applicable Margin, the following shall apply: (a) If Ratings are provided by both Rating Agencies and are at two different levels, the Applicable Margin shall be calculated at the level corresponding to the higher of the Ratings; provided that, if such Ratings are not at adjacent levels, the Applicable Margin shall be calculated at the average of the margins that would otherwise apply. (b) The Applicable Margin shall be determined from time to time by the Administrative Agent based solely upon deliveries made pursuant to Section 6.1(11) or 8.1(12)(b), whose determination shall be conclusive and binding for all purposes hereof, absent demonstrated error.  The Administrative Agent shall provide notice to the Borrower and the Lenders of any change in the Applicable Margin as so determined by it. (c) A change in Applicable Margin necessitated by a change in or absence of a Rating shall have effect as regards Base Rate Advances, Prime Rate Advances or LIBOR Advances then outstanding on the effective day of such change or the first day of such absence (each, a "change effective day"), shall have effect as regards fees to be paid by the Borrower as referred to in Sections -------------------------------------------------------------------------------- - 4 - 2.6(a) and 5.8(1) on the change effective day, shall have effect as regards fresh Accommodations obtained by the Borrower on or after the change effective day and shall not affect the stamping fees for outstanding Bankers’ Acceptances. (d) In the absence of a Rating, level VI shall apply. (8) “Applicable Percentage” has the meaning set forth in the Provisions. (9) “Available Earnings” means, as at any date of determination, the consolidated net income of the Borrower for the period of four consecutive fiscal quarters ended on such date (before extraordinary items): (a) plus taxes on income; (b) plus depreciation and amortization expenses (including amortization of debt issuance expenses); (c) plus Interest Expense; (d) plus any Interest expenses on Class B Instruments or Subordinated Debt (to the extent deducted); (e) less the portion of such consolidated net income to be applied by the Borrower to the amortization, if any, of the Revenue Deficiency Deferral Account in accordance with the Special Direction; (f) plus the amount of the Annual Revenue Deficiency funded by Terasen (or any successor) under VINGPA during such period. (10) "BA Equivalent Loan" means, in relation to a Drawing, a loan in Canadian Dollars made to the Borrower by a Non-Acceptance Lender as part of the Drawing in accordance with the provisions of Section 4.11. (11) "Bankers’ Acceptance" means a depository bill, as defined by the Depository Bills and Notes Act (Canada), drawn by the Borrower, denominated in Canadian Dollars and accepted by a Lender as a bankers’ acceptance, as evidenced by such Lender’s endorsement thereof at the request of the Borrower pursuant to an Accommodation Request and includes a Bankers’ Acceptance resulting from a Conversion or Rollover. (12) "Base Rate" means, at any time, the greater of: -------------------------------------------------------------------------------- - 5 - (a) the rate of interest per annum established and reported by RBC from time to time as the reference rate of interest it charges to customers for US Dollar loans made by it in Canada; and (b) the sum of (i) the Federal Funds Effective Rate, plus (ii) 100 basis points per annum; as to which a certificate of the Administrative Agent, absent manifest error, shall be conclusive evidence from time to time.  With each quoted or published change in such rate aforesaid of RBC there shall be a corresponding change in the rate of interest payable under this agreement, should such changed rate exceed that set forth in paragraph (b) of this definition, all without the necessity of any notice thereof to the Borrower or any other Person. (13) "basis point", “bp” and "b.p." each mean one one-hundredth (1/100) of one per cent, or .01%. (14) “BCUC” means the British Columbia Utilities Commission. (15) "Beneficiary" means, in respect of any Letter of Credit, the beneficiary specified therein. (16) "Borrower" means Terasen Gas (Vancouver Island) Inc. (17) "Borrowing" means a borrowing consisting of one or more Advances.  Prime Rate Advances, LIBOR Advances and Base Rate Advances are each a "type" of Borrowing. (18) "Business Day" means: (a) in respect of LIBOR Advances and payments in connection therewith, a London Business Day which is also a day on which banks are open for business in New York City, Vancouver and Toronto; (b) in respect of Base Rate Advances, a day (other than Saturday or Sunday) on which banks are open for business in New York City, Vancouver and Toronto; and (c) for all other purposes of this agreement, a day (other than Saturday or Sunday) on which banks are open for business in Vancouver and Toronto. -------------------------------------------------------------------------------- - 6 - (19) "C$ Equivalent Indebtedness" means, on any date in respect of any Indebtedness denominated in US Dollars, the equivalent amount of such Indebtedness expressed in Cdn. Dollars determined on the basis of the rate of exchange used for purposes of the Borrower’s balance sheet as at the end of the Financial Quarter ended on or most recently ended prior to such date; provided that, if the Borrower has entered into a Hedge Instrument which protects it against increases in the value of US Dollars as against Cdn. Dollars in respect of such Indebtedness, the Cdn. Dollar equivalent of such Indebtedness shall be reduced by any related deferred hedging asset or increased by any related deferred hedging liability determined in accordance with GAAP and shown on the Borrower’s consolidated balance sheet as at the end of such Financial Quarter. (20) "C$ Equivalent Principal Outstanding" means, at any time, the amount equal to: (a) when used in a context pertaining to Accommodations made by a single Lender, the Principal Outstanding in favour of such Lender; and (b) when used elsewhere in this agreement with reference to the Credit Facility as a whole, the Principal Outstanding in favour of all Lenders; in each case calculated and expressed in Cdn. Dollars, with each US Dollar obligation converted for purposes of such calculation into the C$ Equivalent Indebtedness. (21) “Calculation Date” means each of the Closing Date and the last day of each Financial Quarter. (22) "Canadian Dollars", "Cdn. Dollars", "Cdn. $", "C$" and "$" each mean lawful money of Canada. (23) "Capital Lease" means a lease of (or other agreement conveying the right to use) real and/or personal property, which lease is required to be classified and accounted for as a capital lease on a balance sheet of the lessee under GAAP (including the Canadian Institute of Chartered Accountants Handbook Section 3065). (24) "Capital Lease Obligations" means, as to any Person, the obligations of such Person to pay rent or other amounts under a Capital Lease and, for purposes of this agreement, the amount of such obligations shall be the capitalized amount thereof (that is, the amount in effect corresponding to the principal of such obligations), determined in accordance with GAAP -------------------------------------------------------------------------------- - 7 - (including the Canadian Institute of Chartered Accountants Handbook Section 3065). (25) "Cash Equivalents" means: (a) marketable, direct obligations of the United States of America, of Canada or of any political agency or subdivision thereof maturing within 365 days of the date of purchase; (b) commercial paper maturing within 180 days from the date of purchase thereof, and rated: (i) in the United States "P-2" or better by Moody’s or "A-2" or better by S&P; or (ii) in Canada "A-1 low" or better by S&P or "R-1 low" or better by DBRS; or (iii) in any of the foregoing cases the equivalent thereof by any other recognized rating agency; and (c) certificates of deposit maturing within 365 days of the date of purchase issued by or acceptances accepted or Guaranteed by a bank to which the Bank Act (Canada) applies having at the time of acquisition a combined capital, surplus or undistributed profits of at least C$2 billion. (26) "CDOR Rate" means, on any day, the annual rate of discount determined by the Administrative Agent which is equal to the simple average of the yield rates per annum (calculated on the basis of a year of 365 days and calculated to two decimal places with .005 or more being rounded upward) applicable to bankers’ acceptances denominated in Canadian Dollars having, where applicable, comparable issue dates and maturity dates as the Bankers’ Acceptances proposed to be issued by the Borrower displayed and identified as such on the "CDOR Page" (or any display substituted therefor) of Reuters Monitor Money Rates Service at approximately 10:00 a.m. (Toronto time) on that day or, if that day is not a Business Day, then on the immediately preceding Business Day (as adjusted by the Administrative Agent after 10:00 a.m. (Toronto time) to reflect any error in the posted average annual rate of discount); provided, however, if those rates do not appear on the CDOR Page (or the display substituted therefor), then the CDOR Rate shall be the annual rate of discount determined by the Administrative Agent which is equal to the simple average of the yield rates per annum (calculated on the basis of a year of 365 days and calculated to two decimal places with .005 or more -------------------------------------------------------------------------------- - 8 - being rounded upward) applicable to those bankers’ acceptances in a comparable amount to the Bankers’ Acceptances proposed to be issued by the Borrower, quoted by three of the five largest (as to total assets) Schedule I Banks (as selected by the Administrative Agent) as of 10:00 a.m. (Toronto time) on that day or, if that day is not a Business Day, on the immediately preceding Business Day.  Each determination of the CDOR Rate by the Administrative Agent shall be conclusive and binding, absent demonstrated error. (27) “Charter Documents” means, in respect of any Person, the certificate and articles of incorporation or similar formation documents, by-laws, unanimous shareholders agreement and other organizational or governing documents of such Person. (28) “Class A Instruments” and “Class B Instruments” shall each have the respective meaning set forth in the VINGPA. (29) "Closing Date" means January 13, 2006 or such other date as shall be mutually agreed by the Borrower and the Lenders. (30) "Commitment" means, for a Lender in respect of the Credit Facility, the amount set forth opposite such Lender’s name under the heading “Commitment” on schedule 1 annexed hereto to the extent not permanently reduced, cancelled or terminated pursuant to this agreement. (31) "Compliance Certificate" means a certificate of a Senior Financial Officer pursuant to Section 8.1(11)(c) substantially in the form of schedule 5 annexed hereto. (32) “Contaminants” means substances, pollutants and wastes which: (a) pollute or are otherwise harmful to the environment; (b) are defined as contaminants, pollutants, radioactive waste, hazardous substances, hazardous waste, hazardous or toxic under any applicable Environmental Law; or (c) are construed as having an “adverse effect”, through impairment of or damage to the environment, human health or safety or property under any applicable Environmental Law. (33) "Control" has the meaning set forth in the Provisions. (34) "Conversion" means, in respect of any Drawing or type of Borrowing, the conversion of the method for calculating interest, discount rates or fees -------------------------------------------------------------------------------- - 9 - thereon from one method to another in accordance with Section 2.11, and includes a conversion from a Prime Rate Advance to a Drawing and vice-versa and a conversion from a LIBOR Advance to a Base Rate Advance and vice-versa.  In addition, the repayment in full by the Borrower of the Principal Outstanding under an Accommodation in one currency and the concurrent making of an Accommodation in another currency, whereby the aggregate C$ Equivalent Principal Outstanding remains the same before and after such transactions, shall also be considered to be a Conversion for all purposes of this agreement. (35) "Coverage Ratio" at any time means the ratio of X to Y for the Borrower, with each component calculated on a consolidated basis, where: (a) "X" is Available Earnings determined for the four consecutive Financial Quarters ending at such time or immediately prior thereto, as the case may be, for which the Borrower has provided or is required prior to such time to provide a Compliance Certificate; and (b) "Y" is the Interest Expense for such four Financial Quarters. (36) "Credit Facility" means the revolving term credit facility to be provided by the Lenders to the Borrower as contemplated by Article 2. (37) "Credit Facility Documents" means this agreement, Bankers’ Acceptances, Letters of Credit and all other documents (for clarity, excluding the Terasen Funding Agreement) necessary to implement the financing comprised in the Credit Facility. (38) "DBRS" means Dominion Bond Rating Service Limited and, if such Person shall at any time cease to provide Ratings in respect of companies of the nature of the Borrower, means any other company or organization designated by the Borrower that is acceptable to the Lenders, acting reasonably, which shall provide a Rating of the long-term corporate credit and/or long-term unsecured debt of the Borrower on a basis consistent with and using the same nomenclature as Dominion Bond Rating Service Limited or that is otherwise acceptable to the Lenders, acting reasonably. (39) "Default" has the meaning set forth in the Provisions. (40) "Discount Proceeds" means, in respect of Bankers’ Acceptances to be purchased by a Lender, the result (rounded to the nearest whole cent, with one-half of one cent and more being rounded up) obtained by multiplying the aggregate Face Amount of such Bankers’ Acceptances by a price (rounded up or down to the third decimal place, with .0005 or -------------------------------------------------------------------------------- - 10 - more being rounded up) determined by dividing one by the sum of one plus the product of (x) the applicable Discount Rate multiplied by (y) a fraction, the numerator of which is the number of days in the term to maturity of such Bankers’ Acceptances and the denominator of which is 365. (41) "Discount Rate" means: (a) with respect to an issue of Bankers’ Acceptances accepted by a Lender that is a Schedule I Bank, the CDOR Rate; and (b) with respect to an issue of Bankers’ Acceptances accepted by a Lender that is not a Schedule I Bank, the lesser of: (i) the CDOR Rate plus seven basis points; and (ii) the annual rate, expressed as a percentage, determined by the Administrative Agent as the average discount rate for bankers’ acceptances having a comparable face value in Cdn. Dollars and a comparable issue and maturity date to the face value and issue and maturity date of that issue of Bankers’ Acceptances calculated on the basis of a year of 365 days accepted by the Reference Lenders at or about 10:00 a.m. (Toronto time) on the date of issue of those Bankers’ Acceptances. (42) "Drawing" means the creation or making of one or more Bankers’ Acceptances in pursuance of an Accommodation Request. (43) "Drawing Date" means any Business Day fixed in accordance with the provisions of this agreement for a Drawing. (44) "Environmental Laws" means any Requirement of Law relating, in whole or in part, to the protection or enhancement of the environment or imposing liability as a result of adverse effects to the environment, including occupational safety, product liability, public health and public safety. (45) "Equivalent Amount" means, on a particular date in respect of any amount (the "original amount") expressed in a particular currency (the "original currency"), the equivalent amount expressed in a second designated currency (the "second currency") determined by reference to the Bank of Canada noon rate at which the original currency may be exchanged into the second currency as published on the Reuters Screen page BOFC.  In the event that such rate does not appear on such Reuters -------------------------------------------------------------------------------- - 11 - page, such rate shall be ascertained by reference to any other means (as selected by the Administrative Agent) by which such rate is quoted or published from time to time by the Bank of Canada; provided that, if at the time of any such determination, for any reason, no such exchange rate is being quoted or published, the Administrative Agent may use such reasonable method as it considers appropriate to ascertain such rate, and the resulting determination shall be conclusive absent manifest error. (46) "Event of Default" means any of the events specified in Section 10.1. (47) “Existing Facility” means the credit facilities set out in the credit agreement dated January 9, 1996 between the Borrower (then called Centra Gas British Columbia Inc.) and the lenders thereto. (48) "Excluded Taxes" has the meaning set forth in the Provisions. (49) "Face Amount" means, in respect of a Bankers’ Acceptance, the amount payable to the holder thereof on its maturity and, in respect of a Letter of Credit, the maximum amount that may from time to time be payable to the Beneficiary thereof, and where used in a context referring to more than one Bankers’ Acceptance and/or Letter of Credit means the aggregate of the Face Amounts thereof. (50) "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the annual rates of interest 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 on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. (51) "Financial Quarter" means a period of three consecutive months ending on and including March 31, June 30, September 30 or December 31, as the case may be. (52) "Financial Year" means a financial year commencing on January 1 of each calendar year and ending on and including December 31 of such year. (53) "GAAP" means, in relation to any Person at any time, accounting principles generally accepted in Canada as recommended in the Handbook of the Canadian Institute of Chartered Accountants or its successor, applied on a basis consistent with the most recent audited -------------------------------------------------------------------------------- - 12 - financial statements of such Person and, if applicable, its consolidated subsidiaries (except for changes approved by the auditors of such Person; provided that the calculations of the Leverage Ratio and the Coverage Ratio, including the constituent elements thereof, shall be made without regard to any change in GAAP with effect on or after January 1, 2005). (54) “Government Repayable Contributions” means the British Columbia Repayable Contribution in the amount of $25 million and the Canada Repayable Contribution in the amount of $50 million defined in the PCEPA. (55) “Governmental Approval” means any franchise, licence, qualification, authorization, consent, exemption, waiver, right, permit or other approval of any Governmental Authority, binding on or affecting the Person referred to in the context in which the term is used or binding on or affecting the property of such Person, in each case whether or not having the force of law. (56) “Governmental Authority” has the meaning set forth in the Provisions. (57) "Guarantee" means, with respect to any Person, any obligation of such Person directly or indirectly guaranteeing any indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, includes any obligation, direct or indirect, contingent or otherwise, of such Person: (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such indebtedness or other obligation of such other Person (whether arising by virtue of partnership, joint venture or similar arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, or to maintain financial condition or otherwise); or (b) entered into for purposes of assuring in any manner the obligee of such indebtedness or other obligation of the payment or performance (or payment of damages in the event of non-performance) thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the foregoing shall exclude endorsement of negotiable instruments for collection or deposit in the ordinary course of business. (58) "Hedge Instrument" means: -------------------------------------------------------------------------------- - 13 - (a) any interest rate or foreign exchange risk management agreement or product, including interest rate or currency exchange or swap agreements, futures contracts, forward rate agreements, interest rate cap agreements and interest rate collar agreements, options and all other agreements or arrangements designed to protect against fluctuations in interest rates or currency exchange rates; and (b) forward purchase and sale contracts, options and other hedging products designed to be effective as a hedge against fluctuations in the price of natural gas. (59) "Hedging Obligations" means, with respect to any Person, payment or delivery obligations under Hedge Instruments. (60) "Increased Costs" means any amounts payable by the Borrower to the Administrative Agent or a Lender under any of: (a) Sections 5.10, 8.1(14) and 9.2 of the body of this agreement; and (b) Sections 3.1, 3.2, 3.3 and 9 of the Provisions. (61) “Indebtedness” means, with respect to any Person at any time, any of the following (without duplication): (a) the amount of all indebtedness for borrowed moneys of such Person (including Purchase Money Obligations); (b) the amount of all obligations of such Person evidenced by notes payable, drafts accepted representing extensions of credit, bonds, debentures or other similar instruments, to the extent such obligations would be considered indebtedness for borrowed moneys in accordance with GAAP; (c) all obligations of such Person, whether or not contingent, with respect to or under any bankers’ acceptance facility or, except where the same secures payment of trade payables incurred in the ordinary course of business, any letter of credit facility or similar facility, including any liability arising under any indemnity obligation pertaining thereto; (d) the amount of the deferred purchase price of property or services, other than trade payables incurred in the ordinary course of business; -------------------------------------------------------------------------------- - 14 - (e) Capital Lease Obligations of such Person; (f) shares in the capital of such Person redeemable at the option of the holder, or which by their terms or otherwise are required to be redeemed, at the time of determination of Indebtedness; (g) all indebtedness of other Persons secured by a Lien on any Property of such Person, whether or not such indebtedness is assumed by such Person; provided that the amount of such indebtedness shall be the lesser of: (i) the fair market value of such Property at such date of determination; and (ii) the amount of such indebtedness; and (h) all other debt (other than trade payables incurred in the ordinary course of business) upon which interest charges are customarily paid by such person; and (i) any Guarantee by such Person in any manner of any part or all of an obligation included in clauses (a) to (h) above. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date (without duplication) of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation; provided that: (x) the amount at any time of indebtedness issued with original issue discount shall be the accreted amount thereof determined in accordance with GAAP; and (xi) Indebtedness shall not include any liability for unpaid taxes not yet due. (62) "Indebtedness for Borrowed Monies" means Indebtedness other than: (a) Indebtedness constituted by uncalled letters of credit the deposit of which constitutes a Permitted Lien under paragraph (g), (i) or (o)  of the definition thereof, or a Guarantee of the obligations of another Person in respect of uncalled letters of credit the deposit of which would, if this agreement were applicable, constitute a Permitted Lien; -------------------------------------------------------------------------------- - 15 - (b) Indebtedness contemplated by item (f) of the definition of Indebtedness; and (c) Indebtedness contemplated by items (g) and (h) of such definition where the underlying Indebtedness secured by the Lien or subject to the Guarantee is of the nature described in item (f) of such definition. (63) “Institutional Indebtedness” means at any time of determination the aggregate Indebtedness for Borrowed Monies of the Borrower (including current maturities), including each of the following: (a) the Principal Outstanding; and (b) the principal outstanding under the PCEPA Repayment Facility; but excluding: (c) Government Repayable Contributions; (d) Class A Instrument and Class B Instruments; and (e) Subordinated Debt. (64) "Intercompany Debt" means the aggregate principal amount and accrued interest owed by the Borrower to Terasen or an Affiliate of Terasen as at the Closing Date or, for the purpose of calculating Interest Expense for any period prior to the Closing Date, the aggregate principal amount owed by the Borrower to Terasen or to an Affiliate of Terasen at any time during such period. (65) “Interest” means interest (including capitalized and non-capitalized interest and the interest component of  Capital Lease Obligations but excluding interest which has been capitalized in accordance with normal regulatory principles), stamping fees, the difference between the proceeds of sale and face value of Bankers’ Acceptances, stand-by fees and all other similar costs of borrowing. (66) "Interest Expense" means, as at any date of determination, the amount equal to the aggregate Interest on all Institutional Indebtedness paid or accrued during the period of four consecutive Financial Quarters ended on or immediately prior to such date; provided that, with respect to the calculation of Interest Expense for any period prior to the Closing Date, such calculation shall be made on a pro forma basis as if the Institutional Indebtedness outstanding during such period (i) included the amount -------------------------------------------------------------------------------- - 16 - drawn under the Credit Facility to repay the Existing Facility and the Intercompany Debt, and (ii) excluded the Indebtedness under the Existing Facility and the Intercompany Debt. (67) "Interest Period" means, for each LIBOR Advance, a period commencing: (a) in the case of the initial Interest Period for such Advance, on the date of such Advance; and (b) in the case of any subsequent Interest Period for such Advance in accordance with a Rollover, on the last day of the immediately preceding Interest Period; and ending in either case on the last day of such period as shall be selected by the Borrower pursuant to the provisions below. If a Base Rate Advance is converted to a LIBOR Advance, the initial Interest Period for such LIBOR Advance shall commence on the date of such Conversion.  The duration of each Interest Period for a LIBOR Advance shall be one, two, three or six months (subject to availability), as the Borrower may select in the applicable Accommodation Request, or such other period to which the Lenders may agree.  No Interest Period may be selected which would end on a day after the Maturity Date or, in the opinion of the Administrative Agent, conflict with any repayment stipulated herein.  Whenever the last day of an Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. (68) "ISP98" means the International Standby Practices ISP98, as published by the International Chamber of Commerce and in effect from time to time. (69) "Issuance" means the issuance of one or more Letters of Credit made pursuant to an Accommodation Request. (70) "Issue Date" means any Business Day fixed in accordance with the provisions of this agreement for an Issuance. (71) "Issuing Bank" has the meaning set forth in the Provisions and, for this purpose, RBC shall be the Issuing Bank. -------------------------------------------------------------------------------- - 17 - (72) "Lenders" means those financial institutions whose names are set forth on the execution pages hereof under the heading "Lenders", and their respective successors and assigns. (73) "Lenders’ Counsel" means Stikeman Elliott LLP or such other law firm or firms as may from time to time be chosen by the Lenders to act on their behalf in connection with the Credit Facility. (74) "Lending Office” or “lending office" means, in respect of a particular Lender, the branch or office whose address is set forth in schedule 1 annexed hereto, or such other branch as such Lender may designate from time to time by notice given to the Administrative Agent and the Borrower. (75) "Letter of Credit" means a standby or commercial letter of credit or a letter of guarantee for a specified amount in Canadian Dollars or US Dollars issued by the Issuing Bank on behalf of the Lenders at the request and upon the indemnity of the Borrower pursuant to Article 5 and (subject to Section 5.5(b)) having a term to maturity from the date of issuance thereof of no more than 365 days. (76) "Leverage Ratio" at any time means the ratio of X to Y for the Borrower, with each component calculated on a consolidated basis, where: (a) "X" is Institutional Indebtedness outstanding at that time; and (b) "Y" is Total Capitalization at that time. (77) "LIBOR", with respect to any Interest Period, means: (a) the rate of interest (expressed as an annual rate on the basis of a 360 day year) determined by the Administrative Agent to be the arithmetic mean (rounded up to the nearest 0.01%) of the offered rates for deposits in US Dollars for a period equal to the particular Interest Period, which rates appear on: (i) Page 3750 of the Telerate screen; or (ii) if such Telerate screen page is not readily available to the Administrative Agent, the Reuters screen LIBO page; in either case as of 11:00 a.m. (London time) on the second London Business Day before the first day of that Interest Period; or -------------------------------------------------------------------------------- - 18 - (b) if neither such Reuters screen page nor Telerate screen page is readily available to the Administrative Agent for any reason, the rate of interest determined by the Administrative Agent which is equal to the simple average of the rates of interest (expressed as a rate per annum on the basis of a year of 360 days and rounded up to the nearest 0.01%) at which three of the five largest (as to total assets) Schedule I Banks (as selected by the Administrative Agent) would be prepared to offer leading banks in the London interbank market a deposit in US Dollars for a term coextensive with that Interest Period in an amount substantially equal to the relevant LIBOR Advance at or about 10:00 a.m. (Toronto time) on the second London Business Day before the first day of such Interest Period. (78) "Lien" means any mortgage, pledge, lien, hypothecation, security interest or other encumbrance or charge (whether fixed, floating or otherwise) or title retention, and any deposit of moneys under any agreement or arrangement whereby such moneys may be withdrawn only upon fulfilment of any condition as to the discharge of any other indebtedness or other obligation to any creditor, or any right of or arrangement of any kind with any creditor (other than as contemplated under the PCEPA) to have its claims satisfied prior to other creditors with or from the proceeds of any properties, assets or revenues of any kind now owned or later acquired. (79) "London Business Day" means a day (other than Saturday or Sunday) which is a day for trading by and between banks in US Dollar deposits in the London Eurodollar interbank market. (80) "Majority Lenders" means Lenders whose respective individual Commitments aggregate at least two-thirds (2/3) of the total Commitments of all Lenders under the Credit Facility. (81) "Material Adverse Effect" means a material adverse effect on: (a) the business, Property, operations or condition (financial or otherwise) of the Borrower; (b) the Borrower's ability to perform its obligations under any Credit Facility Document; or (c) the Borrower's ability to perform its material obligations under any Material Agreement. (82) “Material Agreements” means each of: -------------------------------------------------------------------------------- - 19 - (a) the VINGPA; (b) the PCEPA; and (c) the Wheeling Agreement. (83) "Maturity Date" means the fifth anniversary of the Closing Date. (84) "Moody’s" means Moody’s Investors Service, Inc. and, if such Person shall at any time cease to provide Ratings in respect of companies of the nature of the Borrower, means any other company or organization designated by the Borrower that is acceptable to the Lenders, acting reasonably, which shall provide a Rating of the long-term corporate credit and/or long-term unsecured debt of the Borrower on a basis consistent with and using the same nomenclature as Moody’s Investors Service, Inc. or that is otherwise acceptable to the Lenders, acting reasonably. (85) "Non-Acceptance Discount Rate" means, for any day, the Discount Rate that is the lesser of the rates described in paragraph (b)(i) and (b)(ii) of the definition of Discount Rate; provided that, if at any relevant time there are no Reference Lenders, the Non-Acceptance Discount Rate will be the Discount Rate in paragraph (b)(i) of that definition. (86) "Non-Acceptance Lender" has the meaning set forth in Section 4.11. (87) "Notice" means, as the context requires, an Accommodation Request or a Repayment/Cancellation Notice. (88) "Obligations" means at any time in respect of the Credit Facility, the amount equal to the sum of: (a) the Principal Outstanding under the Credit Facility; (b) all accrued and unpaid interest thereon and all interest on accrued and unpaid interest; and (c) all accrued and unpaid fees, expenses, costs, indemnities, Increased Costs and other amounts payable to the Lenders or the Administrative Agent pursuant to the provisions of any Credit Facility Document or the Terasen Funding Agreement or otherwise in respect of the Credit Facility. (89) "Participant" has the meaning set forth in the Provisions. -------------------------------------------------------------------------------- - 20 - (90) "Payment Account" means: (a) for US Dollars: JPMorgan Chase Bank, New York, New York ABA 021000021, Swift code: CHASUS33 For further credit to: Swift Address:  ROYCCAT2 Beneficiary: RBCCM Agency Services, A/C #:  /00002-408-919-9 Toronto, Ontario Ref: Terasen Gas (Vancouver Island) Inc. (b)  for Cdn. Dollars: Royal Bank of Canada Swift Address:  ROYCCAT2 Favour:  /00002-266-760-8 RBCCM Agency Services, Toronto, Ontario Ref: Terasen Gas (Vancouver Island) Inc. or such other places or accounts as may be agreed by the Administrative Agent and the Borrower from time to time and notified to the Lenders. (91) “PCEPA” means the Pacific Coast Energy Pipeline Agreement between Her Majesty the Queen in Right of Canada, Her Majesty the Queen in Right of the Province of British Columbia and the Borrower (then called Pacific Coast Energy Corporation) dated December 14, 1995. (92) “PCEPA Repayment Facility” means the $20,000,000 facility provided by RBC to refinance 65% (or such other percentage as may be approved by the BCUC as the appropriate percentage of debt to be included in the Borrower’s capital structure) of the annual repayment of the Government Repayable Contributions. (93) "Permitted Liens" means, in respect of any Person at any time, any one or more of the following: (a) Liens for taxes, assessments or other governmental charges not yet due or, if due, the validity of which is being contested by the Borrower in good faith and Liens for the excess of the amount of any past due taxes for which a final assessment has not been received over the amount of such taxes as estimated and paid by the Borrower; (b) Liens or privileges arising out of judgments or awards not giving rise to an Event of Default with respect to which the Borrower shall in good faith be prosecuting an appeal or proceedings for review -------------------------------------------------------------------------------- - 21 - and with respect to which it shall within 30 Business Days have secured a stay of execution pending completion of such appeal or proceedings for review; (c) Liens and charges (including builders’, warehousemen's, carriers' and other similar Liens) incidental to construction or current operations which have not at such time been filed pursuant to Applicable Law against the Borrower or relate to obligations not due or delinquent or which are being contested by the Borrower in good faith; (d) undetermined or inchoate liens and charges incidental to the operations of the Borrower which have not been registered against the assets of the Borrower and which relate to obligations not due or delinquent; (e) reservations, limitations, provisos and conditions expressed in any grant from the Crown, and statutory exceptions to title; (f) easements, rights-of-way and servitudes (including easements, rights-of-way and servitudes for sewers, drains, railways, pipelines, gas or water mains or electric light and power or telephone, cable television and telegraph conduits, poles, wires and cables) and other restrictions and minor title defects or irregularities which will not in the aggregate materially and adversely impair the use of the property concerned for the purpose for which it is held by the Borrower; (g) security given by the Borrower to a public utility or municipality or other Governmental Authority when required by such utility or municipality or other Governmental Authority in connection with the operations of the Borrower in the ordinary course of its business; (h) the right reserved to or vested in any municipality or other Governmental Authority by the terms of any lease, licence, franchise, grant or permit acquired by the Borrower, or by any statutory provision, to terminate any such lease, licence, franchise, grant or permit or to require annual or other periodic payments as a condition of the continuance thereof; (i) the encumbrance resulting from the deposit of cash, letters of credit or securities in connection with any of the Liens described in paragraphs (a), (b) or (c) of this definition pending a final -------------------------------------------------------------------------------- - 22 - determination as to the existence or amount of any obligation referred to therein, or in connection with contracts, bids, tenders, leases or expropriation proceedings, or to secure workers’ compensation, unemployment insurance, surety or appeal bonds, costs of litigation when required by Applicable Law and public and statutory obligations; (j) any other Liens of a nature similar to those referred to in the foregoing paragraphs (a) to (h), inclusive, of this definition which do not have and could not reasonably be expected to have a Material Adverse Effect; (k) Liens on property or shares of a Person at the time that such Person becomes a subsidiary of the Borrower; provided, however, that the Lien may not extend to any other property or assets owned by any subsidiary and such Liens are not created, incurred or assumed in connection with, or in contemplation of, or to provide credit support in connection with, such Person becoming a subsidiary; (l) Liens on property or assets at the time the Borrower acquires the property or assets, including any acquisition by means of an amalgamation, merger or consolidation with or into the Borrower; provided, however, that the Lien may not extend to any other property or assets owned by the Borrower and such Liens are not created, incurred or assumed in connection with, or in contemplation of, or to provide credit support in connection with, such acquisition; (m) Liens to secure any refinancing, extension, renewal or replacement as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing paragraphs (k) and (l) of this definition; (n) Liens securing Purchase Money Obligations and Capital Lease Obligations in an aggregate amount at any time not to exceed $10 million; (o) any security interest in cash or marketable securities pledged, or a letter of credit provided, to secure obligations of the Borrower under purchase contracts for natural gas or under Hedge Instruments entered into to hedge against fluctuations in the price of natural gas; -------------------------------------------------------------------------------- - 23 - (p) Liens encumbering property under construction arising from progress or partial payments made by a customer of the Borrower relating to such property; (q) any interest or title of a lessor in the property subject to any lease; and liens or rights of distress reserved in or exercisable under leases for payment of rent or other compliance with the terms of the lease; and (r) Liens in favour of customs and revenue authorities arising under Applicable Law to secure payment of customs or import duties in connection with the importation of goods. (94) "Permitted Merger" means a transaction otherwise prohibited by Section 8.2(2) where the following conditions are satisfied: (a) the surviving entity and the Lenders shall have agreed to such amendments to the Credit Facility Documents (and, if such transaction involves Terasen, such amendments to the Terasen Funding Agreement) as shall be required in order: (i) to preserve the rights and interests of the Lenders as senior unsecured creditors; and (ii) to ensure that the financial tests and calculations contemplated by the Credit Facility Documents shall have the same economic effect with respect to the surviving entity as is the case with the Borrower immediately prior to such transaction, it being acknowledged that it is not intended that the ratios required under Section 8.3 be altered but rather that the components of such ratios are measured with consistent economic effect both before and after such transaction; (b) both immediately before and (having regard to the agreed amendments pursuant to paragraph (a)) immediately after such transaction there shall be no Default or Event of Default that has occurred and is continuing; (c) prior to such transaction, the Borrower shall have obtained a Ratings affirmation (which is equal to or greater than its then current Rating) with respect to the surviving entity’s senior publicly-rated debt; -------------------------------------------------------------------------------- - 24 - (d) no such transaction shall affect the validity or enforceability of any Credit Facility Document or the Terasen Funding Agreement (except in the case of a merger or amalgamation of the Borrower and Terasen, in which case the Junior Obligations as defined in the Terasen Funding Agreement shall be extinguished by operation of law); and (e) the Borrower shall deliver to the Administrative Agent promptly following such transaction a certificate of a Senior Financial Officer and an opinion of counsel to the Borrower, each stating that such transaction complies herewith and each being otherwise in form and substance reasonably acceptable to the Administrative Agent. (95) "Person" has the meaning set forth in the Provisions. (96) "Prime Rate" means, at any time, the greater of: (a) the rate of interest per annum established and reported by RBC from time to time as the reference rate of interest it charges to customers for Canadian Dollar loans made by it in Canada; and (b) the sum of: (i) the average one month bankers’ acceptance rate as quoted on Reuters Service page CDOR as at 10:00 a.m. (Toronto time) on such day, expressed as a rate per annum; plus (ii) 100 basis points; as to which a certificate of the Administrative Agent, absent manifest error, shall be conclusive evidence from time to time.  With each quoted or published change in such rate aforesaid of RBC there shall be a corresponding change in any rate of interest payable under this agreement based on the Prime Rate should such changed rate exceed that set forth in paragraph (b) of this definition, all without the necessity of any notice thereof to the Borrower or any other Person. (97) "Principal Outstanding" means, at any time, the amount equal to: (a) when used in a context pertaining to Accommodations made by a single Lender under the Credit Facility, the sum of: (i) the aggregate principal amount of all Advances and BA Equivalent Loans then outstanding made by such Lender; and -------------------------------------------------------------------------------- - 25 - (ii) the Face Amount of all Accommodations then outstanding made by such Lender by way of Bankers’ Acceptances (whether or not held by such Lender) and Letters of Credit (including such Lender’s pro rata interest in Letters of Credit issued by the Issuing Bank); and (b) when used elsewhere in this agreement with reference to the Credit Facility as a whole, the sum of: (i) the aggregate principal amount of all Advances and BA Equivalent Loans then outstanding made by the Lenders; and (ii) the Face Amount of all Accommodations then outstanding made by the Lenders by way of Bankers’ Acceptances (whether or not held by the respective Lenders) and Letters of Credit; provided that, for the purposes of calculating standby and utilisation fees payable under Section 2.6, the principal amount of Swingline Advances shall not be considered to be Principal Outstanding. (98) "Property" means any property, assets, rights or interests of any nature whatsoever, real or personal, moveable or immoveable, tangible or intangible, and wheresoever situate. (99) “Provisions” means the Model Credit Agreement Provisions annexed hereto as schedule 4. (100) "Purchase Money Obligation" means indebtedness under any purchase money mortgage, pledge or other purchase money Lien entered into in the ordinary course of business and secured upon property acquired by a Person. (101) "Rating" means, with respect to a Person, the credit rating assigned by a Rating Agency to the long-term senior unsecured debt of such Person. (102) “Rating Agencies” means, at any time, DBRS and Moody’s. (103) “RBC” means Royal Bank of Canada, a Canadian chartered bank. (104) "receiver" includes a receiver, receiver/manager and receiver and manager. -------------------------------------------------------------------------------- - 26 - (105) "Reference Lenders" means any two Lenders as selected by the Administrative Agent from time to time and that are acceptable to the Borrower which are banks under Schedule II of the Bank Act (Canada). (106) "Repayment/Cancellation Notice" means a notice in the form of or to substantially similar effect as schedule 3 annexed hereto, given to the Administrative Agent by the Borrower pursuant to any relevant provision of this agreement. (107) "Required Notice", when used with respect to a type of Accommodation, a payment, prepayment or reduction of the Commitments hereunder, means such number of days’ notice to the Administrative Agent as is set forth in schedule 6 annexed hereto. (108) “Requirement of Law” means, as to any Person, the Charter Documents  of such Person, and any international, Canadian or United States federal, provincial, state or local statute, law, regulation, order, rule, by-law, proclamation, consent, decree, judgment, permit, license, code, covenant, deed restriction, common law (including the law of equity), treaty, convention, ordinance or determination of an arbitrator or a court or other competent authority, or guidelines or requirements of any Governmental Authority (whether or not having the force of law and including consent decrees as to which such Person is a party or otherwise subject, and administrative orders which affect such Person) in each case applicable to or binding upon such Person or any of the Property of such Person. (109) “Revenue Deficiency Deferral Account” has the meaning set forth in the Special Direction. (110) "Rollover" means, in respect of a Borrowing by way of LIBOR Advances, the continuation thereof or any portion thereof for a succeeding Interest Period and, in respect of a Drawing, the issuance of a further Drawing on any day in a Face Amount not exceeding the Face Amount of the Drawing maturing on that day, the proceeds of which are used to pay (directly or indirectly) the maturing Drawing, all as contemplated by Section 2.11. (111) “S&P” means Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc. (112) "Schedule I Bank", "Schedule II Bank" or "Schedule III Bank" mean a bank under (as the case may be) Schedule I or II of the Bank Act (Canada) or an authorized foreign bank under Schedule III of the Bank Act (Canada). -------------------------------------------------------------------------------- - 27 - (113) "Senior Financial Officer" means the Chief Financial Officer, Vice President Finance, Controller, Treasurer or Assistant Treasurer of the Borrower. (114) “Senior Officer” means the President, Chairman, any Vice-President or a Senior Financial Officer of the Borrower. (115) “Special Direction” means the direction issued by the Lieutenant Governor in Council of the Province of British Columbia to the BCUC pursuant to the Vancouver Island Natural Gas Pipeline Act (British Columbia) in connection with the VINGPA. (116) "Subordinated Debt" means Indebtedness of the Borrower which: (a) is subordinated to the prior payment in full of the Obligations as provided in this definition; (b) will not be cross-defaulted or cross-accelerated by the Credit Facility; (c) may not be accelerated prior to the date that is the earlier of: (i) the date following the date on which all of the Obligations and the obligations of the Borrower under the PCEPA Repayment Facility have been paid in full and the commitments of the Lenders hereunder and the commitment of the lender under the PCEPA Repayment Facility have been terminated; and (ii) six months after the later of: (A) the Maturity Date; and (B) the “Maturity Date” as defined in the PCEPA Repayment Facility; (d) may not contain covenants or events of default more onerous than those contained in this agreement; (e) will provide that any amount received by the holders of such Indebtedness within three months of an Event of Default will, upon the Obligations being declared or becoming due and payable pursuant to Section 10.2(1) or (2), be paid to the Administrative Agent on behalf of the Lenders; -------------------------------------------------------------------------------- - 28 - (f) will require that notice of default thereunder be provided to the Administrative Agent; and (g) will permit interest on and principal of such Indebtedness to be paid or prepaid only if Sections 8.2(5)(d) and (e) are complied with as if the applicable payment were a Distribution. (117) "subsidiary" means, at any time with respect to a Person, any other Person, if at such time such first-mentioned Person owns, directly or indirectly, more than 50% of the capital in such other Person entitled ordinarily to vote in the election of the board of directors of, or Persons performing similar functions for, such other Person. (118) "Swingline" means that portion of the Credit Facility to be made available by the Swingline Lender to the Borrower as described in Section 2.1(6), and "Swingline Advance" has the meaning set forth in Section 2.1(6). (119) "Swingline Amount" means C$10 million (or the Equivalent Amount in US Dollars) to the extent not permanently reduced, cancelled or terminated pursuant to this agreement. (120) "Swingline Lender" means TD Bank acting in its capacity as the Lender of Swingline Advances under Section 2.1(6) or, as the case may be, any replacement Lender of Swingline Advances agreed by the Borrower, the Administrative Agent and such replacement Lender. (121) "Taking" means the expropriation, condemnation or taking by eminent domain or similar authority, or by any proceeding or purchase in lieu or anticipation thereof, of any property or asset or any right, title or interest therein by any Governmental Authority. (122) "TD Bank" means The Toronto-Dominion Bank, a Canadian chartered bank. (123) “Terasen” means Terasen Inc. (124) “Terasen Funding Agreement” means the agreement so entitled of even date between, inter alia, Terasen and the Administrative Agent, substantially in the form of schedule 8 annexed hereto. (125) "this agreement", "herein", "hereof", "hereto" and "hereunder" and similar expressions mean and refer to this agreement as supplemented or amended and not to any particular Article, Section, paragraph, schedule or other portion hereof; and the expressions "Article", "Section", -------------------------------------------------------------------------------- - 29 - "paragraph" and "schedule" followed by a number or letter mean and refer to the specified Article, Section, paragraph or schedule of this agreement. (126) “Total Capitalization” means, as at any date of determination, the aggregate of the Borrower’s: (a) common equity (including retained earnings and contributed surplus); (b) preferred shares other than Class A Instruments; (c) the accumulated provision for deferred income taxes, if any; (d) Institutional Indebtedness; and (e) Subordinated Debt. (127) "US Dollars", "United States Dollars" and "US$" each mean lawful money of the United States of America in same day immediately available funds or, if such funds are not available, the form of money of the United States of America that is customarily used in the settlement of international banking transactions on the day payment is due hereunder. (128) "Uniform Customs" means the Uniform Customs and Practice for Documentary Credits, as published by the International Chamber of Commerce and in effect from time to time. (129) “VINGPA” means the Vancouver Island Natural Gas Pipeline Agreement between Her Majesty the Queen in Right of the Province of British Columbia, Westcoast Energy Inc., Pacific Coast Energy Corporation, Centra Gas British Columbia Inc., Centra Gas Vancouver Island Inc., and Centra Gas Victoria Inc. dated December 14, 1995, as amended by the Novation Agreement dated March 7, 2002 between Westcoast Energy Inc., Her Majesty the Queen in Right of the Province of British Columbia, the Borrower (then called Centra Gas British Columbia Inc.), Westcoast Power Holdings Inc., CGBC Holdings Inc. and Terasen (then called BC Gas Inc.). (130) “Wheeling Agreement” means the agreement dated for reference July 3, 1989 (as amended by letter agreements dated June 29, 1993 and November 30, 1993) between BC Gas Inc. (now called Terasen Gas Inc.) and the Borrower (then called Pacific Coast Energy Corporation) pursuant to which Terasen Gas Inc. permits the Borrower to transport natural gas along its transmission system from Huntingdon to Coquitlam. -------------------------------------------------------------------------------- - 30 - 1.2 Interpretation.  In addition to those matters set forth in Section 2(1) of the Provisions: (1) Inclusion Rules.  In this agreement, in the computation of periods of time from a specified date to a later specified date, unless otherwise expressly stated, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". (2) Ibid.  Where in this agreement a notice must be given a number of days prior to a specified action, the day on which such notice is given shall be included and the day of the specified action shall be excluded. (3) Accounting Terms.  All accounting terms not specifically defined herein shall be construed in accordance with GAAP. (4) Incorporation of Schedules.  Schedules 1 to 10 annexed hereto shall, for all purposes hereof, form an integral part of this agreement. (5) Agreements. Reference to any agreement, instrument, Governmental Approval or other document shall include reference to such agreement, instrument, Governmental Approval or other document as the same may have been heretofore or may from time to time hereafter be amended, supplemented, replaced or restated. (6) Interpretation not Affected by Headings, etc.  The division of this agreement into Articles and Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. (7) General Provisions as to Certificates and Opinions, etc.  Whenever the delivery of a certificate is a condition precedent to the taking of any action by the Administrative Agent or any Lender hereunder, the truth and accuracy of the facts and the diligent and good faith determination of the opinions stated in such certificate shall in each case be conditions precedent to the right of the Borrower to have such action taken, and any certificate executed by the Borrower shall be deemed to represent and warrant that the facts stated in such certificate are true, accurate and complete. ARTICLE 2 THE CREDIT FACILITY 2.1 Credit Facility. (1) Commitment.  Subject to the terms and conditions herein set forth: -------------------------------------------------------------------------------- - 31 - (a) the Credit Facility is to be made available by the Lenders to the Borrower on a revolving basis in the principal amount of up to but not exceeding C$350 million, of which the Swingline Amount will be made available by way of Swingline Advances by the Swingline Lender only; (b) the Credit Facility shall be available: (i) in Canadian Dollars by way of Prime Rate Advances, Bankers’ Acceptances or Letters of Credit; and (ii) in US Dollars by way of Base Rate Advances, LIBOR Advances or Letters of Credit; (c) each Lender shall make Accommodations available under the Credit Facility pro rata on the basis of the relevant percentage as set forth in schedule 1 annexed hereto, under “Swingline” in the case of Swingline Advances and under “Balance of Credit Facility” in the case of Advances that are not Swingline Advances; (d) in no event shall a Lender be obligated to make Accommodations available under the Credit Facility if after making such Accommodations the C$ Equivalent Principal Outstanding of that Lender’s Accommodations would exceed that Lender’s Commitment; (e) for greater certainty and notwithstanding Section 2.1(6), in no event shall the C$ Equivalent Principal Outstanding of the Swingline Lender’s Accommodations under the Credit Facility (including the entire Principal Outstanding by way of Swingline Advances) exceed the Swingline Lender’s Commitment; and (f) each Lender shall make Accommodations available to the Borrower through its relevant Lending Office. (2) Purposes.  The Credit Facility shall be used only for the following purposes: (a) in part to repay and cancel the Existing Facility and the Intercompany Debt; and (b) for general corporate purposes, including capital expenditures. In the event that the Borrower wishes to utilize proceeds of one or more Accommodations under the Credit Facility to, or to provide funds to any -------------------------------------------------------------------------------- - 32 - subsidiary, Affiliate or other Person to, finance an offer to acquire (which shall include an offer to purchase securities, solicitation of an offer to sell securities, an acceptance of an offer to sell securities, whether or not the offer to sell was solicited, or any combination of the foregoing) outstanding securities of any Person (the “Target”) which constitutes a “take-over bid” pursuant to applicable corporate or securities legislation (in any case, a “Takeover Bid”) and if the Takeover Bid is, under Applicable Law, such as to require the board of directors or like body of the Target to prepare a directors circular or like document that includes either a recommendation to accept or to reject the Takeover Bid or a statement that they are unable to make or are not making a recommendation, then either: (c) prior to or concurrently with delivery to the Administrative Agent of any Accommodation Request, the proceeds of which are intended to be utilized as aforesaid, the Borrower shall provide to the Administrative Agent evidence satisfactory to the Administrative Agent (acting reasonably) that the board of directors or like body of the Target, or the holders of all of the securities of the Target, has or have approved, accepted, or recommended to security holders acceptance of, the Takeover Bid; or: (d) the following steps shall be followed: (i) at least five Business Days prior to the delivery to the Administrative Agent of such Accommodation Request, the Borrower shall advise the Administrative Agent (who shall promptly advise each Lender) of the particulars of such Takeover Bid; (ii) within three Business Days of being so advised, each Lender shall notify the Administrative Agent of such Lender’s determination as to whether it is willing to fund under such Accommodation Request; provided that, in the event such Lender does not so notify the Administrative Agent within such three Business Day period, such Lender shall be deemed to have notified the Administrative Agent that it is not so willing to fund; and (iii) the Administrative Agent shall promptly notify the Borrower of each such Lender’s determination; -------------------------------------------------------------------------------- - 33 - and in the event that any Lender (each, a “Declining Lender”) has notified or is deemed to have notified the Administrative Agent that it is not willing to fund under such Accommodation Request, then such Declining Lender shall have no obligation to fund under such Accommodation Request, notwithstanding any other provision of this agreement to the contrary; provided, however, that each other Lender (each, a “Financing Lender”) which has advised the Administrative Agent it is willing to fund under such Accommodation Request shall have an obligation, up to the amount of its unused Commitment under the Credit Facility, to fund under such Accommodation Request, and such funding shall be provided by each Financing Lender in accordance with the ratio, determined prior to the provision of such funding, that the Commitment of such Financing Lender bears to the aggregate the Commitments of all the Financing Lenders. If Accommodations are provided in the manner contemplated by the foregoing paragraph and there are Declining Lenders, subsequent Accommodations under the Credit Facility shall be funded firstly by Declining Lenders having unused Commitments, and subsequent repayments under the Credit Facility shall be applied firstly to Financing Lenders, in each case until such time as the proportion that the amount of each Lender’s Principal Outstanding bears to the aggregate Principal Outstanding is equal to such proportion which would have been in effect but for the application of this Section 2.1(2). For greater certainty, in no event shall a Declining Lender be obligated to purchase any participation in accordance with Section 12.1(2) to the extent that the shortfall in such Declining Lender’s share of outstanding Obligations under the Credit Facility is attributable to the operation of this Section 2.1(2). (3) Availability Period.  Subject to the terms and conditions herein set forth, Accommodations will be made available by way of multiple draws from time to time up to the Business Day immediately preceding the Maturity Date. (4) Minimum Amounts.  Subject to the Majority Lenders in any specific instance waiving such requirement, the following minimum amounts shall apply in respect of certain Borrowings and Drawings requested under each Accommodation Request (excluding Swingline Advances): (a) the aggregate of the Prime Rate Advances requested in any Borrowing shall be at least C$1 million and a whole multiple of C$500,000; -------------------------------------------------------------------------------- - 34 - (b) each Bankers’ Acceptance shall be in a Face Amount of at least C$100,000 and a whole multiple thereof; (c) the aggregate of the Face Amount of Bankers’ Acceptances requested in any Drawing shall be at least C$5 million and a whole multiple of C$1 million; (d) the aggregate of the Base Rate Advances requested in any Borrowing shall be at least US$1 million and a whole multiple of US$500,000; and (e) the aggregate of the LIBOR Advances requested in any Borrowing shall be at least US$5 million and a whole multiple of US$1 million. (5) Revolving Nature.  The Credit Facility is a so-called "revolving" facility and amounts may be repaid thereunder and subsequently made the subject of a further Accommodation (subject to compliance with the terms and conditions of this agreement). (6) Swingline Advances. (a) In the event that the Borrower has a requirement for a Prime Rate Advance or a Base Rate Advance in same day funds in an amount up to the Swingline Amount (or the Equivalent Amount in US Dollars) in the aggregate, the Borrower may (subject to satisfaction of applicable terms and conditions hereof) obtain such Advance (in this Section 2.1(6), a “Swingline Advance”) from the Swingline Lender alone. (b) Each Swingline Advance: (i) may be made on the same day’s telephone request made on or before 1:00 pm (Toronto time) on such day in the case of Swingline Advances denominated in Canadian Dollars, and 12:00 noon (Toronto time) on such day in the case of Swingline Advances denominated in US Dollars, by the Borrower providing to the Swingline Lender the same information as would be contained in a Borrowing Notice (which shall be deemed to have been so provided); or (ii) shall be made by the Swingline Lender, without notice from or to the Borrower, in respect of any overdraft in any one or more of the Borrower’s accounts with the Swingline Lender by deposit to such account of an amount at least equal to such overdraft. -------------------------------------------------------------------------------- - 35 - (c) The Borrower shall ensure that the aggregate C$ Equivalent Principal Outstanding of all Swingline Advances does not exceed the Swingline Amount at any time. (d) [intentionally deleted] (e) [intentionally deleted] (f) [intentionally deleted] (g) The Swingline Lender acknowledges that the standby and utilisation fees under Section 2.6(a) and (b) will be calculated on the basis of each Lender’s Commitment, excluding the Swingline Lender’s Commitment with respect to the Swingline Amount. Payment of such fees on the Swingline Lender’s Commitment with respect to the Swingline Amount will be made in a manner to be agreed between the Borrower and the Swingline Lender. 2.2 Amortization.   (1) General.  The Principal Outstanding and all other Obligations under the Credit Facility will become due and payable in full on the Maturity Date. (2) Foreign Exchange Fluctuations.  If at any time the C$ Equivalent Principal Outstanding under the Credit Facility shall exceed 105% of the aggregate Commitments of the Lenders or if at any time the C$ Equivalent Principal Outstanding under the Credit Facility shall have exceeded for a 30 day period 103% of the aggregate Commitments of the Lenders, in either case solely by virtue of a change in the Equivalent Amount in Cdn. Dollars of Accommodations made in US Dollars, the Borrower shall forthwith following demand therefor by the Administrative Agent pay to the Administrative Agent such amount as is required to reduce such Principal Outstanding to such aggregate Commitments; provided that, for the purposes of the calculation of Principal Outstanding and Commitments under the foregoing provisions of this Section 2.2(2), there shall be deducted from each of Principal Outstanding and Commitments the Equivalent Amount in Canadian Dollars of such Principal Outstanding in US Dollars as shall enjoy the benefit of a Hedge Instrument which protects the Borrower against increases in the value of US Dollars as against Cdn. Dollars; provided further that, in the event that following repayment of all outstanding Prime Rate Advances and Base Rate Advances there remains an excess attributable to the outstanding principal amount under LIBOR Advances or the Face Amount of outstanding Bankers’ Acceptances or Letters of Credit, such excess amount shall be paid by the Borrower to the -------------------------------------------------------------------------------- - 36 - Administrative Agent, and shall be held by the Administrative Agent (pending the expiry of subsisting Interest Periods, the maturity of Bankers’ Acceptances or the termination of Letters of Credit, as the case may be) in a trust account and invested in Cash Equivalents as determined by the Administrative Agent in its discretion (provided that, in making any such determination, the Administrative Agent shall consider, acting reasonably, any request of the Borrower as to the nature of such investments) and applied against the obligations of the Borrower in respect of such LIBOR Advances, Bankers’ Acceptances or Letters of Credit as they come due. 2.3 Voluntary Reductions. The Borrower shall have the right at any time and from time to time, without penalty or bonus, upon delivery of a Repayment/Cancellation Notice to the Administrative Agent on the Required Notice, to terminate the whole or reduce in part on a permanent basis the unused portion of the Commitments of the Lenders in respect of the Credit Facility (pro rata among such Lenders on the basis of their respective Commitments); provided that each partial reduction shall be in an aggregate minimum amount of C$5 million and multiples in excess thereof of C$1 million. 2.4 Payments. (1) Payment Account.  The Borrower shall make each payment to be made hereunder, following delivery of (where applicable) a Repayment/Cancellation Notice and on the Required Notice, not later than 2:00 p.m. (Toronto time) in the currency of the Accommodation or other Obligation in respect of which such payment is made (be it Canadian Dollars or US Dollars) on the day (subject to Section 2.4(2)) when due, in same day funds, by deposit of such funds to the Payment Account. (2) Business Day.  Subject to the next following sentence, whenever any payment hereunder is due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be.  If any such extension would cause any payment of interest or fees on an Accommodation to be made in the next following calendar month, such payment shall be made on the last preceding Business Day. (3) Application.  Unless otherwise provided herein, all amounts received by the Administrative Agent on account of the Obligations shall be applied by the Administrative Agent as follows: -------------------------------------------------------------------------------- - 37 - (a) first, to fulfil the Borrower’s obligation to pay accrued and unpaid interest due and owing (including interest on overdue interest and on other amounts), excluding interest accruing on BA Equivalent Loans; (b) second, to fulfil the Borrower’s obligation to pay any fees which are due and owing to the Lenders hereunder (including those fees set forth in Section 2.6), and any Increased Costs and other unpaid costs, expenses and other amounts payable to the Administrative Agent and the Lenders in connection with any of the Credit Facility Documents; (c) third, to fulfil the Borrower’s obligation to pay interest accruing on BA Equivalent Loans and any amounts due and owing on account of Principal Outstanding under the Credit Facility (including in respect of the Face Amount of outstanding Bankers’ Acceptances and Letters of Credit); and (d) fourth, to the Borrower or as any court of competent jurisdiction may otherwise direct. (4) Pro Rata Basis.  All payments of principal, interest and fees herein set forth, unless otherwise expressly stipulated, shall be made for the account of, and distributed by the Administrative Agent to, the Lenders pro rata on the basis of their respective Commitments. (5) Netting. If on any date liquidated amounts (other than interest and fees) would be payable under this agreement in the same currency by the Borrower to certain Lenders and by such Lenders to the Borrower, then on such date, at the election of and upon notice from the Administrative Agent stating that netting is to apply to such payments, each such party’s obligations to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by the Borrower to such Lenders exceeds the aggregate amount that would otherwise have been payable by such Lenders to the Borrower or vice versa, such obligations shall be replaced by an obligation upon the Borrower or such Lenders by whom the larger aggregate amount would have been payable to pay to the other the excess of the larger aggregate amount over the smaller aggregate amount. (6) Payments Free of Set-off.  Except as set forth in Section 2.4(5), each payment made by the Borrower on account of the Obligations shall be made without set-off or counterclaim. -------------------------------------------------------------------------------- - 38 - 2.5 Computations.   (1) Basis.  All computations of: (a) interest based on the Prime Rate and the Base Rate shall be made by the Administrative Agent on the basis of a year of 365 days or, in the case of a leap year, 366 days and the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable; and (b) interest based on LIBOR shall be made by the Administrative Agent on the basis of a year of 360 days and the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. Computations of fees under Sections 2.6(a) and (b), 4.6 and 5.8(1) and (2) shall be made by the Administrative Agent on the basis of a year of 365 days or, in the case of a leap year and only with respect to fees under Sections 2.6(a) and (b) and 5.8(1) and (2), 366 days and the actual number of days (including the first day but excluding the last day) occurring in the period for which such fees are payable.  Each determination by the Administrative Agent of an amount of interest, Discount Proceeds or fees payable by the Borrower hereunder shall be conclusive and binding for all purposes, absent demonstrated error. (2) Interest Act (Canada).  For purposes of disclosure pursuant to the Interest Act (Canada), the yearly rate of interest to which any rate of interest based on LIBOR is equivalent may be determined by multiplying the applicable rate by a fraction, the numerator of which is the number of days to the same calendar date in the next calendar year (or 365 days if the calculation is made as of February 29) and the denominator of which is 360. 2.6 Fees.  The Borrower shall pay to the Administrative Agent (or, in the circumstances contemplated by Section 2.1(6)(g), the Swingline Lender) the following fees, calculated as follows: (a) a standby fee (for the account of the Lenders pro rata on the basis of their respective Commitments under the Credit Facility) payable by the Borrower in Cdn. Dollars quarterly in arrears on the third Business Day of the first month following the end of each Financial Quarter, and on the Maturity Date, calculated from the Closing Date on a daily basis on the difference between the aggregate C$ Equivalent Principal Outstanding (converted for purposes of such calculation into the Equivalent Amount in Cdn. Dollars as at the -------------------------------------------------------------------------------- - 39 - last day of such Financial Quarter) under the Credit Facility and the aggregate Commitments, at the rate set forth in the definition of Applicable Margin; (b) a utilisation fee (for the account of the Lenders pro rata on the basis of their respective Commitments under the Credit Facility) payable by the Borrower in Cdn. Dollars quarterly in arrears on the third Business Day of the first month following the end of each Financial Quarter, and on the Maturity Date, calculated from the Closing Date on the aggregate C$ Equivalent Principal Outstanding (converted for purposes of such calculation into the Equivalent Amount in Cdn. Dollars as at the last day of such Financial Quarter) under the Credit Facility, at the rate of 5 bps per annum; such utilisation fee shall be calculated on a daily basis but only in respect of a day where the aggregate C$ Equivalent Principal Outstanding is equal to or exceeds 50% of the aggregate Commitments under the “Balance of the Credit Facility” as set forth in schedule 1 annexed hereto; and (c) the fees agreed with the Administrative Agent in an agreement of even date. 2.7 Interest on Overdue Amounts.  Except as otherwise provided in this agreement, each amount owed by the Borrower to a Lender which is not paid when due (whether at stated maturity, on demand, by acceleration or otherwise) shall bear interest (both before and after maturity, default and judgment), from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to the Base Rate (in the case of amounts denominated in US Dollars) or the Prime Rate (in the case of amounts denominated in Cdn. Dollars), in each case plus the Applicable Margin plus a further two percent (2%) per annum. 2.8 Account Debit Authorization.  The Borrower authorizes and directs each of the Administrative Agent and the Swingline Lender, in its respective discretion, to automatically debit, by mechanical, electronic or manual means, the bank accounts of the Borrower maintained with RBC (for so long as RBC is Administrative Agent hereunder) or TD Bank (for so long as TD Bank is Swingline Lender hereunder) and designated by the Borrower in writing for all amounts due and payable under this agreement on account of principal, interest and fees comprised in the Obligations. -------------------------------------------------------------------------------- - 40 - 2.9 Administrative Agent’s Discretion on Allocation.  In the event that it is not practicable to: (a) allocate an Accommodation pro rata in accordance with Section 3.2 or 4.1(2) by reason of the occurrence of circumstances described in Section 3.1 or 3.2 of the Provisions; or (b) allocate a Drawing among the Lenders in accordance with Section 4.1(2) by reason of the need to ensure that the aggregate amount of Bankers’ Acceptances required to be accepted hereunder complies with the minimum amounts or increments set forth in Section 2.1(4); the Administrative Agent is authorized by the Borrower and each Lender to make such allocation as the Administrative Agent determines in its sole and unfettered discretion may be equitable in the circumstances, subject in all cases to Section 2.1. All fees in respect of any such Drawing, and fees payable under Section 2.6(a), shall be adjusted, as among the Lenders, by the Administrative Agent accordingly. 2.10 Funding.  Section 6 of the Provisions shall for all purposes of this agreement apply in the circumstances therein contemplated. 2.11 Rollover and Conversion.   (1) General.  Subject to the terms and conditions of this agreement, the Borrower may from time to time request that any Drawing or type of Borrowing or any portion thereof be rolled over or converted in accordance with the provisions hereof. (2) Request.  Each request by the Borrower for a Rollover or Conversion shall be made by the delivery of a duly completed and executed Accommodation Request to the Administrative Agent with the Required Notice and the provisions of Articles 3 or 4 shall apply to each request for a Rollover or Conversion as if such request were a request thereunder for an Advance or a Drawing (as the case may be). (3) Effective Date.  Each Rollover or Conversion of a LIBOR Advance or Bankers’ Acceptance shall be made effective as of, in the case of a LIBOR Advance, the last day of the subsisting Interest Period and, in the case of a Bankers’ Acceptance, the maturity date applicable thereto. -------------------------------------------------------------------------------- - 41 - (4) Failure to Elect.  If the Borrower does not deliver an Accommodation Request at or before the time required by Section 2.11(2) and: (a) in the case of a Bankers’ Acceptance fails to give the Required Notice that it will pay to the Administrative Agent for the account of the applicable Lender the Face Amount thereof on the maturity date or if the Borrower gives such notice but fails to act in accordance with it, the Borrower shall be deemed to have requested a Conversion of the Face Amount thereof to a Prime Rate Advance and all of the provisions hereof relating to a Prime Rate Advance shall apply thereto; or (b) in the case of a LIBOR Advance, fails to give the Required Notice that it will pay to the Administrative Agent for the account of the applicable Lender the principal amount thereof at the end of the relevant Interest Period or if the Borrower gives such notice but fails to act in accordance with it, the Borrower shall be deemed to have requested a Rollover of such Advance to either a LIBOR Advance having an Interest Period of one month (and all of the provisions hereof applicable to LIBOR Advances shall apply thereto) (in the case of a failure to deliver an Accommodation Request and give the Required Notice) or a Base Rate Advance (in the case of a failure to act in accordance with a notice). (5) Continuing Obligation.  A Rollover or Conversion shall not constitute a repayment of the relevant Accommodation or a re-borrowing by the Borrower but shall result in a change in the basis of calculation of interest, discounts or fees (as the case may be) for, and/or currency of, such Accommodation.  However, where a Conversion takes place from a US Dollar Advance to a Canadian Dollar Advance, or vice versa, the same may be effected only by the Borrower repaying the entire Principal Outstanding under the existing Advance (together with all accrued and unpaid interest thereon), in the currency of such existing Advance, and receiving the proceeds of the new Advance in the currency of such new Advance. (6) Limit.  Notwithstanding any other provision of this agreement, at no time shall there be more than 20 separate maturity dates, in aggregate, for all LIBOR Advances and Bankers’ Acceptances outstanding under the Credit Facility. -------------------------------------------------------------------------------- - 42 - ARTICLE 3 ADVANCES 3.1 Advances.   (1) Commitment.  Each Lender agrees (on a several basis with the other Lenders, up to the amount of such Lender’s Commitment thereunder), on the terms and conditions herein set forth, from time to time on any Business Day, to make Advances under the Credit Facility prior to the cancellation or termination thereof. (2) Amounts.  The aggregate principal amount of each Borrowing shall comply with Section 2.1(4). 3.2 Making the Advances (except Swingline Advances).   (1) Notice.  Each Borrowing shall be made on the Required Notice given not later than 1:00 p.m. (Toronto time) by the Borrower to the Administrative Agent, and the Administrative Agent shall give to each Lender prompt notice thereof and of such Lender’s rateable portion of each type of Borrowing to be made under the Borrowing.  Each such notice of a Borrowing shall be given by way of an Accommodation Request or by telephone (confirmed promptly in writing), with the same information as would be contained in an Accommodation Request, including the requested date of such Borrowing and the aggregate amount of each type of Borrowing comprising such Borrowing. (2) Lender Funding.  Each Lender shall, before noon (Toronto time) on the date of the requested Borrowing, deposit to the relevant Payment Account in same day funds such Lender’s rateable portion (subject to Section 2.9) of each type of Borrowing comprising such Borrowing (in Canadian Dollars, in the case of Prime Rate Advances, and in US Dollars, in the case of LIBOR Advances and Base Rate Advances).  Promptly upon receipt by the Administrative Agent of such funds and upon fulfilment of the applicable conditions set forth in Article 6, the Administrative Agent will make such funds available to the Borrower by debiting such account (or causing such account to be debited), and by crediting such account of the Borrower as shall be agreed with the Administrative Agent (or causing such account to be credited) with such Advances. 3.3 Interest on Advances.  The Borrower shall pay interest on the unpaid principal amount of each Advance at the following rates per annum: (1) Prime Rate Advances.  If and so long as such Advance is a Prime Rate Advance, at a rate per annum equal at all times to the sum of the Prime -------------------------------------------------------------------------------- - 43 - Rate in effect from time to time plus the Applicable Margin, calculated on the daily principal amount outstanding under such Prime Rate Advance and payable in Cdn. Dollars in arrears: (a) monthly on the third Business Day of each month with respect to the previous calendar month (calculated as at the last day of such previous calendar month); and (b) when such Prime Rate Advance becomes due and payable in full. (2) Base Rate Advances.  If and so long as such Advance is a Base Rate Advance, at a rate per annum equal at all times to the sum of the Base Rate in effect from time to time plus the Applicable Margin, calculated on the daily principal amount outstanding under such Base Rate Advance and payable in US Dollars in arrears: (a) monthly on the third Business Day of each month with respect to the previous calendar month (calculated as at the last day of such previous calendar month); and (b) when such Base Rate Advance becomes due and payable in full. (3) LIBOR Advances.  If and so long as such Advance is a LIBOR Advance, at a rate per annum equal at all times during each Interest Period for such LIBOR Advance to the sum of LIBOR for such Interest Period plus the Applicable Margin, calculated on the daily principal amount outstanding under such LIBOR Advance and payable (as the case may be) in US Dollars: (a) at the end of each Interest Period (except where such Interest Period exceeds three months in duration, in which case such interest shall be payable on the dates falling every three months following the commencement of the Interest Period and, finally, at the end of such Interest Period); and (b) when such LIBOR Advance becomes due and payable in full or is converted to a Base Rate Advance. ARTICLE 4 BANKERS’ ACCEPTANCES 4.1 Acceptances.   (1) Commitment.  Subject to Section 4.11, each Lender agrees (on a several basis with the other Lenders, up to the amount of such Lender’s -------------------------------------------------------------------------------- - 44 - Commitment), on the terms and conditions herein set forth, from time to time on any Business Day, to accept and purchase Bankers’ Acceptances under the Credit Facility prior to the cancellation or termination thereof. (2) Amounts.  Each Drawing shall be in an aggregate Face Amount not less than the minimum amount (or requisite multiple in excess thereof) set forth in Section 2.1(4) and shall consist of the creation by the Borrower of Bankers’ Acceptances on the same day, effected or arranged by the Lenders in accordance with Section 4.4, rateably according to their respective Commitments (subject to Section 2.9). 4.2 Drawdown Request.   (1) Notice.  Each Drawing shall be made on the Required Notice given not later than 1:00 p.m. (Toronto time) by the Borrower to the Administrative Agent and the Administrative Agent shall give to each Lender prompt notice thereof (including the marketing Option as set forth in Section 4.5) and of such Lender’s rateable portion thereof.  Each such notice of a Drawing shall be given by way of an Accommodation Request or by telephone (confirmed promptly in writing) with the same information as would be contained in an Accommodation Request, including the requested Drawing Date, the Face Amounts of the Drawing and the  marketing Option as set forth in Section 4.5. (2) Maturity.  The Borrower shall not request in an Accommodation Request a term for Bankers’ Acceptances under the Credit Facility which would end on a date subsequent to the Maturity Date or that would conflict with any repayment stipulated herein. 4.3 Form of Bankers’ Acceptances.   (1) Form.  Each Bankers’ Acceptance shall: (a) be in a Face Amount allowing for conformance with Section 2.1(4); (b) be dated the Drawing Date; (c) mature and be payable by the Borrower (in common with all other Bankers’ Acceptances created in connection with such Drawing) on a Business Day which occurs one, two, three or six months after the date thereof, subject to availability; and (d) be in a form satisfactory to the relevant Lender. -------------------------------------------------------------------------------- - 45 - (2) Grace.  Each Borrower hereby waives presentment for payment and any other defence to payment of any amounts due in respect of any Bankers’ Acceptance, and hereby renounces, and shall not claim, any days of grace for the payment of any Bankers’ Acceptance. 4.4 Completion of Bankers’ Acceptance.  Upon receipt of the notice from the Administrative Agent pursuant to Section 4.2(1), each Lender is thereupon authorized to execute Bankers’ Acceptances as the duly authorized attorney of the Borrower pursuant to Section 4.8, in accordance with the particulars provided by the Administrative Agent. 4.5 Bankers’ Acceptance Marketing.  In each Accommodation Request for a Drawing, the Borrower shall elect one of the marketing options (in this Article 4, each an "Option") described in this Section 4.5. The Borrower may elect to market Bankers' Acceptances as follows: (1) Option #1 (a) On the relevant Drawing Date, the Borrower shall obtain quotations regarding the sale of the Bankers' Acceptances to be accepted by the Lenders and shall accept such of the offers as it deems appropriate, but in any event shall accept offers equal to the full amount of the Bankers’ Acceptances to be accepted by the Lenders in respect of the Drawing. (b) The Borrower shall provide the Administrative Agent with details regarding the sale of the Bankers' Acceptances described in (1)(a) above whereupon the Administrative Agent shall promptly notify the Lenders of: (i) the identity of the purchasers of such Bankers' Acceptances; (ii) the amounts being purchased by such purchasers; (iii) the discount rate transacted by the Borrower and such purchasers; (iv) the net cash proceeds realized from the purchase and sale of such Bankers' Acceptances; and (v) the stamping fees applicable to such Drawing as set forth in Section 4.6; (including each Lenders' share thereof). -------------------------------------------------------------------------------- - 46 - (2) Option #2 (a) On the relevant Drawing Date, the Borrower shall obtain quotations regarding the sale of the Bankers' Acceptances to be accepted by Lenders that are Schedule I Banks and shall accept such of the offers in respect of such Lenders' Bankers' Acceptances as it deems appropriate, but in any event shall accept offers equal to the full amount of the Bankers' Acceptances to be accepted by such Lenders in respect of the Drawing. The provisions of (1)(b) above (Option #1) shall apply in such circumstances, mutatis mutandis. (b) Each Lender that is not a Schedule I Bank shall purchase all Bankers' Acceptances accepted by it on the relevant Drawing Date at the Discount Rate. (3) Option #3 Each Lender shall purchase all Bankers' Acceptances accepted by it on the relevant Drawing Date at the Discount Rate. Each Lender shall, for same day value on the Drawing Date specified by the Borrower in the applicable Accommodation Request, credit the relevant Payment Account (for the account of the Borrower) with (as applicable): (x) the applicable Discount Proceeds of the Bankers’ Acceptances purchased by that Lender; and (y) the net cash proceeds realized from the purchase of such Bankers' Acceptances by a Person that is not a Lender; in each case less the stamping fee set forth in Section 4.6. Promptly upon receipt by the Administrative Agent of such funds and upon fulfilment of the applicable conditions set forth in Article 6, the Administrative Agent will make such funds available to the Borrower by debiting such account (or causing such account to be debited), and by crediting such account as shall be agreed with the Borrower (or causing such account to be credited) with such Discount Proceeds and net cash proceeds less such stamping fee. Each Lender may at any time and from time to time purchase, hold, sell, rediscount or otherwise dispose of any Bankers’ Acceptance and no such dealing shall prejudice or impair the Borrower’s obligations under Section 4.7. 4.6 Stamping Fee.  The Borrower shall pay to the Administrative Agent in respect of each Drawing (for the account of the Lenders, pro rata on the basis of their -------------------------------------------------------------------------------- - 47 - respective Commitments, subject to Section 2.9) a stamping fee in Cdn. Dollars.  Such stamping fee shall be payable by the Borrower in full on the Drawing Date, and shall be calculated on the Face Amount of such Bankers’ Acceptances on the basis of the number of days in the term of such Bankers’ Acceptances (including the Drawing Date but excluding the maturity date) at a rate per annum equal to the applicable percentage set forth under "Bankers’ Acceptances" in the definition of Applicable Margin. 4.7 Payment at Maturity.  The Borrower shall pay to the Administrative Agent, and there shall become due and payable, on the maturity date for each Bankers’ Acceptance an amount in same day funds equal to the Face Amount of the Bankers’ Acceptance.  The Borrower shall make each payment hereunder in respect of Bankers’ Acceptances by deposit of the required funds to the relevant Payment Account.  Upon receipt of such payment, the Administrative Agent will promptly thereafter cause such payment to be distributed to the Lenders rateably (based on the proportion that the Face Amount of Bankers’ Acceptances accepted by a Lender maturing on the relevant date bears to the Face Amount of Bankers’ Acceptances accepted by all the Lenders maturing on such date).  Such payment to the Administrative Agent shall satisfy the Borrower’s obligations under a Bankers’ Acceptance to which it relates and the accepting institution shall thereafter be solely responsible for the payment of such Bankers’ Acceptance. 4.8 Power of Attorney Respecting Bankers’ Acceptances.  In order to facilitate issues of Bankers’ Acceptances pursuant to this agreement, the Borrower authorizes each Lender, and for this purpose appoints each Lender its lawful attorney (with full power of substitution), to complete, sign and endorse drafts issued in accordance with Section 4.4 on its behalf in handwritten or by facsimile or mechanical signature or otherwise and, once so completed, signed and endorsed, and following acceptance of them as Bankers’ Acceptance under this agreement, then purchase, discount or negotiate such Bankers’ Acceptances in accordance with the provisions of this Article 4. Drafts so completed, signed, endorsed and negotiated on behalf of the Borrower by any Lender shall bind the Borrower as fully and effectively as if so performed by an authorized officer of the Borrower. 4.9 Prepayments.  Except as required by Section 4.10, no payment of the Face Amount of a Bankers’ Acceptance shall be made by the Borrower to a Lender prior to the maturity date thereof. Any such required payment made before the applicable maturity date shall be held by the Administrative Agent in a cash collateral account and invested in Cash Equivalents as security to provide for or to secure payment of the Face Amount of such outstanding Bankers’ Acceptance upon maturity.  Any such required payment made before the applicable maturity date by the Borrower to the Administrative Agent, to the extent of the amount thereof, shall satisfy the Borrower’s obligations under the Bankers’ Acceptance to -------------------------------------------------------------------------------- - 48 - which it relates as to a like amount.  The accepting institution shall thereafter be solely responsible for the payment of the Bankers’ Acceptance and shall indemnify and hold the Borrower harmless against any liabilities, costs or expenses incurred by the Borrower as a result of any failure by such Lender to pay the Bankers’ Acceptance as to such like amount in accordance with its terms. 4.10 Default.  Upon the occurrence of an Event of Default and the Administrative Agent declaring the Obligations to be due and payable pursuant to Section 10.2, and notwithstanding the date of maturity of any outstanding Bankers’ Acceptances, an amount equal to the Face Amount of all outstanding Bankers’ Acceptances which the Lenders are required to honour shall thereupon forthwith become due and payable by the Borrower to the Administrative Agent. 4.11 Non-Acceptance Lenders.  The parties acknowledge that a Lender (a "Non-Acceptance Lender") may not be permitted by Applicable Law to, or may not by virtue of customary market practices, stamp or accept commercial drafts. A Non-Acceptance Lender shall, in lieu of accepting and purchasing Bankers’ Acceptances, make a BA Equivalent Loan.  The amount of each BA Equivalent Loan shall be equal to the Discount Proceeds which would be realized from a hypothetical sale of those Bankers’ Acceptances which that Non-Acceptance Lender would otherwise be required to accept and purchase as part of such Drawing.  To determine the amount of those Discount Proceeds, the hypothetical sale shall be deemed to take place at the Non-Acceptance Discount Rate for that BA Equivalent Loan.  Any BA Equivalent Loan shall be made on the relevant Drawing Date, and shall remain outstanding for the term of the relevant Bankers’ Acceptances.  For greater certainty, concurrently with the making of a BA Equivalent Loan, a Non-Acceptance Lender shall be entitled to deduct therefrom an amount equal to the stamping fee which that Lender would otherwise be entitled to receive pursuant to Section 4.6 as part of that BA Equivalent Loan if that BA Equivalent Loan was a Bankers’ Acceptance, based on the amount of principal and interest payable on the maturity date of that BA Equivalent Loan.  On the maturity date for the Bankers’ Acceptances required by the Borrower, the Borrower shall pay to each Non-Acceptance Lender the amount of such Lender’s BA Equivalent Loan plus interest on the principal amount of that BA Equivalent Loan calculated at the applicable Non-Acceptance Discount Rate (in effect the date such BA Equivalent Loan was made) from the date of acceptance to but excluding the maturity date of that BA Equivalent Loan. ARTICLE 5 LETTERS OF CREDIT 5.1 Letters of Credit Commitment.  Each Lender agrees (on a several basis with the other Lenders up to the amount of such Lender’s Commitment), on the terms and conditions herein set forth, from time to time on any Business Day, to issue -------------------------------------------------------------------------------- - 49 - Letters of Credit under the Credit Facility, for the account of the Borrower prior to the cancellation or termination thereof; provided that at no time shall the C$ Equivalent Principal Outstanding with respect to the Face Amount of outstanding Letters of Credit exceed collectively C$40 million. Letters of Credit shall be issued by way of, as selected by the Borrower, either: (a) a Letter of Credit (in this Article 5, a “Fronted Letter of Credit”) issued by the Issuing Bank on behalf of the Lenders on a “fronting” basis as contemplated by Section 5.2; or (b) a Letter of Credit issued by the Administrative Agent in accordance with Section 5.3 (in this Article 5, a “POA Letter of Credit”). Whenever the term “LC issuer” is used in this Article 5, such term shall refer to, as applicable, either the Issuing Bank with respect to a Fronted Letter of Credit or the Administrative Agent with respect to a POA Letter of Credit. 5.2 Fronted Letters of Credit.  In the event that a Fronted Letter of Credit shall be issued on behalf of the Lenders by the Issuing Bank: (a) the Principal Outstanding in respect of such Letter of Credit shall be considered to be allocated among the Lenders pro rata on the basis of their respective Commitments, and on the basis that each such Lender is liable to, and by entering into this agreement agrees to, indemnify and hold harmless the Issuing Bank in relation to the Issuing Bank’s liability as issuer of such Letter of Credit to the extent of the amount of such pro rata share of such liability; (b) for greater certainty and without limiting the generality of Section 12.1, the Principal Outstanding among the Lenders shall be adjusted in the circumstances and in the manner contemplated by Section 12.1 in order to reflect the Issuance by the Issuing Bank on behalf of such Lenders. 5.3 POA Letters of Credit.  The provisions of this Section 5.3 shall apply to POA Letters of Credit. (1) Issuance on behalf of Lenders.  Each POA Letter of Credit shall be issued by the Administrative Agent on behalf of all Lenders as a single multi-Lender Letter of Credit, but the obligation of each Lender thereunder shall be several, and not joint, based upon its pro rata share (on the basis of its Commitment) in effect on the date of issuance of such POA Letter of Credit, subject to any changes resulting from a change in such pro rata share after the date of issuance of the POA Letter of Credit that are -------------------------------------------------------------------------------- - 50 - effected in accordance with the terms of the POA Letter of Credit.  Each POA Letter of Credit shall include the provisions contained in, and shall be substantially in the form of, Schedule 9 annexed hereto, and shall otherwise be in a form satisfactory to the Administrative Agent.  Without the unanimous consent of the Lenders, no POA Letter of Credit shall be issued which varies the several and not joint nature of the liability of each Lender thereunder. (2) Administrative Agent as Agent and Attorney.  Each POA Letter of Credit shall be executed and delivered by the Administrative Agent in the name and on behalf of, and as attorney-in-fact for, each Lender party to such Letter of Credit.  The Administrative Agent shall act under each POA Letter of Credit as the agent of each Lender to: (a) receive documents presented by the Beneficiary under such POA Letter of Credit; (b) determine whether such documents are in compliance with the terms and conditions of such POA Letter of Credit; and (c) notify such Lender and the Borrower that a valid drawing has been made and the date that the related payment under such POA Letter of Credit is to be made; provided that the Administrative Agent (in such capacity) shall have no obligation or liability for any payment to be made under any POA Letter of Credit and each POA Letter of Credit shall expressly so provide. (3) Power of Attorney.  Each Lender hereby appoints and designates the Administrative Agent as its attorney-in-fact, acting through any duly authorized officer of the Administrative Agent, to execute and deliver each POA Letter of Credit to be issued by such Lender hereunder in the name and on behalf of such Lender.  Each Lender shall furnish to the Agent a power of attorney in the form of Schedule 10 annexed hereto, which may be presented as evidence of the Administrative Agent’s power to act but which shall not, as between the Lender and the Administrative Agent, vary the power of the Administrative Agent as established in this agreement.  In addition, promptly upon the request of the Administrative Agent, each Lender will furnish to the Administrative Agent such other evidence as any Beneficiary of any POA Letter of Credit may reasonably request in order to demonstrate that the Administrative Agent has the power to act as attorney-in-fact for such Lender to execute and deliver such POA Letter of Credit.  The Borrower and the Lenders agree that each POA Letter of Credit shall provide that all documents presented thereunder shall be delivered to the Administrative Agent and that all -------------------------------------------------------------------------------- - 51 - payments thereunder shall be made by the Lenders obligated thereon through the Administrative Agent.  Each Lender shall be severally liable under each POA Letter of Credit in proportion to its pro rata share (on the basis of its Commitment) on the date of issuance of such POA Letter of Credit and each POA Letter of Credit shall specify each Lender’s share of the amount payable thereunder. (4) Documents and Payment Demands.  The Borrower and each Lender hereby authorize the Administrative Agent to review on behalf of each Lender each document presented under each POA Letter of Credit.  The determination of the Administrative Agent as to the conformity of any documents presented under a POA Letter of Credit to the requirements of such POA Letter of Credit shall be conclusive and binding on the Borrower and each Lender; provided that the Administrative Agent acts in accordance with the standards of reasonable care specified in the Uniform Customs.  The Administrative Agent shall, within a reasonable time following its receipt thereof, examine all documents purporting to represent a demand for payment under any POA Letter of Credit.  The Administrative Agent shall promptly after such examination: (a) notify each of the Lenders obligated under such POA Letter of Credit and the Borrower by telephone (confirmed in writing) of such demand for payment and of each Lender’s share of such payment; (b) deliver to each Lender and the Borrower a copy of each document purporting to represent a demand for payment under such POA Letter of Credit; and (c) notify each Lender and the Borrower whether the demand for payment was properly made under such POA Letter of Credit. (5) Drawings.  With respect to any drawing determined by the Administrative Agent to have been properly made under a POA Letter of Credit, each Lender will  make a payment under the POA Letter of Credit in accordance with its liability under the POA Letter of Credit and this agreement.  The payment shall be made to the Payment Account or such other account as the Administrative Agent designates by notice to the Lenders.  The Administrative Agent will promptly make any such payment available to the Beneficiary of such POA Letter of Credit.  Promptly following any payment by any Lender in respect of any POA Letter of Credit, the Administrative Agent will notify the Borrower of such payment, but any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Lenders with -------------------------------------------------------------------------------- - 52 - respect to any such payment.  The responsibility of the Administrative Agent and the Lenders in connection with any document presented for payment under any POA Letter of Credit shall, in addition to any payment obligation expressly provided in such POA Letter of Credit, be limited to determining that the documents delivered under such Letter of Credit in connection with such presentment are in conformity with such POA Letter of Credit.  The Administrative Agent shall not be required to make any payment under a POA Letter of Credit in excess of the amount received by it from the Lenders for such payment. (6) Reimbursement by Borrower.  The Borrower shall pay to the Administrative Agent (for the account of the Lenders) the amount paid to a Beneficiary upon a drawing under a POA Letter of Credit (in this Section 5.3(6), the “drawn amount”) on the date of such drawing.  The Administrative Agent, on behalf of the Lenders, shall be entitled to receive interest on the drawn amount at the rate applicable to Prime Rate Advances (if the drawn amount was in Canadian Dollars) or the rate applicable to Base Rate Advances (if the drawn amount was in US Dollars) for the period from and including the date the drawn amount was paid to a Beneficiary pursuant to the drawing to but excluding the date on which such payment (including interest) is made to Administrative Agent. (7) Notice regarding Potential Automatic Renewal.  Without limiting the other provisions of this agreement, if a Default or an Event of Default has then occurred and is continuing, the Administrative Agent shall notify the Lenders 30 days before any applicable deadline for notifying the Beneficiary of a POA Letter of Credit that it will not be renewed, in order to avoid automatic renewal in accordance with the terms of the POA Letter of Credit. 5.4 Notice of Issuance. (1) Notice.  Each Issuance shall be made on the Required Notice, given in the form of an Accommodation Request not later than 1:00 p.m. (Toronto time) by the Borrower to the Administrative Agent.  The Administrative Agent shall give prompt notice to the Lenders of their rateable share of such Issuance. (2) Other Documents. In addition, the Borrower shall execute and deliver the LC Issuer’s customary form of letter of credit indemnity agreement; provided that, if there is any inconsistency between the terms of this agreement and the terms of such customary form of indemnity agreement, the terms of this agreement shall prevail. -------------------------------------------------------------------------------- - 53 - 5.5 Form of Letter of Credit.  Each Letter of Credit to be issued hereunder shall: (a) be dated the Issue Date; (b) have an expiration date on a Business Day which occurs no more than 365 days after the Issue Date (provided that Letters of Credit may have a term in excess of 365 Days if the LC Issuer shall agree); and (c) comply with the definition of Letter of Credit and shall otherwise be satisfactory in form and substance to the LC Issuer. Except to the extent otherwise expressly provided herein or in another Credit Facility Document, the Uniform Customs or, as the case may be, ISP98 shall apply to and govern each Letter of Credit. 5.6 Procedure for Issuance of Letters of Credit.   (1) Issue.  On the Issue Date, the LC Issuer will complete and issue one or more Letters of Credit in favour of the Beneficiary as specified by the Borrower in its Accommodation Request. (2) Time for Honour.  No Letter of Credit shall require payment against a conforming draft to be made thereunder on the same Business Day upon which such draft is presented, if such presentation is made after 11:00 a.m. (Toronto time) on such Business Day. (3) Text.  Prior to the Issue Date, the Borrower shall specify a precise description of the documents and the verbatim text of any certificate to be presented by the Beneficiary prior to payment under the Letter of Credit.  The LC Issuer may require changes in any such documents or certificate, acting reasonably. (4) Conformity.  In determining whether to pay under a Letter of Credit, the  LC Issuer shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit. 5.7 Payment of Amounts Drawn Under Letters of Credit.  In the event of any request for a drawing under any Letter of Credit, the LC Issuer may notify the Borrower (with a copy of the notice to the Administrative Agent) on or before the date on which it intends to honour such drawing.  The Borrower (whether or not such notice is given) shall reimburse the LC Issuer on demand by the LC Issuer, -------------------------------------------------------------------------------- - 54 - in the relevant currency, an amount, in same day funds, equal to the amount of such drawing. Unless the Borrower notifies the LC Issuer and the Administrative Agent, prior to 1:00 p.m. (Toronto time) on the second Business Day following receipt by the Borrower of the notice from the LC Issuer referred to in the preceding paragraph, that the Borrower intends to reimburse the LC Issuer for the amount of such drawing with funds other than the proceeds of Advances: (a) the Borrower shall be deemed to have given an Accommodation Request to the Administrative Agent requesting the relevant Lenders to make a Prime Rate Advance on the third Business Day following the date on which such notice is provided by the LC Issuer to the Borrower in an amount equal to the amount of such drawing; and (b) subject to the terms and conditions of this agreement (including those set forth in Article 6), the Lenders shall, on the next Business Day following the date of such drawing, make such Advance in accordance with Article 3 and the Administrative Agent shall apply the proceeds thereof to the reimbursement of the LC Issuer for the amount of such drawing. 5.8 Fees.   (1) Issue Fee. The Borrower shall on the fifth Business Day following the end of each Financial Quarter and on the termination of each Letter of Credit pay to the Administrative Agent in relation to each such Letter of Credit for the account of the Lenders a fee in respect of each Letter of Credit outstanding during any portion of such Financial Quarter equal to that specified under "Issuance fee" in the definition of "Applicable Margin" multiplied by an amount equal to the undrawn portion of the Face Amount of each such Letter of Credit, such fee to be payable in the currency of issue and determined for a period equal to the number of days during such Financial Quarter that each such Letter of Credit was outstanding. (2) Fronting Fee.  In addition, the Borrower shall on the fifth Business Day following the end of each Financial Quarter and on the Maturity Date pay to the Administrative Agent for the account of the Issuing Bank a fronting fee in respect of each Fronted Letter of Credit issued by the Issuing Bank and outstanding during any portion of such Financial Quarter equal to 15 basis points per annum multiplied by an amount equal to the undrawn portion of the Face Amount of each such Fronted Letter of Credit, such fee -------------------------------------------------------------------------------- - 55 - to be determined for a period equal to the number of days during such Financial Quarter that each such Fronted Letter of Credit was outstanding. (3) Administrative Fee. The Borrower shall pay to the LC Issuer, upon the issuance, amendment or transfer of each Letter of Credit, the LC Issuer’s standard documentary and administrative charges for issuing, amending or transferring standby or commercial letters of credit or letters of guarantee of a similar amount, term and risk. 5.9 Obligations Absolute.  The obligation of the Borrower to reimburse the LC Issuer for drawings made under any Letter of Credit shall be unconditional and irrevocable and shall be fulfilled strictly in accordance with the terms of this agreement under all circumstances, including: (a) any lack of validity or enforceability of any Letter of Credit; (b) the existence of any claim, set-off, defence or other right which the Borrower may have at any time against a Beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), the LC Issuer, any Lender or any other Person, whether in connection with this agreement, the Credit Facility Documents, the Terasen Funding Agreement, the transactions contemplated herein and therein or any unrelated transaction (including any underlying transaction between the Borrower or an Affiliate and the Beneficiary of such Letter of Credit); (c) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect; (d) payment by the LC Issuer under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit (provided that such payment does not breach the standards of reasonable care specified in the Uniform Customs or disentitle the LC Issuer to reimbursement under ISP98, in each case as stated on its face to be applicable to the respective Letter of Credit); or (e) the fact that a Default or an Event of Default shall have occurred and be continuing. -------------------------------------------------------------------------------- - 56 - 5.10 Indemnification; Nature of Lenders’ Duties.   (1) Indemnity.  In addition to amounts payable as elsewhere provided in this Article 5, the Borrower hereby agrees to protect, indemnify, pay and save each Lender and their respective directors, officers, employees, agents and representatives harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including legal fees and expenses) which the indemnitee may incur or be subject to as a consequence, direct or indirect, of: (a) the issuance of any Letter of Credit, other than as a result of the breach of the standards of reasonable care specified in the Uniform Customs or where the LC Issuer would not be entitled to the foregoing indemnification under ISP98, in each case as stated on its face to be applicable to such Letter of Credit; or (b) the failure of the indemnitee to honour a drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Official Body (all such acts or omissions called in this Section 5.10, "Government Acts"). (2) Risk.  As between the Borrower, on the one hand, and the Lenders, on the other hand, the Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued hereunder by, the respective Beneficiaries of such Letters of Credit and, without limitation of the foregoing, neither the LC Issuer nor any Lender shall be responsible for: (a) the form, validity, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of such Letters of Credit, even if it should in fact prove to be in any or all respects invalid, inaccurate, fraudulent or forged; (b) the invalidity or insufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (c) errors, omissions, interruptions or delays in transmission or delivery of any messages, by fax, electronic transmission, mail, cable, telegraph, telex or otherwise, whether or not they are in cipher; -------------------------------------------------------------------------------- - 57 - (d) errors in interpretation of technical terms; (e) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (f) the misapplication by the Beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (g) any consequences arising from causes beyond the control of any Lender, including any Government Acts. None of the above shall affect, impair or prevent the vesting of any of the Lenders’ rights or powers hereunder.  No action taken or omitted by any Lender under or in connection with any Letter of Credit issued by it or the related certificates, if taken or omitted in good faith, shall put any Lender under any resulting liability to the Borrower (provided that the LC Issuer acts in accordance with the standards of reasonable care specified in the Uniform Customs and otherwise as may be required under ISP98, in each case as stated on its face to be applicable to the respective Letter of Credit). 5.11 Default, Maturity, etc.  Upon the earlier of the Maturity Date and the Administrative Agent declaring the Obligations to be due and payable pursuant to Section 10.2, and notwithstanding the expiration date of any outstanding Letters of Credit, an amount equal to the Face Amount of all outstanding Letters of Credit, and all accrued and unpaid fees owing by the Borrower in respect of the Issuance of such Letters of Credit pursuant to Section 5.8, if any, shall thereupon forthwith become due and payable by the Borrower to the Administrative Agent and, except for any amount payable in respect of unpaid fees as aforesaid, such amount shall be held in a trust account by the Administrative Agent and invested in Cash Equivalents and applied against amounts payable under such Letters of Credit in respect of any drawing thereunder. The Borrower shall pay to the Administrative Agent the aforesaid amount in respect of both any Letter of Credit outstanding hereunder and any Letter of Credit which is the subject matter of any order, judgment, injunction or other such determination (in this Section 5.11, a "Judicial Order") restricting payment by the LC Issuer under and in accordance with such Letter of Credit or extending the LC Issuer’s liability under such Letter of Credit beyond the expiration date stated therein.  Payment in respect of each such Letter of Credit shall be due in the currency in which such Letter of Credit is stated to be payable. -------------------------------------------------------------------------------- - 58 - Subject to Section 2.4(5), the Administrative Agent shall with respect to each such Letter of Credit, upon the later of: (a) the date on which any final and non-appealable order, judgment or other such determination has been rendered or issued either terminating the applicable Judicial Order or permanently enjoining the LC Issuer from paying under such Letter of Credit; and (b) the earlier of: (i) the date on which either the original counterpart of the Letter of Credit is delivered to the Administrative Agent for cancellation or the LC Issuer is released by the Beneficiary from any further obligations in respect thereof; and (ii) the expiry (to the extent permitted by any Applicable Law) of such Letter of Credit; pay to the Borrower an amount equal to the difference between the amount paid to the Administrative Agent by the Borrower pursuant to this Section 5.11 and the aggregate amount paid by the LC Issuer under such Letter of Credit. ARTICLE 6 CLOSING CONDITIONS 6.1 Closing Conditions to Initial Availability.  The Borrower shall not be entitled to an Accommodation under the Credit Facility unless the conditions precedent set forth in this Section 6.1 have been satisfied, fulfilled or otherwise met to the satisfaction of the Lenders on the Closing Date. (1) Documents.  The Credit Facility Documents (other than Bankers’ Acceptances and Letters of Credit yet to be issued) and the Terasen Funding Agreement shall have been executed and delivered to the Administrative Agent. (2) Constating Documents.  The Administrative Agent shall have received certified copies of the constating documents of the Borrower. (3) Resolutions.  The Administrative Agent shall have received certified copies of resolutions of the board of directors (or, where applicable, executive, audit or other relevant committee thereof) of the Borrower authorizing the execution and delivery of each Credit Facility Document to which it is a party and the Terasen Funding Agreement, and of the board of directors of Terasen authorizing the execution and delivery of the Terasen Funding Agreement. -------------------------------------------------------------------------------- - 59 - (4) Incumbency.  The Administrative Agent shall have received a certificate of the secretary or an assistant secretary of the Borrower certifying the names and the true signatures of the officers authorized to sign the Credit Facility Documents to which it is a party and the Terasen Funding Agreement.  The Administrative Agent shall have received a certificate of the secretary or an assistant secretary of Terasen certifying the names and the true signatures of the officers authorized to sign the Terasen Funding Agreement. (5) Good Standing.  The Administrative Agent shall have received a certificate of good standing in respect of the Borrower from the British Columbia Registrar of Companies. (6) Representations and Warranties.  All of the representations and warranties of the Borrower contained herein or in any other Credit Facility Document, or of Terasen in the Terasen Funding Agreement, shall be true and correct in all material respects on and as of the Closing Date as though made on and as of such date and the Administrative Agent shall have received a certificate of a Senior Officer or of an officer of Terasen, respectively, so certifying to the Lenders. (7) No Default.  No Default or Event of Default shall have occurred and be continuing, and the Administrative Agent shall have received a certificate of a Senior Officer so certifying to the Lenders. (8) Financial Statements.  The Administrative Agent shall have received the most recent annual audited financial statements of the Borrower, together with a Compliance Certificate as at September 30, 2005 confirming compliance with Section 8.3 on a pro forma basis consistent with the definition of Interest Expense. (9) Material Agreements.  The Administrative Agent shall have received copies of the Material Agreements, certified to be true and complete by a Senior Officer. (10) Fees.  The Administrative Agent and the Lenders shall have received payment of all fees and all reimbursable expenses then due. (11) Ratings.  The Administrative Agent shall have received confirmation of the Rating or Ratings issued as of the Closing Date (and the relevant rating report). (12) Opinions.  The Administrative Agent shall have received an opinion of counsel to the Borrower and Terasen substantially in the form of schedule 7 annexed hereto and shall have received the favourable opinion of -------------------------------------------------------------------------------- - 60 - Lenders’ Counsel in form and substance satisfactory to the Administrative Agent with respect to the matters covered by the aforementioned opinion and such other matters as the Administrative Agent shall reasonably request. (13) Existing Facilities.  All commitments under the Existing Credit Facility shall have been terminated or shall concurrently be terminated. (14) Security. All Liens other than Permitted Liens shall have been discharged or, in the case of Liens securing obligations under the Existing Facility, satisfactory arrangements for the discharge of such Liens following repayment of the Existing Facility shall have been made. (15) Other.  The Administrative Agent shall have received such supporting and other certificates and documentation as the Lenders may reasonably request. 6.2 General Conditions for Accommodations.  The Borrower shall not be entitled to any Accommodations (other than by Conversion or Rollover) after the Closing Date unless and until the conditions precedent set forth in this Section 6.2 have been satisfied, fulfilled or otherwise met to the satisfaction of the Lenders. (1) Documents.  The Credit Facility Documents (other than Bankers’ Acceptances and Letters of Credit yet to be issued) and the Terasen Funding Agreement shall have been executed and delivered to the Administrative Agent. (2) Representations and Warranties.  All of the representations and warranties contained herein or in any other Credit Facility Document shall be true and correct in all material respects on and as of such date as though made on and as of such date (unless expressly stated to be made as of the Closing Date or some other specified date) and (except in the case of Swingline Advances) a Senior Financial Officer shall so certify to the Lenders in the applicable Accommodation Request. (3) No Default.  No Default or Event of Default shall have occurred and be continuing and (except in the case of Swingline Advances) the Administrative Agent shall have received a certificate of a Senior Financial Officer so certifying to the Lenders. (4) Fees.  The Administrative Agent and the Lenders shall have received payment of all fees and all reimbursable expenses then due. (5) Other.  The Lenders shall have received such supporting and other certificates and documentation as the Lenders may reasonably request. -------------------------------------------------------------------------------- - 61 - 6.3 Conversions and Rollovers.  The obligation of the Lenders to make any Accommodation by Conversion or Rollover under the Credit Facility shall be subject to the condition precedent that no Default or Event of Default shall have occurred and be continuing, and (except in the case of Swingline Advances) a Senior Financial Officer shall so certify to the Lenders in the applicable Accommodation Request. 6.4 Deemed Representation.  Each of the giving of any Accommodation Request and the acceptance or use by the Borrower of the proceeds of any Accommodation shall be deemed to constitute a representation and warranty by the Borrower that, on the date of such Accommodation Request and on the date of any Accommodation being provided and after giving effect thereto, the applicable conditions precedent set forth in this Article 6 shall have been satisfied, fulfilled or otherwise met. 6.5 Conditions Solely for the Benefit of the Lenders.  All conditions precedent to the entitlement of the Borrower to any Accommodations hereunder are solely for the benefit of the Lenders, and no other Person shall have standing to require satisfaction or fulfilment of any condition precedent or that it be otherwise met and no other Person shall be deemed to be a beneficiary of any such condition, any and all of which may be freely waived in whole or in part by the Lenders at any time the Lenders deem it advisable to do so in their sole discretion. 6.6 No Waiver.  The making of any Accommodations without one or more of the conditions precedent set forth in this Article 6 having been satisfied, fulfilled or otherwise met shall not constitute a waiver by the Lenders of any such condition, and the Lenders reserve the right to require that each such condition be satisfied, fulfilled or otherwise met prior to the making of any subsequent Accommodations. ARTICLE 7 REPRESENTATIONS AND WARRANTIES The Borrower (i) represents and warrants to the Lenders as set forth in this Article 7, (ii) acknowledges that the Lenders are relying thereon in entering into this agreement and providing Accommodations from time to time, (iii) agrees that no investigation at any time made by or on behalf of the Lenders shall diminish in any respect whatsoever their right to rely thereon, and (iv) agrees that all representations and warranties shall be valid and effective as of the date when given or deemed to have been given and to such extent shall survive the execution and delivery of this agreement and the provision of Accommodations from time to time. 7.1 Existence.  The Borrower has been duly incorporated and is a validly existing corporation under the laws of Canada or a province of Canada and is duly -------------------------------------------------------------------------------- - 62 - licensed or qualified and authorized to do business in the Province of British Columbia and is in good standing with respect to all required corporate and similar filings. 7.2 Capacity.  The Borrower has full corporate right, power and authority to enter into, and perform its obligations under, each Credit Facility Document to which it is or will be a party and the Terasen Funding Agreement, and the Borrower has full corporate power and authority to own and operate its Properties and to carry on its business as now conducted. 7.3 Authority.  The execution and delivery by the Borrower of the Credit Facility Documents to which it is or will be a party and the Terasen Funding Agreement and the consummation by the Borrower of the transactions contemplated hereby and thereby have been duly authorized by the directors of the Borrower. 7.4 Authorization, Governmental Approvals, etc.  Neither the nature of the Borrower or its business or Property, nor any circumstance in connection with the entering into and performance of the Credit Facility Documents to which it is or will be a party and the Terasen Funding Agreement, is such as to require any Governmental Approval that has not yet been obtained on the part of the Borrower in connection with the execution, delivery and performance of such Credit Facility Documents or the Terasen Funding Agreement, except for any such Governmental Approvals that, if applied individually or in the aggregate, do not have and would not reasonably be expected to have a Material Adverse Effect. 7.5 Enforceability.  This agreement has been duly executed and delivered by the Borrower and constitutes, and each other Credit Facility Document to which it is or will be a party and each other document hereby or thereby contemplated when executed by it will constitute, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, subject to such customary qualifications as shall be set forth in the opinion of counsel to the Borrower delivered pursuant to Section 6.1(12). 7.6 No Breach.  The entering into and compliance by the Borrower with all of the provisions of the Credit Facility Documents to which it is or will be a party and the Terasen Funding Agreement are legal, do not violate any provisions of any Requirement of Law and do not result in any breach of any of the provisions of, or constitute a default under, or result in the creation of any Lien on any Property of the Borrower under the provisions of, any Charter Document of the Borrower or any agreement or instrument (including the Material Agreements) to which the Borrower is a party or by which it or its Property may be bound. 7.7 Subsidiaries.  As at the Closing Date, the Borrower: -------------------------------------------------------------------------------- - 63 - (a) is a wholly-owned subsidiary of Terasen; and (b) has no subsidiaries. 7.8 Immunity, etc.  The Borrower is subject to the relevant commercial law of the Province of British Columbia and the law of Canada which is applicable therein and is generally subject to suit and it is not immune nor does any of its Property or revenues enjoy any right of immunity from any judicial proceedings, including attachment prior to judgment, attachment in aid of execution, execution of judgment or otherwise, except that, in respect of payments of Royalty Revenue and Interruptible Incentive under the VINGPA, the remedies of injunction and specific performance are not available against the Province of British Columbia by virtue of the Crown Proceeding Act (British Columbia), nor may enforcement proceedings by way of execution or attachment, or other process of that nature, be taken against the Province of British Columbia. 7.9 Litigation.  At the Closing Date, there are no actions, suits, claims or proceedings pending or (to its knowledge) threatened against the Borrower at law or in equity or before or by any Governmental Authority which have a reasonable likelihood of being determined adversely and which, individually or in the aggregate, if adversely determined have or would reasonably be expected to have a Material Adverse Effect. 7.10 Books and Records.  The Borrower maintains books, records and accounts in reasonable detail which accurately and fairly reflect its transactions and business affairs and permit preparation of financial statements in accordance with GAAP. 7.11 Compliance.  Except as otherwise disclosed in writing to the Lenders prior to the Closing Date, as at the Closing Date: (a) no Default or Event of Default has occurred and is continuing; and (b) the Borrower is not in default with respect to any Requirement of Law to the extent that the sanctions, consequences and penalties resulting from such defaults, if applied individually or in the aggregate, have or would reasonably be expected to have a Material Adverse Effect; (c) the Borrower: (i) is not in violation of, nor has any liability under, any Environmental Law applicable to the Borrower; -------------------------------------------------------------------------------- - 64 - (ii) is not aware of the presence, release or disposal of any hazardous substances at any of its prior or currently owned, leased or operated Property; (iii) is not subject to any litigation, investigation, order or proceeding in connection with hazardous substances or Environmental Laws; and (iv) is not subject to any environmental, health or safety condition; which, for any of the foregoing, individually or in the aggregate, has or would reasonably be expected to have a Material Adverse Effect; (d) the Borrower has obtained all Governmental Approvals which are necessary to carry on its business as now being conducted and each such Governmental Approval is in full force and effect, has not been surrendered, forfeited or become void or voidable, and there are no defaults under any Governmental Approval of the Borrower to the extent that failure to obtain such Governmental Approval or the sanctions, consequences and penalties resulting from such defaults, if applied individually or in the aggregate, have or would reasonably be expected to have a Material Adverse Effect; and (e) the Borrower is not in default, nor is there in existence an event or condition which, with the giving of notice, the passage of time, the making of any determination or any combination of the foregoing would be a default, under: (i) any Indebtedness; (ii) any Material Agreement; or (iii) any other agreement or instrument to which it is a party or by which it or its Property may be bound; which defaults, if applied individually or in the aggregate, have or would reasonably be expected to have a Material Adverse Effect. 7.12 Latest Annual Financial Statements.  The audited financial statements of the Borrower as of and for the year ended December 31, 2004, copies of which have been delivered to the Administrative Agent, were prepared in accordance with GAAP as at the date of such financial statements and as at the Closing Date -------------------------------------------------------------------------------- - 65 - present fairly, as at the date of such financial statements, the financial position of the Borrower. 7.13 Ibid.  Each financial statement of the Borrower delivered in connection with the Credit Facility has been prepared in accordance with GAAP as at the date thereof (subject, in the case of quarterly statements, to the absence of notes and to year end audit adjustments) and fairly presents the financial condition of the Borrower as of and for the period ended on the date of the financial statement. 7.14 Contingent Liabilities.  The Borrower has no material contingent liabilities other than Guarantees, letters of credit and other obligations entered into in the normal course of business. 7.15 Franchises, etc.  Except for Governmental Approvals and Material Agreements, the Borrower has all other franchises, permits, approvals, validations, licences and other like interests, rights and authorities necessary to carry on its business as now being conducted and as proposed to be conducted, and there are no defaults under any of such franchises, permits, approvals, validations, licenses or other interests, rights or authorities to the extent that the failure to have or obtain any such franchise, permit, approval, validation, license or other authority or the sanctions, consequences and penalties from such defaults, if applied individually or in the aggregate, have or would reasonably be expected to have a Material Adverse Effect. 7.16 Ownership of Property.  The Borrower maintains all Property (including easements, rights of way and other real property rights) necessary to carry on its business in all material respects as now being conducted. 7.17 Intellectual Property.  The Borrower owns or possesses all patents, trademarks, service marks, trade names, copyrights, licenses and rights with respect to the foregoing necessary for the conduct of its business, without any known conflict with the rights of others which, if determined against the Borrower, if applied individually or in the aggregate, have or would reasonably be expected to have a Material Adverse Effect. 7.18 Title.  The Borrower has good title to all real property which it purports to own in fee simple and to all personal property which it purports to own in like manner, free from all Liens except for Permitted Liens, except where the failure to have such good title, if applied individually or in the aggregate, does not have and would not reasonably be expected to have a Material Adverse Effect. 7.19 Leases.  The Borrower enjoys peaceful and undisturbed possession under all material leasehold and similar interests under which the Borrower is a lessee or is operating, and all of such leases are valid and subsisting and the Borrower is -------------------------------------------------------------------------------- - 66 - not in default with respect to any leases save for defaults which, if applied individually or in the aggregate, do not have and would not reasonably be expected to have a Material Adverse Effect. 7.20 Material Agreements.  Each Material Agreement is in full force and effect, unamended save with respect to amendments which have been delivered to the Administrative Agent on or before the Closing Date or notified to the Administrative Agent in accordance with the Credit Facility Documents. The Borrower has neither waived any of its rights under any Material Agreement nor released any party from its obligations with respect thereto, except in accordance with the Credit Facility Documents. Neither the Borrower nor, to the best of its knowledge, any other party is in default under the terms of any Material Agreement, except for defaults which, individually or in the aggregate, do not have and would not reasonably be expected to have a Material Adverse Effect. 7.21 Taxes.  Except for circumstances which, individually or in the aggregate, do not have and would not reasonably be expected to have a Material Adverse Effect: (a) all tax returns required to be filed by the Borrower in any jurisdiction have been filed; (b) all taxes, assessments, fees and other governmental charges upon the Borrower or upon any of its Property, which are due and payable, have been paid on a timely basis or within appropriate extension periods or are being contested in good faith by appropriate proceedings (and in respect of which adequate provision has been made on its books); (c) the Borrower has collected, deducted, withheld and remitted to the proper taxing authorities when due all taxes, workers compensation assessments, employment insurance assessments, fees and other similar amounts required to be collected, deducted, withheld and remitted; and (d) the Borrower does not know of any proposed additional tax assessments against it for which adequate provision has not been made on its books which have a reasonable likelihood of being adversely determined. 7.22 Material Adverse Effect.  Since September 30, 2005 and up to the Closing Date, there has been no event or condition that constitutes or would reasonably be expected to constitute a Material Adverse Effect. 7.23 Pari Passu.  The payment Obligations of the Borrower under this agreement and each other Credit Facility Document to which it is a party rank at least pari passu -------------------------------------------------------------------------------- - 67 - in right of payment with all of its other unsecured and unsubordinated indebtedness, other than any such indebtedness which is preferred by mandatory provisions of Applicable Law. 7.24 Information.  All information supplied to the Lenders by the Borrower on or before the Closing Date is, with respect to factual matters, true and correct in all material respects and is, with respect to projections, forecasts and other matters being the subject of opinion, believed on reasonable grounds to be true and correct in all material respects and, to the extent based upon assumptions, such assumptions are believed to be reasonable in the circumstances. ARTICLE 8 COVENANTS 8.1 Affirmative Covenants.  Until the Obligations are paid and satisfied in full and this agreement has been terminated, and in addition to any other covenants herein set forth, the Borrower covenants as set forth in this Section 8.1. (1) Maintain Existence.  The Borrower shall maintain and preserve its corporate existence and right to carry on business and use reasonable commercial efforts to maintain, preserve, renew and extend all rights, powers, privileges and franchises necessary to the proper conduct of its business as now being conducted. (2) Compliance with Laws, etc.  The Borrower shall comply with all Requirements of Law (including for greater certainty all Environmental Laws) relating to its business where failure to comply, individually or in the aggregate, has or would reasonably be expected to have a Material Adverse Effect. (3) Payment of Taxes and Claims.  The Borrower shall pay and discharge when due: (a) all taxes, assessments and governmental charges or levies imposed upon it, its income or its Property ; and (b) all lawful claims which, if unpaid, might become a Lien upon its Property; provided that the Borrower shall not be required to pay any such tax, assessment, charge, levy or claim, the payment of which is being contested in good faith and by proper proceedings that will stay the forfeiture or sale of any Property and with respect to which adequate reserves are maintained. -------------------------------------------------------------------------------- - 68 - (4) Governmental Approvals.  The Borrower shall obtain (to the extent not in existence on the date hereof) all Governmental Approvals necessary for the operation of its business as presently conducted and comply in all material respects with the covenants, terms and conditions set out in such Governmental Approvals, unless failure to so obtain or non-compliance, individually or in the aggregate, does not have and would not reasonably be expected to have a Material Adverse Effect. (5) Material Agreements.  The Borrower will comply in all material respects with the covenants, terms and conditions set out in the Material Agreements, save where such failure to comply, individually or in the aggregate when considered with all other such failures, does not have and would not reasonably be expected to have a Material Adverse Effect. (6) Insurance.  Subject to reasonable commercial efforts having regard to market conditions, the Borrower shall maintain with reputable insurers, insurance with respect to its properties and business against such liabilities, casualties, risks and contingencies and in such amounts as are customary for companies engaged in the same or similar businesses and, at the written request of the Administrative Agent, will provide evidence thereof to the Administrative Agent. (7) Keeping of Books.  The Borrower shall keep at all times proper books of record and account in which full, true and correct entries shall be made of all dealings or transactions of or in relation to the business and affairs of the Borrower in accordance with GAAP. (8) Conduct of Business.  The Borrower shall carry on and conduct its business in accordance with sound business practices and shall maintain its material assets in reasonable repair and working order. (9) Pay Obligations to Lenders.  The Borrower shall duly and punctually pay or cause to be paid to the Administrative Agent for the account of each Lender all principal, interest, stamping fees for Bankers’ Acceptances, standby fees and other fees and amounts payable by it hereunder on the dates, at the places and in the moneys and manner set forth herein. (10) Use of Proceeds.  It will use the proceeds of all Accommodations made available to it only for the purposes set forth in Section 2.1(2). (11) Financial and Other Reporting. The Borrower will deliver to the Administrative Agent the following: -------------------------------------------------------------------------------- - 69 - (a) no later than 60 days after the end of each of the first three Financial Quarters, financial statements for that Financial Quarter on an unaudited basis; (b) no later than 120 days after the end of each Financial Year, financial statements for that Financial Year on an audited basis; (c) with each of the financial statements in (a) and (b) above, a Compliance Certificate signed by a Senior Financial Officer; and (d) such other information as the Administrative Agent shall from time to time reasonably request. (12) Notice of Certain Events. The Borrower will notify the Administrative Agent in writing of the following: (a) as soon as practicable upon the occurrence thereof, any Default or Event of Default; (b) promptly, any decision (for whatever reason) by a Rating Agency to cease providing a Rating, any change in a Rating by either Rating Agency, or any new such Rating; (c) as soon as practicable after the Borrower obtains knowledge thereof, notice of any action, suit, claim or proceeding pending or (to its knowledge) threatened against the Borrower at law or in equity or before or by any Governmental Authority which has a reasonable likelihood of being determined adversely and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect; (d) as soon as practicable after the Borrower obtains knowledge thereof, notice of any ruling from the BCUC which has or would reasonably be expected to have a Material Adverse Effect; (e) from time to time the names of those officers of the Borrower who have been duly authorized to sign Bankers' Acceptances, notes, instruments, agreements and certificates hereunder; and (f) promptly after the Borrower obtains knowledge thereof, written notice of any proposed amendment to, or other material dealing with or development concerning, the Special Direction, save where such amendment, dealing or development does not have and would not reasonably be expected to have a Material Adverse Effect. -------------------------------------------------------------------------------- - 70 - (13) Notices re: Material Agreements.  The Borrower shall provide to the Administrative Agent: (a) within 60 days after the end of each Financial Quarter, copies of all amendments to Material Agreements during such Financial Quarter; (b) promptly after same has been received, any written notice received by the Borrower regarding an alleged default by the Borrower under any Material Agreement, save where the allegation of such default does not have a reasonable likelihood of being sustained or, if sustained, individually or in the aggregate when considered with all other such defaults, does not have and would not reasonably be expected to have a Material Adverse Effect; (c) as soon as practicable, written notice of any default by the Borrower under any Material Agreement, save where such default, individually or in the aggregate when considered with all other such defaults, does not have and would not reasonably be expected to have a Material Adverse Effect; and (d) promptly after the Borrower obtains knowledge thereof, written notice of any default by any other party to a Material Agreement, save where such default, individually or in the aggregate when considered with all other such defaults, does not have and would not reasonably be expected to have a Material Adverse Effect. (14) Environmental Indemnity.  The Borrower will forthwith on demand fully indemnify, defend and save the Administrative Agent, the Lenders and their Affiliates and their respective shareholders, directors, officers, employees, advisors, consultants, counsel and agents (each, an “Indemnified Party”) harmless from and against any and all losses and expenses (including interest and, to the extent permitted by applicable law, penalties, fines and monetary sanctions actually incurred) which an Indemnified Party suffers or incurs as a result of or otherwise in respect of any environmental claim or liability of any kind which arises out of the execution, delivery or performance of, or the enforcement or exercise of any right under, any Credit Facility Document, including any claim in nuisance, negligence, strict liability or other cause of action arising out of a discharge of a Contaminant into the environment and any fines or orders of any kind that may be levied or made pursuant to an Environmental Law, in each case relating to or otherwise arising out of any of the assets or business of the Borrower whether or not any Indemnified Party is in charge, management or control of all or any part thereof. -------------------------------------------------------------------------------- - 71 - The foregoing indemnity shall not apply in favour of an Indemnified Party in respect of losses and expenses arising as a result of the gross negligence or wilful misconduct of such Indemnified Party or any Person acting for or on behalf of such Indemnified Party or in respect of losses and expenses arising as a result of the operation of any of the assets or business of the Borrower by an Indemnified Party in a manner that is not at least substantially as environmentally sound as would be the case if operated in accordance with general industry practice or to the standard that the Borrower operated such assets or business. The provisions of this Section 8.1(14) shall survive the termination of this agreement and the repayment of all Obligations. (15) Environmental Compliance Orders.  Upon receipt, the Borrower will notify the Administrative Agent and make available for inspection and review on a confidential basis by representatives of the Lenders, copies of all written orders, directions, claims or complaints by a Governmental Authority: (a) relating to the environmental condition of the Borrower’s assets, or (b) relating to non-compliance with any Environmental Law; where failure to comply with or resolve such orders, claims or complaints has or would be reasonably expected to have a Material Adverse Effect. (16) Further Assurances.  It will at its cost and expense, upon request of the Administrative Agent, duly execute and deliver, or cause to be duly executed and delivered, to the Administrative Agent such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of the Administrative Agent to carry out more effectually the provisions and purposes of this agreement and the other Credit Facility Documents. 8.2 Negative Covenants.  Until the Obligations are paid and satisfied in full and this agreement has been terminated, and in addition to any other covenants herein set forth, the Borrower covenants and agrees that it will not take any of the actions set forth in this Section 8.2 or permit or suffer same to occur without the prior written consent of the Majority Lenders pursuant to Section 12.2. (1) Liens.  The Borrower will not create, incur,  assume or otherwise become liable for or permit to exist any Lien on any of its Property other than Permitted Liens. -------------------------------------------------------------------------------- - 72 - (2) Merger, etc.  Except for Permitted Mergers, the Borrower will not merge, consolidate or amalgamate with or into, or sell, convey, transfer, lease or otherwise dispose of (in one transaction or a series of transactions and other than by way of Permitted Liens) all or substantially all of its assets to, any other Person. (3) Business.  The Borrower will not change the nature of its principal business from that of the ownership and operation of a regulated natural gas transmission and distribution utility and regulated and unregulated business activities related thereto. (4) Dispositions.  Except for sales in the normal course of business, the Borrower shall not dispose of any Property except to an arm's length purchaser at fair market value, or to a non-arm's length purchaser on terms no less favourable to the Borrower than would be the case in an arm’s length transaction, and in any event shall not dispose of any Property where such disposition constitutes or would reasonably be expected to constitute a Material Adverse Effect. (5) Distributions.  The Borrower shall not take any of the following actions (each, a “Distribution”): (a) pay any dividends on its outstanding shares (except for stock dividends); (b) reduce its capital; or (c) make any payments on account of its obligations under any Class A Instruments or Class B Instruments (except for the issuance of additional Class A Instruments or Class B Instruments); provided that, once in each Financial Quarter in the case of (a) and (b) and once annually in the case of (c), a Distribution may be made where the following conditions apply (and the Borrower shall deliver to the Lenders a certificate signed by a Senior Financial Officer certifying that): (d) immediately after such Distribution, the Leverage Ratio would comply with Section 8.3; and (e) both immediately before and immediately after such Distribution there shall be no Default or Event of Default that has occurred and is continuing; -------------------------------------------------------------------------------- - 73 - provided further that, in the event that the conditions set forth in (d) and (e) above are satisfied, payments on account of Subordinated Debt may be made without restriction as to frequency. (6) Material Agreements.  The Borrower will not: (a) waive or release any right under any Material Agreement, save where such waiver or release, individually or in the aggregate when considered with all other such waivers and releases, does not have and would not reasonably be expected to have a Material Adverse Effect; or (b) amend any Material Agreement in an adverse manner, save where such amendment, individually or in the aggregate when considered with all other such amendments, does not have and would not reasonably be expected to have a Material Adverse Effect. (7) Hedges.  The Borrower shall not enter into any Hedge Instruments for speculative purposes. (8) Payment of Junior Obligations. The Borrower shall not make payments on account of the Junior Obligations (as defined in the Terasen Funding Agreement) if to do so would be contrary to the terms of the Terasen Funding Agreement. 8.3 Financial Covenants.  As at each Calculation Date: (a) the Leverage Ratio shall not exceed 0.7 to 1; and (b) the Coverage Ratio shall be at least 2.0 to 1. 8.4 Administrative Agent May Perform Covenants.  If the Borrower shall fail to perform or observe any covenant on its part contained herein or in any other Credit Facility Document, the Administrative Agent may, in its sole discretion acting reasonably, and shall upon the instructions of the Majority Lenders, in either case subject to it having been indemnified to its satisfaction, perform (or cause to be performed), any of the said covenants capable of being performed by the Administrative Agent and, if any such covenant requires the payment or expenditure of money, the Administrative Agent may make such payment or expenditures with its own funds or with money borrowed for that purpose (but the Administrative Agent shall be under no obligation to do so); provided that the Administrative Agent shall first have provided written notice of its intention to the Borrower and a reasonable opportunity (not to exceed 20 days, or such longer period as the Lenders shall approve) to cure the failure.  All amounts paid by the Administrative Agent pursuant to this Section 8.4 shall be repaid by the -------------------------------------------------------------------------------- - 74 - Borrower to the Administrative Agent on demand therefor, and shall form part of the Obligations.  No payment or performance under this Section 8.4 shall relieve the Borrower from any Event of Default. ARTICLE 9 CHANGES IN CIRCUMSTANCES 9.1 Provisions to Apply. Section 3 of the Provisions shall for all purposes of this agreement apply in the circumstances therein contemplated. 9.2 Indemnification re Matching Funds.  The Borrower shall promptly pay to each Lender any amounts required to compensate such Lender for any breakage or similar cost, loss, cost of redeploying funds or other cost or expense suffered or incurred by such Lender  as a result of: (a) any payment being made by the Borrower in respect of a LIBOR Advance or a Bankers’ Acceptance (due to acceleration hereunder or a mandatory repayment or prepayment of principal or for any other reason) on a day other than the last day of an Interest Period or the maturity date applicable thereto; provided that, where the event giving rise to such payment is a mandatory repayment or prepayment, the Borrower may at its option instead deposit the amount of the repayment or prepayment to a trust account pending expiry of the existing Interest Period or (as the case may be) maturity of outstanding Bankers Acceptances, and the monies in such trust account shall be invested in Cash Equivalents and applied by the Administrative Agent to the required repayment or prepayment on the expiry of such Interest Period or maturity of such Bankers Acceptance; (b) the Borrower’s failure to give Notice in the manner and at the times required hereunder; or (c) the failure of the Borrower to fulfil or honour, before the date specified for any Accommodation, the applicable conditions set forth in Article 6 or to accept an Accommodation after delivery of an Accommodation Request in the manner and at the time specified in such Accommodation Request. A certificate of such Lender submitted to the Borrower (with a copy to the Administrative Agent) as to the amount necessary to so compensate such Lender shall be conclusive evidence, absent demonstrated error, of the amount due from the Borrower to such Lender. -------------------------------------------------------------------------------- - 75 - ARTICLE 10 EVENTS OF DEFAULT 10.1 Events of Default.  Each of the events set forth in this Section 10.1 shall constitute an "Event of Default". (1) Payment.  The Borrower shall fail: (a) to pay the principal amount of any Advance or BA Equivalent Loan when the same becomes due and payable; (b) to reimburse any Lender in respect of any Bankers’ Acceptance or Letter of Credit, or pay the Face Amount thereof, when required hereunder; or (c) to pay any interest or fees hereunder when the same becomes due and payable; and, in the case of (a) or (b), such failure shall remain unremedied for a period of one Business Day after notice from the Administrative Agent to the Borrower or, in the case of (c), such failure shall remain unremedied for a period of three Business Days after notice from the Administrative Agent to the Borrower. (2) Representations and Warranties Incorrect.  Any of the representations or warranties made or deemed to have been made by the Borrower in any Credit Facility Document, or by Terasen in the Terasen Funding Agreement, shall prove to be or have been incorrect in any material respect when made or deemed to have been made, and the Borrower or Terasen, as the case may be, fails to cure such incorrect representation or warranty within 30 days of receiving notice from the Administrative Agent in connection therewith. (3) Failure to Perform Certain Covenants.  The Borrower shall fail to perform or observe any covenant contained in any Credit Facility Document on its part to be performed or observed or otherwise applicable to it; provided that, if such failure is capable of being remedied, no Event of Default shall have occurred as a result thereof unless and until such failure shall have remained unremedied for 30 days after the earlier of (i) written notice thereof given to the Borrower by the Administrative Agent, and (ii) such time as the Borrower is aware of same. (4) Indebtedness.  Either: -------------------------------------------------------------------------------- - 76 - (a) the Borrower fails to pay the principal of any Indebtedness (excluding the obligations under the Credit Facility) which is outstanding in an aggregate principal amount exceeding $10 million (or the Equivalent Amount in any other currency) when such amount becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) beyond any applicable grace period; or (b) any other event occurs or condition exists (including a failure to pay the premium or interest on such Indebtedness) and continues after the applicable grace period, if any, specified in any agreement or instrument relating to any such Indebtedness which is outstanding in an aggregate principal amount exceeding $10 million (or the Equivalent Amount in any other currency) without waiver of such failure by the holder of such Indebtedness on or before the expiration of such period, as a result of which such holder accelerates such Indebtedness. (5) Judgment.  Any judgment or order for the payment of money in excess of $10,000,000 (or the Equivalent Amount in any other currency) is rendered against the Borrower and remains unsatisfied or unstayed for more than 30 Business Days. (6) Bankruptcy, etc.  The Borrower does not pay its debts generally as they become due or admits its inability to pay its debts generally  as they become due or makes a general assignment for the benefit of creditors or commits any other act of bankruptcy (within the meaning of the Bankruptcy and Insolvency Act (Canada) or equivalent or analogous law of any foreign jurisdiction) or any proceedings are instituted by or against the Borrower seeking to adjudicate it a bankrupt or declare it insolvent or seeking administration, liquidation, winding-up, reorganization, compromise, arrangement, adjustment, protection, relief or composition of it or with respect to its debts, whether by voluntary arrangement, scheme of arrangement or otherwise, under any Applicable Law relating to bankruptcy, insolvency or reorganization or relief with respect to debtors or other similar matters, or seeking the appointment of a receiver, manager, administrator, administrative receiver, receiver and manager, trustee, custodian or other similar official for it or for any substantial part of its Property, or the Borrower takes corporate action to authorize any of the actions set forth in this Section 10.1(6) (excluding proceedings against the Borrower being contested by the Borrower in good faith by appropriate proceedings so long as enforcement sought in such proceedings remains stayed, none of the relief sought is granted (either on an interim or permanent basis), and such proceedings are dismissed, -------------------------------------------------------------------------------- - 77 - stayed or withdrawn within 30 Business Days of the Borrower receiving notice of the institution thereof). (7) Execution.  Any one or more Persons shall take possession of any Property of the Borrower or any one or more seizures, executions, garnishments, sequestrations, distresses, attachments or other equivalent processes are issued or levied against any Property of the Borrower, in each case in relation to claims in the aggregate in excess of $10,000,000 (or the Equivalent Amount in another currency), and such Property is not released within 30 Business Days or such shorter period as would permit such Property to be sold, foreclosed upon or forfeited thereunder. (8) Carry on Business.  The Borrower shall cease or threaten to cease to carry on its business or shall dispose or threaten to dispose of all or substantially all of its assets whether by one transaction or a series of transactions, except as permitted hereunder. (9) VINGPA.  Terasen (or a successor owner of the Borrower as permitted by Section 10.1(12)(b) below) is in default of any of its funding obligations under the VINGPA, or any other obligation which would entitle the Province of British Columbia to suspend Royalty Revenue payments under the VINGPA. (10) Terasen Funding Agreement. Terasen (or a successor owner of the Borrower as permitted by Section 10.1(12)(b) below) is in default under the Terasen Funding Agreement. (11) Credit Facility Documents.  Any Credit Facility Document shall (except in accordance with its terms), in whole or in material part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of the Borrower, or the Borrower shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or the Terasen Funding Agreement shall (except in accordance with its terms), in whole or in material part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of Terasen, or Terasen shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability. (12) Control Event.  At any time while the VINGPA is in effect, the Borrower (except as a result of a Permitted Merger) shall cease to be a wholly-owned direct or indirect subsidiary of either: (a) Terasen; or (b) another Person: -------------------------------------------------------------------------------- - 78 - (i) whose public unsecured debt had, at the time of acquisition from Terasen, a Rating at least as high as Terasen’s public unsecured debt at such time; and (ii) who, at the time of acquisition from Terasen, was directly or indirectly engaged in the utility or other infrastructure business. 10.2 Effect.   (1) General.  Upon the occurrence and continuance of an Event of Default, except as provided in Section 10.2(2), the Administrative Agent: (a) shall, at the request of the Majority Lenders, by notice to the Borrower cancel all obligations of the Lenders in respect of the Commitments (whereupon no further Accommodations may be made and any Accommodation Request given with respect to an Accommodation occurring on or after the date of such notice or request shall cease to have effect); and (b) shall, at the request of the Majority Lenders, by notice to the Borrower declare the Obligations to be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower. (2) Specific Defaults. If any Event of Default specified in Section 10.1(6) shall occur with respect to the Borrower, then all obligations of the Lenders in respect of the Commitments shall be automatically cancelled and the Obligations shall be forthwith due and payable, all as if the request and notice specified in each of Sections 10.2(1)(a) and 10.2(1)(b) had been received and given by the Administrative Agent. (3) Enforcement.  Upon the occurrence of an Event of Default and acceleration of the Obligations, the Administrative Agent may, and shall at the request of the Majority Lenders, commence such legal action or proceedings as it may deem expedient, all without any additional notice, presentation, demand, protest, notice of dishonour, or any other action, notice of all of which the Borrower hereby expressly waives to the extent permitted by Applicable Law.  The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Credit Facility Documents  and the Terasen Funding Agreement are cumulative and are in addition to and not in substitution for any other rights or remedies provided by Applicable Law; provided that nothing herein contained shall permit any -------------------------------------------------------------------------------- - 79 - Lender to take any steps which, pursuant to this agreement, may only be undertaken by or with the consent of all Lenders or the Majority Lenders. 10.3 Right of Set-Off.  Section 4 of the Provisions shall for all purposes of this agreement apply in the circumstances therein contemplated. 10.4 Currency Conversion After Acceleration.  At any time following the occurrence of an Event of Default and the acceleration of the Obligations, each Lender shall be entitled to convert, with two Business Days’ prior notice to the Borrower, its unpaid and outstanding US Dollar Advances, or any of them, to Prime Rate Advances.  Any such conversion shall be calculated so that the resulting Prime Rate Advances shall be the Equivalent Amount in Cdn. Dollars on the date of conversion of the amount of US Dollars so converted.  Any accrued and unpaid interest denominated in US Dollars at the time of any such conversion shall be similarly converted to Cdn. Dollars, and such Prime Rate Advances and accrued and unpaid interest thereon shall thereafter bear interest in accordance with Article 3. ARTICLE 11 THE ADMINISTRATIVE AGENT AND THE LENDERS 11.1 Provisions to Apply.  Section 7 of the Provisions shall for all purposes of this agreement apply in the circumstances therein contemplated. ARTICLE 12 MISCELLANEOUS 12.1 Sharing of Payments; Records. (1) Adjustments; Issuing Bank.  Upon the occurrence of an Event of Default, adjustments shall be made among the Lenders as set forth in this Section 12.1(1). (a) The Lenders shall make such adjusting payments amongst themselves in the manner contemplated by Section 12.1(2) as may be required to ensure their respective participations in outstanding Advances under the Credit Facility reflect their respective Commitments under the Credit Facility on the basis of the column entitled “Total Credit Facility” in schedule 1 annexed hereto. If a Letter of Credit is drawn upon which results in a payment by the Issuing Bank thereunder (in this Section 12.1(1), an "LC Payment"), the Issuing Bank will promptly request the Administrative Agent on behalf of the Borrower (and for this purpose the Issuing Bank is irrevocably authorized by the -------------------------------------------------------------------------------- - 80 - Borrower to do so) for a Borrowing by way of a Prime Rate Advance from the Lenders pursuant to Article 3 to reimburse the Issuing Bank for such LC Payment.  The Lenders are irrevocably directed by the Borrower to make any Prime Rate Advance if so requested by the Issuing Bank and pay the proceeds thereof directly to the Administrative Agent for the account of the Issuing Bank.  Each Lender unconditionally agrees to pay to the Administrative Agent for the account of the Issuing Bank such Lender’s rateable portion of each Advance requested by the Issuing Bank on behalf of the Borrower to repay LC Payments made by the Issuing Bank. (b) Except as provided in Section 12.1(1)(d), the obligations of each Lender under Section 12.1(1)(a) are unconditional, shall not be subject to any qualification or exception whatsoever and shall be performed in accordance with the terms and conditions of this agreement under all circumstances including: (i) any lack of validity or enforceability of the Borrower’s obligations under Section 2.1(6); (ii) the occurrence of any Default or Event of Default or the exercise of any rights by the Administrative Agent under Section 10.2; and (iii) the absence of any demand for payment being made, any proof of claim being filed, any proceeding being commenced or any judgment being obtained by a Lender or the Issuing Bank against the Borrower. (c) If a Lender (a "Defaulting Lender") fails to make payment on the due date therefor of any amount due from it for the account of another Lender or the Issuing Bank pursuant to Section 12.1(1)(a) (the balance thereof for the time being unpaid being referred to in this Section 12.1(1)(c) as an "overdue amount") then, until such other Lender or the Issuing Bank has received payment of that amount (plus interest as provided below) in full (and without in any way limiting the rights of such other Lender or the Issuing Bank in respect of such failure): (i) such other Lender or the Issuing Bank shall be entitled to receive any payment which the Defaulting Lender would otherwise have been entitled to receive in respect of the -------------------------------------------------------------------------------- - 81 - Credit Facility or otherwise in respect of any Credit Facility Document or the Terasen Funding Agreement; and (ii) the overdue amount shall bear interest payable by the Defaulting Lender to such other Lender or the Issuing Bank at the rate payable by the Borrower in respect of the Obligations which gave rise to such overdue amount. (d) If for any reason an Advance may not be made pursuant to Section 12.1(1)(a) to reimburse the Issuing Bank as contemplated thereby, then promptly upon receipt of notification of such fact from the Administrative Agent, each relevant Lender shall deliver to the Administrative Agent for the account of the Issuing Bank in immediately available funds the purchase price for such Lender’s participation interest in the relevant unreimbursed LC Payments (including interest then accrued thereon and unpaid by the Borrower).  Without duplication, each Lender shall, upon demand by the Issuing Bank made to the Administrative Agent, deliver to the Administrative Agent for the account of the Issuing Bank interest on such Lender’s rateable portion from the date of payment by the Issuing Bank of such unreimbursed LC Payments until the date of delivery of such funds to the Issuing Bank by such Lender at a rate per annum equal to the one month CDOR (if reimbursement is to be made in Canadian Dollars) for such period.  Such payment shall only, however, be made by the Lenders in the event and to the extent the Issuing Bank has not been reimbursed in full by the Borrower for interest on the amount of such unreimbursed LC Payments. (e) The Issuing Bank shall, forthwith upon its receipt of any reimbursement (in whole or in part) by the Borrower for any unreimbursed LC Payments in relation to which other Lenders have purchased a participation interest pursuant to Section 12.1(1)(d), or of any other amount from the Borrower or any other Person in respect of such payment (other than pursuant to Section 2.1(6)), transfer to such other Lender such other Lender’s rateable share of such reimbursement or other amount.  In the event that any receipt by the Issuing Bank of any reimbursement or other amount is found to have been a transfer in fraud of creditors or a preferential payment under any applicable insolvency legislation or is otherwise required to be returned, such Lender shall promptly return to the Issuing Bank any portion thereof previously transferred to it by the Issuing Bank, without interest to the extent -------------------------------------------------------------------------------- - 82 - that interest is not payable by the Issuing Bank in connection therewith. (2) Sharing.  If: (a) any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off pursuant to Section 10.3 or at law or equity, or otherwise) on account of any Accommodation made by it (other than Increased Costs paid to it) in excess of its rateable share of payments on account of such Accommodation; or (b) (without regard to outstanding Increased Costs) any Lender shall at the time of acceleration of the Obligations have outstanding Obligations which are less than its rateable share of all outstanding Obligations; then such Lender shall forthwith purchase from the other Lenders such participations in the Accommodations made by such other Lenders as shall be necessary to cause such purchasing Lender to share the excess payment or be owed the outstanding Obligations rateably with such other Lenders. In the case of paragraph (a) of this Section 12.1(2), if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each other Lender shall be rescinded and each Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such other Lender’s rateable share (according to the proportion that the amount such other Lender’s required repayment bears to the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Any Lender purchasing a participation from another Lender pursuant to this Section 12.1 may, to the fullest extent permitted by Applicable Law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (3) Records.  The Principal Outstanding and C$ Equivalent Principal Outstanding under the Credit Facility, the unpaid interest accrued thereon, the interest rate or rates applicable to any unpaid principal amounts, the duration of such application, the date of acceptance or issue, Face Amount and maturity of all Bankers’ Acceptances and Letters of -------------------------------------------------------------------------------- - 83 - Credit and the Commitments shall at all times be ascertained from the records of the Administrative Agent, which shall be conclusive absent demonstrated error. 12.2 Amendments, etc.   (1) Amendments - General.  Subject to Section 12.2(2), no amendment or waiver of any provision of this agreement or of any other Credit Facility Document or the Terasen Funding Agreement, nor any consent to any departure by the Borrower or any Affiliate herefrom or therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders (or by the Administrative Agent on their authorization), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (2) Amendments - Unanimous.  No instrument shall, unless in writing and signed by all the Lenders (or by the Administrative Agent on their authorization): (a) waive any of the conditions specified in Article 6; (b) increase the Commitment of any Lender or subject any Lender to any additional obligation; (c) change the principal of, or interest on, or discount rate applicable to any Accommodation or any fees hereunder; (d) amend the Maturity Date or otherwise postpone any date fixed for any payment of principal of, or interest on, any Accommodation or any fees hereunder, or subordinate the Obligations or any portion thereof to any Indebtedness; (e) amend the terms of Section 8.2(3) or this Section 12.2, provided that any waiver of a breach of Section 8.2(3) need only be approved under Section 12.2(1); (f) amend the definition of "Majority Lenders"; or (g) except as permitted by Sections 2.3 or 8.2(2), permit a change in the Borrower or an assignment or transfer of any of its rights or obligations under any Credit Facility Document. (3) Amendments - Administrative Agent.  No amendment, waiver or consent shall, unless in writing and approved by the Administrative Agent in addition to the Majority Lenders, affect the rights or duties of the -------------------------------------------------------------------------------- - 84 - Administrative Agent under any Credit Facility Document or the Terasen Funding Agreement. (4) Issuing Bank. No amendment, waiver or consent shall, unless approved by the Issuing Bank, affect the rights or obligations of the Issuing Bank with respect to Letters of Credit. (5) Swingline Lender. No amendment, waiver or consent shall, unless approved by the Swingline Lender, affect the rights or obligations of the Swingline Lender with respect to Swingline Advances. (6) Other Approvals.  For greater certainty, any approval of a Person specifically required by any of Sections 12.2(3) to (5), inclusive, shall be in addition to any other approval required by this agreement. 12.3 Notices, etc. (1) Provisions to Apply. Section 8 of the Provisions shall for all purposes of this agreement apply in the circumstances therein contemplated. The addresses of the Borrower and the Administrative Agent are as set forth below (until notified otherwise in accordance with this agreement): if to the Borrower: Terasen Gas (Vancouver Island) Inc. 16705 Fraser Highway Surrey, British Columbia V3S 2X7   Attention: Vice President & Chief Financial Officer Fax number: (604) 592-7890 if to the Administrative Agent: Royal Bank of Canada Agency Services Group 12th Floor, South Tower Royal Bank Plaza 200 Bay Street Toronto, Ontario M5J 2W7 Attention: Manager, Agency Fax number:  (416) 842-4023 -------------------------------------------------------------------------------- - 85 - (2) Deliveries.  All deliveries of financial statements and other documents to be made by the Borrower to the Lenders hereunder shall be made by making delivery of such financial statements and documents to the Administrative Agent (in sufficient copies for the Administrative Agent and each Lender) to the address in Section 12.3(1) or to such other address as the Administrative Agent may from time to time notify to the Borrower. All such deliveries shall be effective only upon actual receipt. (3) Notice Irrevocable.  Each Notice shall be irrevocable and binding on the Borrower.   (4) Reliance.  The Administrative Agent may act upon the basis of telephonic notice believed by it in good faith to be from the Borrower prior to receipt of a Notice. In the event of conflict between the Administrative Agent’s record of the applicable terms of any Accommodation and such Notice, the Administrative Agent’s record shall prevail, absent demonstrated error. (5) No Waiver; Remedies.  No failure on the part of the Administrative Agent or any of the Lenders to exercise, and no delay in exercising, any right under any Credit Facility Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right under any Credit Facility Document preclude any other or further exercise thereof or the exercise of any other right.  The remedies herein and therein provided are cumulative and not exclusive of any remedies provided by Applicable Law. 12.4 Expenses and Indemnity.  Section 9 of the Provisions shall for all purposes of this agreement apply in the circumstances therein contemplated. 12.5 Judgment Currency.   (1) Exchange Rate.  If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder to the Administrative Agent or a Lender in one currency (in this Section 12.5, the "Original Currency") into another currency (in this Section 12.5, the "Judgment Currency"), the parties agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent or such Lender could purchase the Original Currency with the Judgment Currency on the Business Day preceding that on which final judgment is paid or satisfied. (2) Obligation.  The obligations of the Borrower in respect of any sum due in the Original Currency from it to the Administrative Agent or a Lender under any Credit Facility Document shall, notwithstanding any judgment -------------------------------------------------------------------------------- - 86 - in any Judgment Currency, be discharged only to the extent that, on the Business Day following receipt by the Administrative Agent or such Lender of any sum adjudged to be so due in such Judgment Currency, the Administrative Agent or such Lender may in accordance with normal banking procedures purchase the Original Currency with such Judgment Currency.  If the amount of the Original Currency so purchased is less than the sum originally due to the Administrative Agent or such Lender in the Original Currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or such Lender against such loss and, if the amount of the Original Currency so purchased exceeds the sum originally due to the Administrative Agent or such Lender in the Original Currency, the Administrative Agent or such Lender agrees to remit such excess to the Borrower. 12.6 Governing Law, etc.  Sections 11 and 12 of the Provisions shall for all purposes of this agreement apply in the circumstances therein contemplated.  This agreement shall be governed by and construed in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein. 12.7 Successors and Assigns.  Section 10 of the Provisions shall for all purposes of this agreement apply in the circumstances therein contemplated. An assignment fee of C$3,500 shall be paid to the Administrative Agent by the assignor Lender in the case of (and as a condition precedent to the effectiveness of) an assignment. 12.8 Conflict.  In the event of a conflict between the provisions of this agreement and the provisions of any other Credit Facility Document, the provisions of this agreement shall prevail. 12.9 Confidentiality.  Section 14 of the Provisions shall for all purposes of this agreement apply in the circumstances therein contemplated. 12.10 Severability.  The provisions of this agreement are intended to be severable. If any provision of this agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. -------------------------------------------------------------------------------- - 87 - 12.11 Prior Understandings.  This agreement supersedes all prior understandings and agreements, whether written or oral, among the parties relating to the transactions provided for herein. 12.12 Time of Essence.  Time shall be of the essence hereof. (balance of page intentionally blank) -------------------------------------------------------------------------------- - 88 - 12.13 Counterparts.  Section 13 of the Provisions shall for all purposes of this agreement apply in the circumstances therein contemplated.. IN WITNESS WHEREOF the parties have caused this agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.   BORROWER:   TERASEN GAS (VANCOUVER ISLAND) INC.    Per:       Authorized Signatory    Per:       Authorized Signatory   ADMINISTRATIVE AGENT:   ROYAL BANK OF CANADA    Per:       Authorized Signatory -------------------------------------------------------------------------------- - 89 - LENDERS:   ROYAL BANK OF CANADA    Per: __________________________________     Authorized Signatory    Per: __________________________________     Authorized Signatory       THE BANK OF NOVA SCOTIA    Per: __________________________________     Authorized Signatory    Per: __________________________________     Authorized Signatory       NATIONAL BANK OF CANADA    Per: __________________________________     Authorized Signatory    Per: __________________________________     Authorized Signatory       MERRILL LYNCH CAPITAL CANADA INC.    Per: __________________________________     Authorized Signatory     -------------------------------------------------------------------------------- - 90 -   CANADIAN IMPERIAL BANK OF COMMERCE    Per: __________________________________     Authorized Signatory    Per: __________________________________     Authorized Signatory       CITIBANK, N.A., CANADIAN BRANCH    Per: __________________________________     Authorized Signatory       BANK OF TOKYO-MITSUBISHI UFJ (CANADA)    Per: __________________________________     Authorized Signatory    Per: __________________________________     Authorized Signatory       THE TORONTO-DOMINION BANK    Per: __________________________________     Authorized Signatory    Per: __________________________________     Authorized Signatory

Exhibit 10.33 OFFER AGREEMENT September 20, 2005 David B. Crean Dear David, I am pleased to extend to you an offer to join Vignette Corporation starting November 1, 2005 or sooner at your discretion. Your position will be Vice President, Healthcare Solutions Unit currently reporting to Thomas E. Hogan based in Austin, Texas. The challenge in front of us is both exciting and tremendous and we believe that you will bring the skills and attitude that will become a critical part of Vignette’s success. We are eager to have you be part of our team. This offer expires on September 30, 2005. Your compensation will include the following:     •   A bi-weekly salary of $10,576.92 (which when calculated on an annual basis equals $275,000.00).     •   Subject to you joining Vignette Corporation, we have proposed for you to receive 50,000 stock options through the Vignette Corporation Stock Option Plan with a four year vesting schedule with twenty five percent of the shares vesting at the end of each year. Your grant will be subject to a separate agreement and offer which has to be approved by the Compensation Committee of Vignette’s Board and does not form part of your contract of employment. Once this has been approved, the necessary documents will be sent to you.     •   Subject to you joining Vignette Corporation, we have proposed for you to receive 5,000 shares of restricted stock through the Vignette Corporation Stock Option Plan with a three year vesting schedule with thirty three and one third percent of the shares vesting at the end of each year. Your grant will be subject to a separate agreement and offer which has to be approved by the Compensation Committee of Vignette’s Board and does not form part of your contract of employment. Once this has been approved, the necessary documents will be sent to you.     •   Eligibility for bonus in the Executive Performance Bonus Plan, targeted at $137,500.00 annually. This bonus is paid out semi-annually at the discretion of the Company, based on the individual and company performance goals. Payment of this bonus may not occur if the company does not meet its financial goals. Your total compensation of base salary and bonus is capped at $900,000 annually. --------------------------------------------------------------------------------   •   Eligibility for all of the benefits provided to Vignette’s employees, which currently include:     •   Major medical, dental, vision, short term disability and life insurance coverage for you     •   The option to purchase major medical, dental, vision, accident and life insurance coverage for your eligible dependents     •   Participation in Vignette’s 401(k) plan upon completion of the plan’s eligibility requirements     •   Participation in Vignette’s Employee Stock Purchase Plan     •   Nine paid holidays and four weeks accrued paid vacation per year Should your employment with Vignette be terminated without “Cause” or for “Good Reason,” during the first twelve months of service, you will receive severance payments paid out on Vignette’s normal payroll schedule, in the equivalent of twelve months base salary, with payment contingent upon execution of a Separation Agreement approved by Vignette which will include appropriate releases and restrictive covenants. After twelve months of service, you will receive severance payments paid out on Vignette’s normal payroll schedule, in the equivalent of three months base salary, with payment contingent upon execution of a Separation Agreement approved by Vignette which will include appropriate releases and restrictive covenants. “Cause” for purposes of this Agreement shall be defined as your termination as a direct result of any of the following events which remains uncured after 15 days from the date of notice of such breach is provided to you or which cannot by its nature be cured: (a) material misconduct that results in material harm to the business of the Company; (b) material and repeated failure to perform duties assigned by your manager, which failure is not a result of a disability and results in material harm to the business of the Company; (c) starting in April, 2006, a repeated failure (two or more consecutive quarters) of material failure to achieve the reasonable sales targets set by the Company (which shall mean failure to attain at least 75% of such targets; and (d) any material breach of the Company’s policies or of the Proprietary Inventions Agreement which results in material harm to the business of the Company. “Good Reason” for purposes of this Agreement shall be defined as your resignation as a direct result of any of the following events: (i) a decrease in your Base Salary as set forth in this agreement of more than ten percent (10%); (ii) a substantial change in your job duties, position or title; (iii) any material breach by the Company of any provision of this Agreement, which breach is not cured within fifteen (15) days following written notice of such breach from you; (iv) the occurrence of a Change of Control (as defined below) of the Company; Change of Control for purposes of this Letter Agreement shall be defined as(x) the acquisition of fifty percent (50%) or more of the beneficial ownership interests, or fifty percent (50%) or more of the voting power, of the Company, either directly or indirectly, in one or a series of related transactions, by merger, purchase or otherwise, by any person or group of persons acting in concert (including, without limitation, any one or more individuals, corporations, partnerships, trusts, limited liability companies or other entities); (y) the disposition or transfer, whether by sale, merger, consolidation, reorganization, recapitalization, redemption, liquidation or any other transaction, of fifty percent (50%) or -------------------------------------------------------------------------------- more by value of the assets of the Company in one or a series of related or unrelated transactions over time. This offer of employment is contingent upon your execution of this Letter, Employment Application, PRSI Background Check, and satisfaction of the requirements of an I-9 Employment Eligibility Verification Form. At your request, we have not yet performed customary reference checks and such reference calls must be completed and must be satisfactory before you begin employment with the Company. Therefore this offer is contingent on Vignette’s satisfactory completion of such reference checks, which will be completed as soon as possible after you approve our making such calls. Please understand that employment remains “at will”, and neither this letter nor the Plan create an employment contract with you. Also, please understand that the terms of the Plan (as modified by Vignette from time to time) will govern your compensation, and will control to the extent there is any conflict with the terms of this letter. I am looking forward to having you as a member of the Vignette team. Sincerely,       Thomas E. Hogan President and Chief Executive Officer Vignette Corporation

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EXHIBIT 10.2 AMENDMENT NO. 1 TO [g219311ki01i001.gif]NAVTEQ CORPORATION 2001 STOCK OPTION PLAN FOR FRENCH EMPLOYEES STOCK OPTION AGREEMENT WHEREAS, Denis Cohen (“Optionee”) was granted, on May 15, 2002, an option (the “Option”) under the NAVTEQ Corporation (the “Company”) 2001 Sock Incentive Plan to purchase 29,985 shares of the Company’s Common Stock at an exercise price of $1.40 per share (Grant Number 260073); WHEREAS, Optionee will retire from the Company on August 31, 2006; WHEREAS, Optionee and the Company each desire to amend the Agreement as set forth below; NOW, WHEREFORE, the Optionee and Company hereby agree as follows: 1.               Capitalized terms used herein, but not defined, shall have the meaning set forth in the Stock Option Agreement between Optionee and the Company dated May 15, 2002; 2.               Notwithstanding anything set forth in the Option Agreement, any unexercised portion of the Option may be exercised by Optionee at any time prior to August 31, 2007. 3.               Company and Option agree that all terms and conditions set forth in the Agreement, as amended herein, shall remain in full force and effect. OPTIONEE:   NAVTEQ CORPORATION             Signature /s/ Denis Cohen   By           Judson Green Print Name   Print Name           /s/ Judson Green Residence Address   Signature           President and CEO City, State, Zip   Title           August 17, 2006 Country   Date       August 16, 2006     Date       Page 1 of 1 -------------------------------------------------------------------------------- AMENDMENT NO. 1 TO [g219311ki02i001.gif]NAVTEQ CORPORATION 2001 STOCK OPTION PLAN FOR FRENCH EMPLOYEES STOCK OPTION AGREEMENT WHEREAS, Denis Cohen (“Optionee”) was granted, on May 15, 2002, an option (the “Option”) under the NAVTEQ Corporation (the “Company”) 2001 Sock Incentive Plan to purchase 77,157 shares of the Company’s Common Stock at an exercise price of $1.40 per share (Grant Number 250073); WHEREAS, Optionee will retire from the Company on August 31, 2006; WHEREAS, Optionee and the Company each desire to amend the Agreement as set forth below; NOW, WHEREFORE, the Optionee and Company hereby agree as follows: 1.               Capitalized terms used herein, but not defined, shall have the meaning set forth in the Stock Option Agreement between Optionee and the Company dated May 15, 2002; 2.               Notwithstanding anything set forth in the Option Agreement, any unexercised portion of the Option may be exercised by Optionee at any time prior to August 31, 2007. 3.               Company and Option agree that all terms and conditions set forth in the Agreement, as amended herein, shall remain in full force and effect. OPTIONEE:   NAVTEQ CORPORATION             Signature /s/ Denis Cohen   By           Judson Green Print Name   Print Name           /s/ Judson Green Residence Address   Signature           President and CEO City, State, Zip   Title           August 17, 2006 Country   Date       August 16, 2006     Date       Page 1 of 1 -------------------------------------------------------------------------------- AMENDMENT NO. 1 TO [g219311ki03i001.gif]NAVTEQ CORPORATION 2001 STOCK OPTION PLAN FOR FRENCH EMPLOYEES STOCK OPTION AGREEMENT WHEREAS, Denis Cohen (“Optionee”) was granted, on May 22, 2002, an option (the “Option”) under the NAVTEQ Corporation (the “Company”) 2001 Sock Incentive Plan to purchase 107,142 shares of the Company’s Common Stock at an exercise price of $1.40 per share (Grant Number 240013); WHEREAS, Optionee will retire from the Company on August 31, 2006; WHEREAS, Optionee and the Company each desire to amend the Agreement as set forth below; NOW, WHEREFORE, the Optionee and Company hereby agree as follows: 1.               Capitalized terms used herein, but not defined, shall have the meaning set forth in the Stock Option Agreement between Optionee and the Company dated May 22, 2002; 2.               Notwithstanding anything set forth in the Option Agreement, any unexercised portion of the Option may be exercised by Optionee at any time prior to August 31, 2007. 3.               Company and Option agree that all terms and conditions set forth in the Agreement, as amended herein, shall remain in full force and effect. OPTIONEE:   NAVTEQ CORPORATION             Signature /s/ Denis Cohen   By           Judson Green Print Name   Print Name           /s/ Judson Green Residence Address   Signature           President and CEO City, State, Zip   Title           August 17, 2006 Country   Date       August 16, 2006     Date       Page 1 of 1 -------------------------------------------------------------------------------- AMENDMENT NO. 1 TO [g219311ki04i001.gif]NAVTEQ CORPORATION 2001 STOCK OPTION PLAN FOR FRENCH EMPLOYEES STOCK OPTION AGREEMENT WHEREAS, Denis Cohen (“Optionee”) was granted, on August 6, 2004, an option (the “Option”) under the NAVTEQ Corporation (the “Company”) 2001 Sock Incentive Plan to purchase 17,840 shares of the Company’s Common Stock at an exercise price of $22.00 per share (Grant Number 0340011); WHEREAS, Optionee will retire from the Company on August 31, 2006, at which time the Option shall cease vesting any further; WHEREAS, Optionee and the Company each desire to amend the Agreement as set forth below; NOW, WHEREFORE, the Optionee and Company hereby agree as follows: 1.               Capitalized terms used herein, but not defined, shall have the meaning set forth in the Stock Option Agreement between Optionee and the Company dated August 6, 2004; 2.               Notwithstanding anything set forth in the Option Agreement, any unexercised portion of the Option, to the extent vested as of August 31, 2006, may be exercised by Optionee at any time prior to August 6, 2009. 3.               Company and Option agree that all terms and conditions set forth in the Agreement, as amended herein, shall remain in full force and effect. OPTIONEE:   NAVTEQ CORPORATION             Signature /s/ Denis Cohen   By           Judson Green Print Name   Print Name           /s/ Judson Green Residence Address   Signature           President and CEO City, State, Zip   Title           August 17, 2006 Country   Date       August 16, 2006     Date       Page 1 of 1 --------------------------------------------------------------------------------

  Exhibit 10.7 To subscribe for Units in the private offering of BLACK NICKEL ACQUISITION CORP. I In connection with the merger and reorganization of Black Nickel Acquisition Corp. I and InferX Corporation 1.   Date and Fill in the number of Units being subscribed for and Complete and Sign the Omnibus Signature Page included in the Subscription Agreement. 2.   Initial and sign the Accredited Investor Certification attached to this Subscription Agreement. 3.   Fax all forms to Mr. Scott Parliament at (703) 917-0563 and then send all signed original documents with your original bridge note (if applicable) to: Mr. Scott Parliament InferX Corporation 1600 International Drive Suite 110 McLean, VA 22102 4.   To make your subscription payment by cancellation of existing indebtedness of InferX under certain outstanding bridge notes, please note your intent to do so on Omnibus Signature Page included in the Subscription Agreement and deliver your original bridge note to Mr. Parliament as directed above.       Otherwise, for wiring funds directly to the escrow account,       see the following instructions:               Acct. Name:                   Bank Name:         ABA Number:         A/C Number:         FBO:   Subscriber Name         Social Security Number         Address     Memo:   InferX Corporation      Questions regarding completion of the subscription documents or obtaining a copy of the financial statements should be directed to Mr. Scott Parliament at [email protected], (703) 917-0880 x235 or (703) 300-0369. ALL SUBSCRIPTION DOCUMENTS MUST BE FILLED IN AND SIGNED EXACTLY AS SET FORTH WITHIN.   --------------------------------------------------------------------------------   SUBSCRIPTION AGREEMENT FOR BLACK NICKEL ACQUISITION CORP. I In connection with the merger and reorganization of Black Nickel Acquisition Corp. I and InferX Corporation Black Nickel Acquisition Corp. I c/o InferX Corporation 1600 International Drive Suite 110 McLean, VA 22102 Ladies and Gentlemen:      1. Subscription. Each Subscriber will purchase in the private placement offering (the “Offering”) the number of units (the “Units”) of Black Nickel Acquisition Corp. I (the “Company”) set forth on the signature page to the Subscription Agreement at a purchase price of $0.50 per Unit. Each Unit consists of (i) one share of the Company’s Common Stock, par value $0.001 per share ( (the “Common Stock”); (ii) a Class A Warrant in substantially the form annexed hereto as Exhibit C (each a “Class A Warrant” and collectively the “Class A Warrants”) to purchase one share of Common Stock at an initial exercise price of $0.50 per share; and (iii) a Class B Warrant in substantially the form annexed hereto as Exhibit D (each a “Class B Warrant” and collectively the “Class B Warrants”) to purchase one share of Common Stock at an initial exercise price of $0.62 per share. The Class A Warrants and the Class B Warrants are sometimes referred to collectively hereafter as the “Warrants.” The subscription for the Units will be made in accordance with and subject to the terms and conditions of this Subscription Agreement and the Company’s Confidential Private Placement Memorandum dated October 9, 2006 (the “Memorandum”).      The Units are being offered on a “best efforts all-or-none” basis for 500,000 Units ($250,000) (the “Minimum Amount”) and thereafter on a “best efforts” basis up to 2,000,000 Units ($1,000,000) (the “Maximum Amount”) solely to “accredited investors” (as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). The minimum investment amount that may be purchased by a Subscriber is 20,000 Units ($10,000) (the “Minimum Investor Purchase”); provided however, the Company, in its sole discretion, may accept a Subscriber subscription for an amount less than the Minimum Investor Purchase.      The Offering is being conducted by the Company in connection with the proposed merger (the “Merger”) between the Company’s wholly-owned subsidiary, InferX Acquisition Corp., and InferX Corporation, a Virginia corporation (“InferX”), pursuant to which InferX will become a wholly-owned subsidiary of the Company and the shareholders of InferX will become shareholders of the Company. The consummation of the Merger is a condition precedent to the initial closing of the Offering. The Memorandum contains additional information on the proposed Merger.      The Common Stock included in the Units (the “Shares”) and the Common Stock obtained upon exercise of the Warrants (the “Warrant Shares”) are entitled to certain registration rights as provided in a Registration Rights Agreement (the “Registration Rights Agreement”) among the Company, the Subscribers and certain other shareholders of the Company. The form of the Registration Rights Agreement is annexed hereto as Exhibit B. The Memorandum contains additional information on such registration rights.   --------------------------------------------------------------------------------        The terms of the Offering are more completely described in the Memorandum. Capitalized terms used, but not otherwise defined, herein will have the respective meanings provided in the Memorandum.      2. Payment. The Subscriber encloses herewith his original bridge note(s) in the principal amount of, or will immediately make a wire transfer payment to, “Seyfarth Shaw LLP, as Escrow Agent for Black Nickel Acquisition Corp. I” (or a combination of the foregoing) in the full amount of the purchase price of the Units being subscribed for. Together with the original bridge note(s) in the principal amount of, and/or wire transfer of, the full purchase price, the Subscriber is delivering a completed and executed Omnibus Signature Page to this Subscription Agreement and the Registration Rights Agreement, along with a completed and executed Accredited Investor Certification.      3. Deposit of Funds; Offering Period; Return of Funds. All payments made as provided in Section 2 hereof will be deposited by the Company as soon as practicable with Seyfarth Shaw LLP, as escrow agent (the “Escrow Agent”) or such other escrow agent appointed by the Company, in a non-interest bearing escrow account (the “Escrow Account”). In the event that the Company does not (i) consummate the Merger and (ii) effect a closing (the “Closing”) on or before October 20, 2006 (the “Initial Offering Period”), which period may be extended by the Company for up to an additional 120 days (this additional period and together with the Initial Offering Period will be referred to as the “Offering Period”), the Escrow Agent will refund all subscription funds, without deduction and/or interest accrued thereon, and will return the subscription documents to the Subscriber. If the Company rejects a subscription, either in whole or in part (which decision is in its sole discretion), the rejected subscription funds or the rejected portion thereof will be returned promptly to such subscriber without interest accrued thereon.      4. Acceptance of Subscription. The Subscriber understands and agrees that the Company, in its sole discretion, reserves the right to accept or reject this or any other subscription for the Units, in whole or in part, notwithstanding prior receipt by the Subscriber of notice of acceptance of this or any other subscription. The Company will have no obligation hereunder until the Company executes and delivers to the Subscriber an executed copy of this Subscription Agreement. If Subscriber’s subscription is rejected in whole or the Offering is terminated, all funds received from the Subscriber will be returned without interest, penalty, expense or deduction, and this Subscription Agreement will thereafter be of no further force or effect. If Subscriber’s subscription is rejected in part, the funds for the rejected portion of such subscription will be returned without interest, penalty, expense or deduction, and this Subscription Agreement will continue in full force and effect to the extent such subscription was accepted.      5. Representations and Warranties of the Company. The Company hereby acknowledges, represents, warrants, and agrees, as of the date of acceptance of this Subscription Agreement, as follows:      (a) Organization and Corporate Power. (i) The Company is a corporation duly organized, validly existing and in corporate good standing under the laws of the State of Delaware. The Company is duly qualified to conduct business and is in corporate good standing under the laws of each jurisdiction in which the nature of its businesses or the ownership or leasing of its properties requires such qualification, except where the failure to be so qualified or in good standing would not have a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under the this Subscription Agreement (a “Material Adverse Effect”). The Company has the corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Company is not in default under or in violation of any provision of the Company Charter or Bylaws. 2 --------------------------------------------------------------------------------             (ii) InferX Corporation is a corporation duly organized, validly existing and in corporate good standing under the laws of the State of Virginia, and upon the consummation of the Merger will be a wholly-owned subsidiary of the Company. InferX Corporation is duly qualified to conduct business and is in corporate good standing under the laws of each jurisdiction in which the nature of its businesses or the ownership or leasing of its properties requires such qualification, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect on InferX. InferX Corporation has the corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. InferX Corporation is not in default under or in violation of any provision of the its Charter or Bylaws.      (b) Capitalization. The capitalization of the Company is as set forth in the Memorandum. All issued and outstanding shares of the Company stock have been duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth in the Memorandum there are no outstanding or authorized subscriptions, options, warrants, plans or other agreements or rights of any kind to purchase or otherwise receive or be issued, or securities or obligations of any kind convertible into, any shares of capital stock or other securities of the Company, and there are no dividends which have accrued or been declared but are unpaid on the capital stock of the Company. Except as set forth in the Memorandum, there are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the Company. The Company has duly and validly authorized and reserved (i) 2,000,000 shares of Common Stock for issuance upon exercise of the Class A Warrants and (ii) 2,000,000 shares of Common Stock for issuance upon exercise of the Class B Warrants and the shares of Common Stock so issued will, when issued upon exercise, be validly issued, fully paid and non-assessable. As of the Closing and after giving effect to the transactions contemplated hereby, other than as set forth in the Memorandum, there are (A) no preemptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights with respect to the issuance, sale or redemption of the Company’s capital stock, (B) no rights to have the Company’s capital stock registered for sale to the public in connection with the laws of any jurisdiction and (C) no documents, instruments or agreements relating to the voting of the Company’s voting securities or restrictions on the transfer of the Company’s capital stock.      (c) Authorization. The Company has the corporate power and authority to execute and deliver this Subscription Agreement and to perform its obligations hereunder. The execution and delivery of this Subscription Agreement, the performance by the Company of this Subscription Agreement and the consummation by the Company of the transactions contemplated hereby, the sale and delivery of the Units, the Shares, the Class A Warrants and the Class B Warrants and, upon conversion of the Warrants, the issuance and delivery of the Warrant Shares, have been duly and validly authorized by all necessary corporate action on the part of the Company. This Subscription Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting the enforcement of creditors’ rights generally, and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought. 3 --------------------------------------------------------------------------------        (d) Noncontravention. Subject to compliance with the applicable requirements of the Securities Act and any applicable state securities laws, the execution and delivery of this Subscription Agreement by the Company, the sale and delivery of the Units, the Shares, the Class A Warrants and the Class B Warrants and, upon exercise of the Warrants, the issuance and delivery of the Warrant Shares, and the consummation by the Company of the transactions contemplated hereby, will not: (i) conflict with or violate any provision of the Company Charter or the Bylaws; (ii) require on the part of the Company any filing with, or any permit, authorization, consent or approval of, any Governmental entity, other than any filing, permit, authorization, consent or approval required pursuant to federal or state securities laws, or which if not made or obtained would not have a Material Adverse Effect on the Company; (iii) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any contract, except for any conflict, breach, default, acceleration, right to accelerate, termination, modification, cancellation, notice, consent or waiver that would not reasonably be expected to have a Material Adverse Effect on the Company; (iv) result in the imposition of any liens, claims, options, charges, pledges, security interests, mortgages, encumbrances or other restrictions of any nature (“Encumbrances”) upon any assets of the Company; or (v) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company, any of its properties or assets, other than such conflicts, violations, defaults, breaches, cancellations or accelerations referred to in clauses (i) through (v) (inclusive) hereof which would not have a Material Adverse Effect on the Company.      (e) Subsidiaries. Except as disclosed in the Memorandum, the Company does not have any direct or indirect subsidiaries or any equity interest in any other firm, corporation, membership, joint venture, association or other business organization.      (f) Financial Statements. The Company has available, and upon the request to the Company and at the Company’s expense, the Company shall deliver via overnight courier or electronic delivery (at the Subscriber’s choice) the consolidated unaudited balance sheet, statement of operations and statement of cash flows as of June 30, 2006 (the “Balance Sheet Date”) and the consolidated audited balance sheets, statements of operations and statements of cash flows for the years ended December 31, 2005 and 2004, of the Company and its subsidiary, InferX. Such financial statements (collectively, the “Financial Statements”) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, fairly and accurately present the financial condition, results of operations and cash flows of the Company as of the respective dates thereof and for the periods referred to therein and are consistent with the books and records of the Company; provided, however, that the Financial Statements referred to above are subject to normal recurring year-end adjustments (which will not in the aggregate be material).      (g) Absence of Certain Changes. Except as otherwise provided in the Memorandum, since the Balance Sheet Date, the Company, including InferX, has conducted its business as ordinarily conducted consistent with past practice and there has not occurred any change, event or condition (whether or not covered by insurance) that has resulted in, or would reasonably be expected to result in any Material Adverse Effect on the Company.      (h) Undisclosed Liabilities. Except as otherwise provided in the Memorandum, the Company, including InferX, has no liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due), except for (i) liabilities accrued, reflected, reserved against on the Financial Statements, (ii) liabilities which have arisen since the Balance Sheet Date, in the ordinary course of business, (iii) contractual or statutory liabilities incurred in the ordinary course of business, and (iv) liabilities which would not have a Material Adverse Effect on the Company. 4 --------------------------------------------------------------------------------        (i) No Defaults. Neither the Company nor InferX (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 InferX under), nor has the Company or InferX received notice of a claim that it is in default under or that it is in violation of, any indenture, mortgage, decree, lease, license, 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 not in violation of any order of any court, arbitrator or governmental body, and (iii) is not and has not 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, except in the case of clauses (i), (ii) and (iii) as would not result in a Material Adverse Effect. Neither the Company nor InferX has received any written notice of any violation of or noncompliance with, any federal, state, local or foreign laws, ordinances, regulations and orders (including, without limitation, those relating to environmental protection, occupational safety and health, federal securities laws, equal employment opportunity, consumer protection, credit reporting, “truth-in-lending”, and warranties and trade practices) applicable to its business, the violation of, or noncompliance with, which would have a Material Adverse Effect on the Company’s or InferX’s business or operations, and neither the Company nor InferX knows of any facts or set of circumstances which would give rise to such a notice. The execution, delivery, and performance of this Subscription Agreement and the related subscription documents, and the consummation of the transactions contemplated thereby, will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract, or an event which results in the creation of any Encumbrance upon any assets of the Company or InferX, or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company or InferX, its business or operations, or any of its assets or properties, except as would not reasonably be expected to have a Material Adverse Effect.      (j) Brokers’ Fees. The Company has no liability or obligation to pay any fees or commissions to any broker, investment banking firm, finder or agent with respect to the transactions contemplated by this Subscription Agreement.      (k) Disclosure. No representation or warranty by the Company contained in this Subscription Agreement and/or in the Memorandum contains any untrue statement of a material fact or omits to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein not misleading.      6. Representations and Warranties of the Subscriber. The Subscriber hereby acknowledges, represents, warrants, and agrees as follows:      (a) Acknowledgment of Exempt Offering. None of the Units, the Shares, the Warrants nor the Warrant Shares (collectively, the “Securities”), are registered under the Securities Act or any state securities laws. The Subscriber understands that the Offering and sale of the Units is intended to be exempt from registration under the Securities Act, by virtue of Section 4(2) thereof and the provisions of Regulation D promulgated under the Securities Act, based, in part, upon the representations, warranties and agreements of the Subscriber contained in this Subscription Agreement.      (b) Receipt of Documents. The Subscriber and the Subscriber’s attorney, accountant, purchaser representative and/or tax advisor, if any (collectively, “Advisors”), have received the Memorandum with all appendices thereto including, without limitation, the Registration Rights Agreement, the Warrants, and all other documents requested by the Subscriber or its Advisors, if any, have carefully reviewed them and understand the information contained therein, prior to the execution of this Subscription Agreement.      (c) No Review by SEC or other Regulatory Authority. Neither the Securities and Exchange Commission (“SEC”)) nor any state securities commission has approved the Units or any of the 5 --------------------------------------------------------------------------------   Securities, or passed upon or endorsed the merits of the Offering or confirmed the accuracy or determined the adequacy of the Memorandum. The Memorandum has not been reviewed by any federal, state or other regulatory authority.      (d) Opportunity to obtain Information. The Subscriber and its Advisors, if any, have had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the offering of the Units and the business, financial condition, results of operations and prospects of the Company, and all such questions have been answered by the Company to the full satisfaction of the Subscriber and its Advisors, if any.      (e) Reliance on Memorandum and Subscription Agreement in Making Investment Decision. In evaluating the suitability of an investment in the Company, the Subscriber has not relied upon any representation or other information (oral or written) other than as stated in the Memorandum or in this Subscription Agreement. No oral or written representations have been made, or oral or written information furnished, to the Subscriber or its Advisors, if any, in connection with the Offering which are in any way inconsistent with the information contained in the Memorandum.      (f) No General Solicitation. The Subscriber is unaware of, is in no way relying on, and did not become aware of the Offering through or as a result of, any form of general solicitation or general advertising including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television, radio or over the Internet, in connection with the Offering and is not subscribing for Units and did not become aware of the Offering through or as a result of any seminar or meeting to which the Subscriber was invited by, or any solicitation of a subscription by, a person not previously known to the Subscriber in connection with investments in securities generally.      (g) Broker’s Fees. The Subscriber has taken no action which would give rise to any claim by any person for brokerage commissions, finders’ fees or the like relating to this Subscription Agreement or the transactions contemplated hereby.      (h) Investment Experience. The Subscriber, either alone or together with its Advisors, if any, have such knowledge and experience in financial, tax, and business matters, and, in particular, investments in securities, so as to enable them to utilize the information made available to them in connection with the Offering of the Units to evaluate the merits and risks of an investment in the Units and the Company and to make an informed investment decision with respect thereto.      (i) No Financial or Tax Advice by Company. The Subscriber is not relying on the Company or its employees or agents with respect to the legal, tax, economic and related considerations of an investment in the Units, and the Subscriber has relied on the advice of, or has consulted with, only its own Advisors.      (j) Investment Purpose. The Subscriber is acquiring the Securities solely for such Subscriber’s own account for investment and not with a view to resale or distribution thereof, in whole or in part. The Subscriber has no agreement or arrangement, formal or informal, with any person to sell or transfer all or any of the Securities and the Subscriber has no plans to enter into any such agreement or arrangement. 6 --------------------------------------------------------------------------------        (k) Suitability of Investment. The purchase of the Units represents high risk capital and the Subscriber is able to afford an investment in a speculative venture having the risks and objectives of the Company. The Subscriber must bear the substantial economic risks of the investment in the Units indefinitely because none of the Securities may be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws or an exemption from such registration is available. Legends will be placed on the Securities to the effect that they have not been registered under the Securities Act or applicable state securities laws and appropriate notations thereof will be made in the Company’s stock record books. The Company has agreed that purchasers of the Units will have, with respect to the Shares and the Warrant Shares, the registration rights described in the Registration Rights Agreement. Notwithstanding such registration rights, none of the Securities are currently traded or quoted on any securities exchange or other trading medium, and such trading market is not likely to exist in the near future.      (l) Accredited Investor. The Subscriber is an “accredited investor” as that term is defined in Regulation D under the Securities Act, and has truthfully and accurately completed the Accredited Investor Certification annexed hereto as Exhibit A, and the address set forth on the signature page is his, her or its bona fide address and accurately reflects the state of residency.      (m) Authorization. The Subscriber: (i) if a natural person, represents that the Subscriber has reached the age of 21 and has full power and authority to execute and deliver this Subscription Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof; (ii) if a corporation, partnership, or limited liability company or partnership, or association, joint stock company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring the Units, such entity is duly organized, validly existing and in good standing under the laws of the state of its organization, the consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other organizational documents, such entity has full power and authority to execute and deliver this Subscription Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof and to purchase and hold the securities constituting the Units, the execution and delivery of this Subscription Agreement has been duly authorized by all necessary action, this Subscription Agreement has been duly executed and delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii) if executing this Subscription Agreement in a representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Subscription Agreement in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or partnership, or other entity for whom the Subscriber is executing this Subscription Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited liability company or partnership, or other entity has full right and power to perform pursuant to this Subscription Agreement and make an investment in the Company, and represents that this Subscription Agreement constitutes a legal, valid and binding obligation of such entity. The execution and delivery of this Subscription Agreement will not violate or be in conflict with any order, judgment, injunction, agreement or controlling document to which the Subscriber is a party or by which it is bound;      (n) Accuracy of Information Provided by Subscriber. The Subscriber represents to the Company that any information which the undersigned has heretofore furnished or is furnishing herewith to the Company is complete and accurate and may be relied upon by the Company in determining the availability of an exemption from registration under federal and state securities laws in connection with the Offering as described in the Memorandum. The Subscriber further represents and warrants that it will notify and supply corrective information to the Company immediately upon the occurrence of any change therein occurring prior to the Company’s issuance of the Securities.      (o) Forward Looking Statements. The Subscriber acknowledges that any estimates or forward-looking statements or projections included in the Memorandum were prepared by the Company in good faith, but that the attainment of any such projections, estimates or forward-looking statements cannot be guaranteed, will not be updated by the Company and should not be relied upon. 7 --------------------------------------------------------------------------------        (p) Representation by ERISA Plans. The fiduciary of the ERISA plan (the “Plan”) represents that such fiduciary has been informed of and understands the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Company is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities. The Subscriber or Plan fiduciary (i) is responsible for the decision to invest in the Company; (ii) is independent of the Company and any of its affiliates; (iii) is qualified to make such investment decision; and (iv) in making such decision, the Subscriber or Plan fiduciary has not relied on any advice or recommendation of the Company or any of its affiliates.      (q) No Short Positions. The Subscriber hereby represents, warrants, agrees and covenants to and with the Company that the Subscriber has not, directly, and/or indirectly, previously had and/or maintained and/or currently has, and/or in the future will not make or maintain a “short” position in the Company’s securities and will not encourage and/or facilitate the same by any third party.      (r) Omnibus Execution of Agreements. The Subscriber represents and warrants that Subscriber understands that by executing this Subscription Agreement the Subscriber is bound by the terms and conditions hereof and the terms and conditions of the Registration Rights Agreement, with the same effect as if each such separate agreement, was separately executed by the Subscriber.      7. Conditions to Obligations of Subscriber. Subscriber’s obligation to purchase and pay for the Units and to consummate the other transactions contemplated hereby is subject to compliance by the Company with the agreements herein contained and to the fulfillment to Subscriber’s satisfaction, or the waiver by the Subscriber, on or before the closing date for the sale of the Units to Subscriber (the “Closing Date”), of the following conditions:      (a) Satisfaction of Conditions. The representations and warranties of the Company contained in Section 5 hereof shall be true and correct on and as of the Closing Date and each of the conditions specified in this Section 7 shall have been satisfied or waived in writing by Subscriber.      (b) Delivery of Documents. The Company shall have executed and delivered to the Subscriber, within a reasonable period of time after the Closing Date, the following:   (i)   Certificates evidencing the Shares;     (ii)   The Warrants;     (iii)   A copy of this Subscription Agreement executed by the Company; and     (iv)   A copy of the Registration Rights Agreement executed by the Company.      8. Conditions to Obligations of the Company. The obligation of the Company to consummate the sale of the Units to the Subscriber and the other transactions contemplated hereby is subject to the fulfillment, prior to or on the Closing Date, of the following conditions precedent.      (a) Satisfaction of Conditions. The representations and warranties of the Subscriber contained in Section 6 hereof shall be true and correct on and as of the Closing Date and each of the conditions specified in this Section 8 shall have been satisfied or waived in writing by Subscriber. 8 --------------------------------------------------------------------------------        (b) Delivery of Documents and Funds. The Subscriber shall have executed and delivered to the Company, prior to the Closing Date, the following:      (i) A copy of this Subscription Agreement with the Omnibus Signature Page (signatures for Subscription Agreement and Registration Rights Agreement) completed and executed by the Subscriber;      (ii) A copy of the Accredited Investor Certification completed and executed by the Subscriber; and      (iii) Good and clear funds in the amount of the purchase price of the Units being subscribed for by the Subscriber.      9. Survival; Indemnification.      (a) Survival of Representations, Warranties and Covenants. All covenants, agreements, representations and warranties of the Company and the Subscriber made herein shall be deemed to have been relied upon by the party or parties to whom they are made and shall survive the Closing Date for a period of one (1) year (the “Survival Period”) regardless of any investigation on the part of such party or its representatives and shall bind the parties’ successors and assigns (including, without limitation, any successor to the Company by way of acquisition, merger or otherwise), whether so expressed or not, and, except as otherwise provided in this Subscription Agreement, all such covenants, agreements, representations and warranties shall inure to the benefit of the Subscriber’s successors and assigns and to their transferees of Securities, whether so expressed or not; provided, that any claim for indemnification made prior to the expiration of such Survival Period shall survive thereafter and, as to any such claim, such expiration will not affect the rights to indemnification of the party making such claim.      (b) Indemnification by the Company. The Company agrees to indemnify and hold harmless the Subscriber and its affiliates and each of their respective partners, members, stockholders, directors, officers, employees, attorneys and agents and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys’ fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Subscriber or such other indemnified persons in any manner relating to or arising out of any untrue representation, breach of warranty or failure to perform any covenants or agreements by the Company contained herein or in any certificate or document delivered pursuant hereto or otherwise relating to or arising out of the transactions contemplated hereby.      (c) Indemnification by the Subscriber. The Subscriber agrees to indemnify and hold harmless the Company and its affiliates and their respective partners, members, stockholders, directors, officers, employees, attorneys and agents and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys’ fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Company or such other indemnified persons in any manner relating to or arising out of any untrue representation, breach of warranty or failure to perform any covenants or agreements by the Subscriber contained herein or in any certificate or document delivered pursuant hereto or otherwise relating to or arising out of the transactions contemplated hereby. 9 --------------------------------------------------------------------------------        10. Irrevocability; Binding Effect. The Subscriber hereby acknowledges and agrees that the subscription hereunder is irrevocable by the Subscriber, except as required by applicable law, and that this Subscription Agreement will survive the death or disability of the Subscriber and will be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives, and permitted assigns. If the Subscriber is more than one person, the obligations of the Subscriber hereunder will be joint and several and the agreements, representations, warranties and acknowledgments herein will be deemed to be made by and be binding upon each such person and such person’s heirs, executors, administrators, successors, legal representatives and permitted assigns.      11. Blue Sky Qualification. The purchase of Units under this Subscription Agreement is expressly conditioned upon the exemption from qualification of the offer and sale of the Units from applicable federal and state securities laws. The Company will not be required to qualify this transaction under the securities laws of any jurisdiction and, should qualification be necessary, the Company will be released from any and all obligations to maintain its offer, and may rescind any sale contracted, in the jurisdiction.      12. General.      (a) Amendments, Waivers and Consents. For purposes of this Subscription Agreement, no course of dealing between or among any of the parties hereto and no delay on the part of any party hereto in exercising any rights hereunder or thereunder shall operate as a waiver of the rights hereof and thereof. No provision hereof may be waived otherwise than by a written instrument signed by the party or parties so waiving such covenant or other provision. No amendment to this Subscription Agreement may be made without the written consent of the Company and the Subscriber.      (b) Legend on Securities. The Company and the Subscriber acknowledge and agree that the following legend (or one substantially similar thereto) shall be typed on each certificate evidencing any of the Securities issued hereunder held at any time by the Subscriber, until such time that such Securities have been registered under the Securities Act or may be removed pursuant to Rule 144 promulgated under the Securities Act:      THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.      (c) Governing Law. This Agreement shall be governed by, construed and enforced in accordance with, the laws of the State of Delaware without regard to the principles thereof relating to conflict of laws.      (d) Confidentiality. The Subscriber acknowledges and agrees that any information or data the Subscriber has acquired from or about the Company, not otherwise properly in the public domain, was received in confidence (the “Confidential Information”). Any distribution of the Confidential Information to any person other than the Subscriber named above, in whole or in part, or the reproduction of the Confidential Information, or the divulgence of any of its contents (other than to the Subscriber’s tax and financial advisers, attorneys and accountants, who will likewise be required to maintain the confidentiality of the Confidential Information) is unauthorized, except that the Subscriber (and each employee, representative, or other agent of such Subscriber) may disclose to any and all persons, without limitations of any kind (except as provided in the next sentence) 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 the Subscriber relating to such tax treatment and tax structure. 10 --------------------------------------------------------------------------------   Any such disclosure of the tax treatment, tax structure and other tax-related materials shall not be made for the purpose of offering to sell the securities offered hereby or soliciting an offer to purchase any such securities. Except as provided above with respect to tax matters, the above named Subscriber, agrees not to divulge, communicate or disclose, except as may be required by law or for the performance of this Subscription Agreement, or use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any Confidential Information of the Company, including any technical, trade or business secrets of the Company and any technical, trade or business materials that are treated by the Company as confidential or proprietary, including, but not limited to, ideas, discoveries, inventions, developments and improvements belonging to the Company and Confidential Information obtained by or given to the Company about or belonging to third parties.      (e) Counterparts. This Subscription Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute but one and the same document.      (f) Notices and Demands. Any notice or demand which is required or provided to be given under this Subscription Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered by hand, telecopy, telex or other method of facsimile, or five (5) days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or two (2) days after being sent by overnight delivery providing receipt of delivery, to: if to the Company, at such address designated by the Company to the Subscriber in writing, with a copy to Seyfarth Shaw LLP, 815 Connecticut Avenue, N.W., Suite 500, Washington, D.C. 20006, Attn: Ernest M. Stern, Esq., Telecopier: (202) 828-5393; and if to the Subscriber, at the Subscriber’s address set forth on the signature page to this Subscription Agreement.      (g) Severability. Whenever possible, each provision of this Subscription Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Subscription Agreement.      (h) Assignability. Any rights of the Subscriber that by their terms relate to the Securities purchased by the Subscriber hereunder are transferable to each transferee who receives any of such Securities through a valid and legal transfer thereof. Each such transferee must consent in writing to be bound by the terms and conditions of this Subscription Agreement in order to acquire such transferable rights. The Company may transfer its rights hereunder to any affiliate or successor in interest.      (i) Integration. This Subscription Agreement, including the exhibits, documents and instruments referred to herein, constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.      (j) Payment of Fees. Each of the parties hereto will pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Subscription Agreement and the transactions contemplated hereby whether or not the transactions contemplated hereby are consummated. 11 --------------------------------------------------------------------------------        (k) Omnibus Signature Page. This Subscription Agreement is intended to be read and construed in conjunction with the Registration Rights Agreement. Accordingly, pursuant to the terms and conditions of this Subscription Agreement and such related agreements it is hereby agreed that the execution by the Subscriber of this Subscription Agreement, in the place set forth herein, will constitute agreement to be bound by the terms and conditions hereof and the terms and conditions of the Registration Rights Agreement, with the same effect as if each of such agreements were separately signed. [SIGNATURE PAGE FOLLOWS] 12 --------------------------------------------------------------------------------   BLACK NICKEL ACQUISITION CORP. I OMNIBUS SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS AGREEMENT In connection with the merger and reorganization of Black Nickel Acquisition Corp. I and InferX Corporation Subscriber hereby elects to purchase a total of ___Units at a price of $0.50 per Unit (NOTE: to be completed by the Subscriber) and agrees to all of the terms and conditions of this Subscription Agreement and the Registration Rights Agreement referred to herein. Date (NOTE: To be completed by the Subscriber): ___, 2006 If you are paying all or portion of the purchase price by cancellation of bridge note(s), please check the following box and indicate the aggregate principal amount of the bridge note(s) being cancelled: o $                      If the Subscriber is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY:             Print Name(s)     Social Security Number(s)                         Signature(s) of Subscriber(s)   Signature                         Date   Address     If the Subscriber is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or TRUST:                   Name of Partnership,       Federal Taxpayer     Corporation, Limited       Identification Number     Liability Company or Trust                               By:                       Name:         State of Organization         Title:                                             Date           Address     ACCEPTED BY: BLACK NICKEL ACQUISITION CORP. I           By:               Name:         Title:       --------------------------------------------------------------------------------   EXHIBIT A Accredited Investor Certification   --------------------------------------------------------------------------------   EXHIBIT B Registration Rights Agreement   --------------------------------------------------------------------------------   EXHIBIT C Form of Class A Warrant   --------------------------------------------------------------------------------   EXHIBIT D Form of Class B Warrant  

Exhibit 10.5 GUARANTY THIS GUARANTY (“Guaranty”), dated as of August 2, 2006, is made by BioDelivery Sciences International, Inc., a Delaware corporation (“Guarantor”), in favor of QLT USA, Inc., a Delaware corporation (“Lender”). W I T N E S S E T H: WHEREAS, Arius Two, Inc., a Delaware corporation and wholly-owned subsidiary of Guarantor (hereinafter referred to as the “Company” or “Borrower”), has promised to pay Lender $2,000,000 in accordance with the terms of the Intellectual Property Assignment Agreement dated August 2, 2006 between the Company and Lender (the “Transfer Agreement”) and the Secured Promissory Note dated August 2, 2006, executed by the Company in favor of Lender (the “Note” and together with the Transfer Agreement and the other Collateral Documents, the “Loan Documents”) in connection with the Transfer Agreement; WHEREAS, in order to induce Lender to enter into the Transfer Agreement and extend credit to the Company, Guarantor has agreed to guarantee the indebtedness and other obligations of the Company to Lender; and WHEREAS, Guarantor owns 100% of the outstanding stock of the Company and as such will derive direct and indirect economic benefits from the Transfer Agreement and the extension of credit to the Company; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, and to induce Lender to enter into, and extend credit under, the Transfer Agreement, it is agreed as follows: 1. DEFINITIONS. Capitalized terms used herein shall have the meanings assigned to them in the Transfer Agreement, unless otherwise defined herein. “Collateral” shall have the meaning set forth in the Security Agreement. “Collateral Documents” shall have the meaning set forth in the Security Agreement. “Taxes” means any present and future taxes, levies, imposts, duties, fees, assessments, charges, deductions or withholdings and all liabilities with respect thereto, excluding income and franchise taxes (and any equivalents thereof) imposed on Guarantor. References herein to this “Guaranty” shall mean this Guaranty, including all amendments, modifications and supplements and any annexes, exhibits and schedules to any of the foregoing, and shall refer to this Guaranty as the same may be in effect at the time such reference becomes operative. -------------------------------------------------------------------------------- 2. THE GUARANTY. 2.1 Guaranty of Obligations of Borrower. Guarantor hereby unconditionally guarantees to Lender, and its respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of the obligations of Borrower to Lender under the Loan Documents (hereinafter the “Obligations”). Guarantor agrees that this Guaranty is a guaranty of payment and performance and not of collection, and that its obligations under this Guaranty shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in this Guaranty, any other Loan Document or any other agreement, document or instrument to which any Person is a party thereto and/or Guarantor is or may become a party; (b) the absence of any action to enforce this Guaranty or any other Loan Document or the waiver or consent by Lender with respect to any of the provisions thereof; (c) the existence, value or condition of, or failure to perfect Lender’s lien against, any Collateral for the Obligations or any action, or the absence of any action, by Lender in respect thereof (including, without limitation, the release of any such security); (d) the insolvency of Borrower; or (e) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor other than payment and performance in full of the Obligations, it being agreed by Guarantor that its obligations under this Guaranty shall not be discharged until the Obligations are paid in full (the “Termination Date”). Guarantor shall be regarded, and shall be in the same position, as Borrower with respect to the Obligations. Guarantor agrees that any notice or directive given at any time to Lender which is inconsistent with the waiver in the immediately preceding sentence shall be null and void and may be ignored by Lender, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless Lender has specifically agreed otherwise in writing. It is agreed among Guarantor and Lender that the foregoing waivers are of the essence of the transaction contemplated by the Loan Documents and that, but for this Guaranty and such waivers, Lender would decline to enter into the Loan Documents. (f) Notwithstanding any provision to the contrary contained herein, in the Transfer Agreement or in any other of the Loan Documents, to the extent the obligations of Guarantor hereunder, or liens or security interests granted by Guarantor to secure its obligations hereunder shall be adjudicated (or would, but for the existence of this provision be adjudicated) to be invalid or unenforceable for any reason (including, without limitation, because of Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent -------------------------------------------------------------------------------- Conveyance Act or similar statute or common law), then the obligations of Guarantor under this Guaranty and the right to recover proceeds from the enforcement of liens or security interests granted by Guarantor shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). 2.2 Demand by Lender. In addition to the terms of the Guaranty set forth in Section 2.1 hereof, and in no manner imposing any limitation on such terms, it is expressly understood and agreed that, if, at any time, the outstanding principal amount of the Obligations under the Transfer Agreement and the Note (including all accrued interest thereon) is declared to be immediately due and payable, then Guarantor shall, upon notice of such acceleration, without further demand, pay to Lender the entire outstanding Obligations due and owing to Lender. Payment by Guarantor shall be made to Lender in immediately available funds to an account, designated by Lender or at the address set forth herein for the giving of notice to Lender or at any other address that may be specified in writing from time to time by Lender, and shall be credited and applied to the Obligations. 2.3 Enforcement of Guaranty. In no event shall Lender have any obligation (although it is entitled, at its option) to proceed against Borrower or any Collateral pledged to secure Obligations before seeking satisfaction from the Guarantor, and Lender may proceed, prior or subsequent to, or simultaneously with, the enforcement of Lender’s rights hereunder, to exercise any right or remedy which they may have against any Collateral, as a result of any lien it may have as security for all or any portion of the Obligations. 2.4 Waiver. In addition to the waivers contained in Section 2.1 hereof, Guarantor waives and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshaling of assets or redemption laws, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by Guarantor of its obligations under, or the enforcement by Lender of, this Guaranty. Guarantor hereby waives diligence, presentment and demand (whether for non-payment or protest or of acceptance, maturity, extension of time, change in nature or form of the obligations, acceptance of further security, release of further security, composition or agreement arrived at as to the amount of, or the terms of, the obligations, notice of adverse change in Borrower’s financial condition or any other fact which might increase the risk to Guarantor) with respect to any of the obligations or all other demands whatsoever and waives the benefit of all provisions of law which are in conflict with the terms of this Guaranty. Guarantor represents, warrants and agrees that, as of the date of this Guaranty, its obligations under this Guaranty are not subject to any offsets or defenses against Lender or Borrower of any kind. Guarantor further agrees that its obligations under this Guaranty shall not be subject to any counterclaims, offsets or defenses against Lender or against Borrower of any kind which may arise in the future. 2.5 Benefit of Guaranty. The provisions of this Guaranty are for the benefit of Lender and its respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between Borrower and Lender, the obligations of Borrower under the Loan Documents. In the event all or any part of the Obligations are transferred, endorsed or assigned by Lender to any Person or Persons, any reference to “Lender” herein shall be deemed to refer equally to such Person or Persons. -------------------------------------------------------------------------------- 2.6 Modification of Obligations, Etc. Guarantor hereby acknowledges and agrees that Lender may, subject to the terms of the Transfer Agreement, Note, and other Collateral Documents, at any time or from time to time, with or without the consent of, or notice to, Guarantor: (a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Obligations; (b) take any action under or in respect of the Loan Documents in the exercise of any remedy, power or privilege contained therein or available to it at law, equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) amend or modify, in any manner whatsoever, the Loan Documents (except this Guaranty); (d) extend or waive the time for Borrower’s performance of, or compliance with, any term, covenant or agreement on its part to be performed or observed under the Loan Documents, or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) take and hold Collateral for the payment of the Obligations guaranteed hereby or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which Lender has been granted a lien, to secure any Obligations; (f) release anyone who may be liable in any manner for the payment of any amounts owed by Guarantor or Borrower to Lender; (g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of Guarantor or Borrower are subordinated to the claims of Lender; and/or (h) apply any sums by whomever paid or however realized to any amounts owing by Guarantor or Borrower to Lender in such manner as Lender shall determine in its discretion; Lender shall not incur any liability to Guarantor as a result thereof, and no such action shall impair or release the Obligations of Guarantor under this Guaranty, except for Lender’s intentional bad faith actions or omissions. 2.7 Reinstatement. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against Borrower or Guarantor for liquidation or reorganization, should Borrower or Guarantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Borrower’s or Guarantor’s assets, and shall continue to be effective or be reinstated, as the case -------------------------------------------------------------------------------- may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by Lender, whether as a “voidable preference”, “fraudulent conveyance”, or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 2.8 Subrogation. Notwithstanding anything to the contrary in this Guaranty, or in any Loan Document and until the Obligations shall be satisfied in full and this Guaranty terminated, Guarantor (on behalf of itself and its successors and assigns (including any surety)), shall not have, and Guarantor shall not directly or indirectly exercise: (a) any rights at law or in equity to subrogation, to reimbursement, to exoneration, to contribution, to indemnification, to set off or to any other rights that could accrue to a surety against a principal, to a guarantor against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, to a holder or transferee against a maker, or to the holder of any claim against any Person, and which Guarantor may have or hereafter acquire against Borrower in connection with or as a result of Guarantor’s execution, delivery and/or performance of this Guaranty, or any other documents to which Guarantor is a party or otherwise; and (b) acknowledges and agrees (i) that this Section 2.8 is intended to benefit Lender and shall not limit or otherwise effect Guarantor’s liability hereunder or the enforceability of this Guaranty, and (ii) Lender and its respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 2.8. 2.9 Election of Remedies. If Lender may, under applicable law, proceed to realize benefits under any of the Loan Documents giving Lender a lien upon any Collateral owned by Borrower, either by judicial foreclosure or by non-judicial sale or enforcement, Lender may, at its sole option, determine which of such remedies or rights it may pursue without affecting any of such rights and remedies under this Guaranty. If, in the exercise of any of its rights and remedies, Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against Borrower, whether because of any applicable laws pertaining to “election of remedies” or the like, Guarantor hereby consents to such action by Lender and waives any claim based upon such action, even if such action by Lender shall result in a full or partial loss of any rights of subrogation which Guarantor might otherwise have had but for such action by Lender. Any election of remedies which results in the denial or impairment of the right of Lender to seek a deficiency judgment against Borrower shall not impair Guarantor’s obligation to pay the full amount of the Obligations. In the event Lender shall bid at any foreclosure or trustee’s sale or at any private sale permitted by law or the Loan Documents, Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale shall be presumptively deemed to be the fair market value of the collateral and the difference between such bid amount and the remaining balance of the Obligations shall be presumptively deemed to be the amount of the Obligations guaranteed under this Guaranty, -------------------------------------------------------------------------------- notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled but for such bidding at any such sale. 2.10 Funds Transfers. If Guarantor receives cash proceeds as a result of any transaction or event as a result of which Borrower is required to make a mandatory prepayment with respect to the Obligations under the terms of the Loan Documents (including any issuance or sale of Guarantor’s Stock or any sale of its assets), Guarantor shall distribute to the Borrower an amount equal to such cash proceeds that are required to be applied to the mandatory prepayment required under the terms of the Loan Documents. 2.11 Subordination of Guaranty. Notwithstanding anything to the contrary contained in this Guaranty or in the Loan Documents, Lender agrees that until Borrower’s obligations to Laurus Master Fund, Ltd., a Cayman Islands company (“Laurus”) have been paid in full under (i) that certain Securities Purchase Agreement dated as of February 22, 2005 by and between Laurus and the Guarantor (as amended, restated, modified and/or supplemented from time to time, the “February 2005 Purchase Agreement”) regarding the purchase and sale of a Secured Convertible Term Note issued to Laurus by Guarantor on February 22, 2005, (ii) the “Related Agreements” under and as defined in the February 2005 Purchase Agreement (as amended, restated, modified and/or supplemented from time to time, the “February 2005 Related Agreements” and together with the February 2005 Purchase Agreement, the “February 2005 Laurus Documents), (iii) that certain Securities Purchase Agreement, dated as of May 31, 2005, by and between Laurus and the Guarantor (as amended, restated, modified and/or supplemented from time to time, the “May 2005 Purchase Agreement”) regarding the purchase and sale of a Secured Convertible Term Note issued to Laurus by Guarantor on May 31, 2005 and (iv) the “Related Agreements” under and as defined in the May 2005 Purchase Agreement (as amended, restated, modified and/or supplemented from time to time, the “May 2005 Related Agreements” and together with the May 2005 Purchase Agreement, the “May 2005 Laurus Documents) (the February 2005 Laurus Documents and the May 2005 Laurus Documents shall collectively be referred to as the “Laurus Debt Documents”), this Guaranty granted by Guarantor to Lender shall be subordinate in all respects to the liens, security interest, and rights of Laurus under the Laurus Debt Documents (which liens, security interests and rights do not include a lien, security interest or right in or to the Collateral) regardless of the order or time of UCC filings or any other filings or recordings, the order or time of granting of any such security interests or rights, or the physical possession of any assets of Guarantor or Arius Pharmaceuticals, Inc. (“Arius”), in each case until the obligations under the Laurus Debt Documents have been paid in full. In addition, until the obligations under the Laurus Debt Documents have been paid in full, Lender shall not take any enforcement action, or exercise any other right or remedy, available to Lender with respect to this Guaranty, whether available pursuant to law, equity or contract; provided, however, that, notwithstanding the foregoing, the subordination of Lender’s rights under this Guaranty to the liens, security interests and rights of Laurus under the Laurus Debt Documents, as set forth in this Section 2.11, shall not be deemed to prohibit Lender from, and Lender shall have the right to, (1) declare a breach or default of BDSI under this Guaranty and (2) exercise any right or remedy available to Lender, whether available pursuant to law, equity or contract, under the Collateral Documents, excluding this Guaranty, with respect to Borrower. The Lender and the Guarantor hereby agree that no amendment, supplementation or other modification may be made to this Section 2.11 without the prior written consent of Laurus. -------------------------------------------------------------------------------- 3. FURTHER ASSURANCES. Guarantor agrees, upon the reasonable written request of Lender, to execute and deliver to Lender, from time to time, any additional instruments or documents reasonably considered necessary by Lender to cause this Guaranty to be, become or remain valid and effective in accordance with its terms. 4. PAYMENTS FREE AND CLEAR OF TAXES. All payments required to be made by Guarantor hereunder shall be made to Lender free and clear of, and without deduction for, any and all present and future Taxes. If Guarantor shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (a) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4) Lender, as applicable, receive an amount equal to the sum they would have received had no such deductions been made, (b) Guarantor shall make such deductions, and (c) Guarantor shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. Within thirty (30) days after the date of any payment of Taxes, Guarantor shall furnish to Lender the original or a certified copy of a receipt evidencing payment thereof. Guarantor shall indemnify and, within ten (10) days of demand therefor, pay Lender for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section 4) paid by Lender, as appropriate, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. 5. OTHER TERMS. 5.1 Entire Agreement. This Guaranty, together with the other Loan Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to a guaranty of the loans under the Loan Documents and/or the Obligations. 5.2 Headings. The headings in this Guaranty are for convenience of reference only and are not part of the substance of this Guaranty. 5.3 Severability. Whenever possible, each provision of this Guaranty shall be interpreted in such a manner to be effective and valid under applicable law, but if any provision of this Guaranty 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 Guaranty. 5.4 Notices. Whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon another any such communication with respect to this Guaranty, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be addressed to the party to be notified as follows:   If to Lender:    QLT USA, Inc.    2579 Midpoint Drive    Fort Collins, Colorado 80525    Attention: President    Fax: (970) 482-9735 If to Guarantor:    at the address of Guarantor specified on the signature page hereto. -------------------------------------------------------------------------------- or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been validly served, given or delivered (i) upon the earlier of actual receipt and five (5) Business Days after the same shall have been deposited with the United States mail, registered or certified mail, return receipt requested, with proper postage prepaid, (ii) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided in this Section 4.4), (iii) one (1) Business Day after deposit with a reputable overnight carrier with all charges prepaid, or (iv) when delivered, if hand-delivered by messenger. 5.5 Successors and Assigns. This Guaranty and all obligations of Guarantor hereunder shall be binding upon the successors and assigns of Guarantor (including a debtor-in-possession on behalf of Guarantor) and shall, together with the rights and remedies of Lender, for the benefit of Lender, hereunder, inure to the benefit of Lender, all future holders of any instrument evidencing any of the Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the rights of Lender hereunder. Guarantor may not assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Guaranty without the prior written consent of Lender, provided that, notwithstanding the foregoing, Guarantor shall be entitled to assign, sell, hypothecate, or transfer its interest in or obligations under this Guaranty. 5.6 No Waiver; Cumulative Remedies; Amendments. Lender shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Lender and then only to the extent therein set forth. A waiver by Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Lender would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Guaranty may be waived, altered, modified, supplemented or amended except by an instrument in writing, duly executed by Lender and Guarantor. -------------------------------------------------------------------------------- 5.7 Termination. This Guaranty is a continuing guaranty and shall remain in full force and effect until the Termination Date. Upon payment and performance in full of the Obligations (other than contingent indemnification obligations as to which no claim has been asserted), Lender shall deliver to Guarantor such documents as Guarantor may reasonably request to evidence such termination. 5.8 Counterparts. This Guaranty may be executed in any number of counterparts, each of which shall collectively and separately constitute one and the same agreement. 6. GOVERNING LAW. THIS GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. 7. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG LENDER AND GUARANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS GUARANTY OR THE TRANSACTIONS RELATED HERETO. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Guaranty as of the date first above written.   BIODELIVERY SCIENCES INTERNATIONAL, INC. By   /s/ Mark A. Sirgo Title:   President and CEO 2501 Aerial Center Parkway, Suite 205 Morrisville, North Carolina 27560 Attn: Chief Executive Officer Fax: (919) 653-5161

Exhibit 10.1                                                                               EXECUTION COPY -------------------------------------------------------------------------------- PANAMSAT HOLDING CORPORATION 10⅜% SENIOR DISCOUNT NOTES DUE 2014       -------------------------------------------------------------------------------- FIRST SUPPLEMENTAL INDENTURE DATED AS OF June 14, 2006 --------------------------------------------------------------------------------                 THE BANK OF NEW YORK, AS TRUSTEE   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- FIRST SUPPLEMENTAL INDENTURE, dated as of June 14, 2006 (this “First Supplemental Indenture”), between PANAMSAT HOLDING CORPORATION, a Delaware corporation (the “Company”), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the “Trustee”). WHEREAS, the Company and the Trustee are parties to an Indenture, dated as of October 19, 2004 (the “Indenture”), pursuant to which the Company issued its 10⅜% Senior Discount Notes Due 2014 (the “Notes”); WHEREAS, the Board of Directors of the Company has authorized the proposed amendments to the Indenture contemplated by this First Supplemental Indenture (the “Proposed Amendments”); WHEREAS, Section 902 of the Indenture provides, inter alia, that in certain circumstances the Company and the Trustee may amend or supplement the Indenture and the Notes with the consent of the Holders of not less than a majority in aggregate principal amount at maturity of the Notes then outstanding; WHEREAS, the Company has distributed an Offer to Purchase and Consent Solicitation Statement, dated May 30, 2006 (the “Solicitation Statement”), and accompanying Consent and Letter of Transmittal to the Holders of the Notes in connection with the Proposed Amendments as described in the Solicitation Statement; WHEREAS, the Holders of not less than a majority in aggregate principal amount at maturity of the Notes outstanding have approved the Proposed Amendments to the provisions of the Indenture and the Notes; and WHEREAS, the execution and delivery of this instrument has been duly authorized and all conditions and requirements necessary to make this instrument a valid and binding agreement have been duly performed and complied with; NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, it is mutually covenanted and agreed, for the equal proportionate benefit of all Holders of the Notes, as follows: ARTICLE 1 AMENDMENTS TO ARTICLE ONE—DEFINITIONS AND OTHER          PROVISIONS OF GENERAL APPLICATION   Section 1.01.          Section 102 of the Indenture is hereby amended by deleting the following definitions:  “Acceptable Exclusions,” “Acquired Indebtedness,” “Adjusted EBITDA,” “Affiliate Transaction,” “Asset Sale,” “Asset Sale Offer,” “Capital Lease Obligation,” “Change of Control,” “Change of Control Offer,” “Change of Control Payment,” “Change of Control Payment Date,” “Consolidated Depreciation and Amortization Expense,” “Consolidated Income Tax Expense,” “Consolidated Interest Expense,” “Consolidated Net Income,” “Consolidated Secured Debt Ratio,” “Consolidated Total Indebtedness,” “Cumulative Credit,” “Cumulative Interest Expense,” “Debt to Adjusted EBITDA Ratio,” “Designated Non-Cash Consideration,” 1 -------------------------------------------------------------------------------- “Designated Preferred Stock,” “Domestic Subsidiary,” “Excluded Contributions,” “Event of Loss,” “Event of Loss Proceeds,” “Excess Proceeds,” “Excluded Satellite,” “Existing Indebtedness,” “Existing Notes,” “Historical Adjustments,” “incur,” “incurrence,” “Independent Financial Advisor,” “In-Orbit Insurance,” “In-orbit Spare Satellite,” “Investment Grade Rating,” “Permitted Asset Swap,” “Permitted Holders,” “Permitted Investments,” “Permitted Liens,” “Rating Agencies,” “Receivables Facility,” “Receivables Fees,” “Refinancing Indebtedness,” “Refinancing Capital Stock,”  “Related Business Assets,” “Restricted Investment,” “Restricted Payments,” “Retired Capital Stock,” and “Weighted Average Life to Maturity.” Section 1.02.          Section 102 of the Indenture is hereby amended by deleting the phrase “(provided that such increase in borrowings is permitted under Section 1011)” in the definition of “Credit Facilities” thereof. Section 1.03.          Section 102 of the Indenture is hereby amended by deleting and amending clause (2) of the definition “Equity Offering” thereof to read in its entirety as set forth below: (2)           [Intentionally omitted]. Section 1.04.          Section 102 of the Indenture is hereby amended by deleting the definition “Guarantor” thereof and replacing such definition to read in its entirety as follows: “Guarantor” means any Subsidiary of the Company that guarantees the Notes in accordance with the terms of this Indenture. Section 1.05.          Section 102 of the Indenture is hereby amended by deleting the phrase “(provided that such increase in borrowings is permitted under Section 1011)” in the definition of “Senior Credit Facilities” thereof. Section 1.06.          Section 102 of the Indenture is hereby amended by deleting the phrase “such designation complies with Section 1010” in clause (2) of the second paragraph of the definition of “Unrestricted Subsidiary” and replacing such phrase with the following: “[Intentionally omitted]”. Section 1.07.          Section 102 of the Indenture is hereby amended by deleting the third paragraph of the definition of “Unrestricted Subsidiary” and replacing it in its entirety with the following: The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary. Section 1.08.          Section 103 of the Indenture is hereby amended by deleting the phrase “(other than pursuant to Section 1008(a))” in the second paragraph thereof. Section 1.09.          To the extent not expressly deleted pursuant to the amendments set forth under this Article 1, (a) any definitions used exclusively in the provisions of the Indenture deleted pursuant to the amendments set forth under this First Supplemental Indenture are hereby 2 -------------------------------------------------------------------------------- deleted in their entirety from the Indenture and the Notes and (b) all references made to a definition deleted from the Indenture pursuant to this Article 1 are hereby deleted in their entirety under this Article 1. ARTICLE 2 AMENDMENTS TO ARTICLE THREE—THE NOTES   Section 2.01.          Section 301 of the Indenture is hereby amended by replacing the phrase “Sections 202 and 1011” with “Section 202” in the first paragraph thereof. Section 2.02.          Section 301 of the Indenture is hereby amended by deleting the fourth paragraph thereof. Section 2.03.          Section 303 of the Indenture is hereby amended by deleting the phrase “pursuant to Section 1002,” in the second sentence of the last paragraph thereof. Section 2.04.          Section 304 of the Indenture is hereby amended by deleting the phrase “pursuant to Section 1002” in the first sentence of the first paragraph thereof. Section 2.05.          Section 304 of the Indenture is hereby amended by deleting the phrase “pursuant to Section 1002” in the second paragraph thereof. Section 2.06.          Section 304 of the Indenture is hereby amended by deleting the phrase “1017, 1018,” in the last paragraph thereof. Section 2.07.          Section 306(a) of the Indenture is hereby amended by deleting the phrase “pursuant to Section 1002” in the first sentence thereof. Section 2.08.          Section 312 of the Indenture is hereby amended by deleting the phrase “, subject to Section 1011 of this Indenture,” in the first sentence thereof. ARTICLE 3 AMENDMENTS TO ARTICLE FIVE—REMEDIES   Section 3.01.          Section 501(3) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (3)           [Intentionally omitted]. Section 3.02.          Section 501(4) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (4)           [Intentionally omitted]. Section 3.03.          Section 501(5) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (5)           [Intentionally omitted]. 3 -------------------------------------------------------------------------------- Section 3.04.          Section 501(6) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (6)           [Intentionally omitted]. Section 3.05.          Section 501(7) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (7)           [Intentionally omitted]. Section 3.06.          Section 501(8) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (8)           [Intentionally omitted]. Section 3.07.          Section 502(a) of the Indenture is hereby amended by deleting the phrase “(other than an Event of Default specified in Section 501(8) above)” in the first sentence thereof. Section 3.08. Section 502(b) of the Indenture is hereby amended by deleting the phrase “an Event of Default specified in Section 501(8) above occurs” in the last sentence thereof and replacing it with the phrase “a voluntary or involuntary case has been commenced against the Company under any Bankruptcy Law”. Section 3.09.          Section 502(d) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (d)           [Intentionally omitted]. ARTICLE 4 AMENDMENTS TO ARTICLE SIX—THE TRUSTEE   Section 4.01.          Section 607 of the Indenture is hereby amended by deleting the phrase “an Event of Default specified in Section 501(8)” in the third paragraph thereof and replacing it with the phrase “a voluntary or involuntary case commenced against the Company under any Bankruptcy Law”. ARTICLE 5 AMENDMENTS TO ARTICLE EIGHT—MERGER, CONSOLIDATION          OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS   Section 5.01.          Section 801 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 801. [Intentionally omitted]. Section 5.02.          Section 802 of the Indenture is hereby amended by deleting the phrase “in accordance with Section 801 hereof” in the first sentence thereof. 4 --------------------------------------------------------------------------------   ARTICLE 6 AMENDMENTS TO ARTICLE TEN—COVENANTS   Section 6.01.          Section 1002 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1002. [Intentionally omitted]. Section 6.02.          Section 1004 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1004. [Intentionally omitted]. Section 6.03.          Section 1005 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1005. [Intentionally omitted]. Section 6.04.          Section 1006 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1006. [Intentionally omitted]. Section 6.05.          Section 1007 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1007. [Intentionally omitted]. Section 6.06.          Section 1008 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1008. [Intentionally omitted]. Section 6.07.          Section 1009 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1009. [Intentionally omitted]. Section 6.08.          Section 10010 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1010. [Intentionally omitted]. Section 6.09.          Section 1011 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1011. [Intentionally omitted]. 5 --------------------------------------------------------------------------------   Section 6.10.          Section 1012 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1012. [Intentionally omitted]. Section 6.11.          Section 1013 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1013. [Intentionally omitted]. Section 6.12.          Section 1014 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1014. [Intentionally omitted]. Section 6.13.          Section 1015 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1015. [Intentionally omitted]. Section 6.14.          Section 1016 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1016. [Intentionally omitted]. Section 6.15.          Section 1017 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1017. [Intentionally omitted]. Section 6.16.          Section 1018 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1018. [Intentionally omitted]. Section 6.17.          Section 1019 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1019. [Intentionally omitted]. Section 6.18.          Section 1020 of the Indenture is hereby deleted and amended to read in its entirety as set forth below: Section 1020. [Intentionally omitted]. 6 --------------------------------------------------------------------------------   ARTICLE 7 AMENDMENTS TO ARTICLE ELEVEN—REDEMPTION OF NOTES   Section 7.01.          Section 1108 of the Indenture is hereby amended by deleting the phrase “pursuant to Section 1002”. ARTICLE 8 AMENDMENTS TO ARTICLE THIRTEEN—LEGAL DEFEASANCE AND COVENANT DEFEASANCE   Section 8.01.          Section 1302 of the Indenture is hereby amended by deleting the phrase “,1002” in number (2) thereof. Section 8.02.          Section 1303 of the Indenture is hereby amended by deleting the paragraph following the section heading in its entirety and replacing it with the following paragraph: “Upon the Company’s exercise under Section 1301 of the option applicable to this Section 1303, each of the Company and the Guarantors, if any, shall be released from its obligations under any covenant contained in Section 802 with respect to the Outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, “Covenant Defeasance”), and the Notes shall thereafter be deemed not to be “Outstanding” for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed “Outstanding” for all other purposes hereunder. For this purpose, such Covenant Defeasance means that, with respect to the Outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant in Section 802, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default, but except as specified above, the remainder of the Indenture and such Notes shall be unaffected thereby.” Section 8.03.          Section 1304(2) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (2)           [Intentionally omitted]; Section 8.04.          Section 1304(3) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (3)           [Intentionally omitted]; Section 8.05.          Section 1304(4) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (4)           [Intentionally omitted]; 7 --------------------------------------------------------------------------------   Section 8.06.          Section 1304(5) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (5)           [Intentionally omitted]; Section 8.07.          Section 1304(6) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (6)           [Intentionally omitted]; Section 8.08.          Section 1304(7) of the Indenture is hereby deleted and amended to read in its entirety as set forth below:     (7)       [Intentionally omitted]; and Section 8.09.          Section 1304(8) of the Indenture is hereby deleted and amended to read in its entirety as set forth below: (8)           [Intentionally omitted]. ARTICLE 9 AMENDMENTS TO THE RULE 144A/REGULATION S/IAI APPENDIX   Section 9.01.          Section 2.2 of the Rule 144A/Regulation S/IAI Appendix to the Indenture is hereby amended by deleting the phrase “and, in the case of any issuance of Additional Notes pursuant to Section 313 of the Indenture, shall certify that such issuance is in compliance with Section 1011 of the Indenture” in the last sentence thereof. Section 9.02.          Exhibit 1 of the Rule 144A/Regulation S/IAI Appendix to the Indenture is hereby amended by deleting the section: “OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 1017 or 1018 of the Indenture, check the box: o o  If you want to elect to have only part of this Note purchased by the Company pursuant to Section 1017 or 1018 of the Indenture, state the amount in principal amount: $ Dated:  __________________                                                                                         Your Signature:  _____________________________ (Sign exactly as your name appears on the other side of this Note.) Signature Guarantee:  _________________________________________________________ (Signature must be guaranteed) Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Notes Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as 8 -------------------------------------------------------------------------------- may be determined by the Notes Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.” Section 9.03.          Exhibit 1 of the Rule 144A/Regulation S/IAI Appendix to the Indenture and the Notes are hereby amended by deleting and amending paragraph 6 thereof to read in its entirety as set forth below: 6.                                       [Intentionally omitted]. Section 9.04.          Exhibit 1 of the Rule 144A/Regulation S/IAI Appendix to the Indenture and the Notes are hereby amended by deleting and amending paragraph 12 thereof to read in its entirety as set forth below: 12.                                 [Intentionally omitted]. Section 9.05.          Exhibit A of the Rule 144A/Regulation S/IAI Appendix to the Indenture is hereby amended by deleting the section: “OPTION OF HOLDER TO ELECT PURCHASE   If you want to elect to have this Note purchased by the Company pursuant to Section 1017 or 1018 of the Indenture, check the box: £ £  If you want to elect to have only part of this Note purchased by the Company pursuant to Section 1017 or 1018 of the Indenture, state the amount in principal amount: $ Dated:  __________________                                                                                         Your Signature:  _____________________________ (Sign exactly as your name appears on the other side of this Note.) Signature Guarantee:  _________________________________________________________ (Signature must be guaranteed) Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Notes Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Notes Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.” Section 9.06.          Exhibit A of the Rule 144A/Regulation S/IAI Appendix to the Indenture is hereby amended by deleting and amending paragraph 6 thereof to read in its entirety as set forth below: 6.                                       [Intentionally omitted]. 9 --------------------------------------------------------------------------------   Section 9.07.          Exhibit A of the Rule 144A/Regulation S/IAI Appendix to the Indenture is hereby amended by deleting and amending paragraph 12 thereof to read in its entirety as set forth below: 12.                                 [Intentionally omitted]. Section 9.08.          Exhibit C of the Rule 144A/Regulation S/IAI Appendix to the Indenture is hereby amended by deleting the second paragraph under the Section “WITNESSETH:” thereof. Section 9.09.          Exhibit C of the Rule 144A/Regulation S/IAI Appendix to the Indenture is hereby amended by adding the word “and” after the semi-colon in the first paragraph under the Section “WITNESSETH:” thereof. Section 9.10.          Exhibit C of the Rule 144A/Regulation S/IAI Appendix to the Indenture is hereby amended by deleting and amending Section 204(i)(b) to read in its entirety as set forth below: (b) the Company designating such Guarantor to be an Unrestricted Subsidiary is in accordance with the definition of “Unrestricted Subsidiary”;   Section 9.13.          Exhibit C of the Rule 144A/Regulation S/IAI Appendix to the Indenture is hereby amended by deleting and amending Section 204(i)(c) to read in its entirety as set forth below: (c) [Intentionally omitted];   ARTICLE 10 EFFECTIVENESS   Section 10.01.        This First Supplemental Indenture shall become a binding agreement between the parties hereto when executed by the parties hereto. The Proposed Amendments set forth herein shall become operative at the time and date at which the Company notifies the Trustee, in its capacity as depositary for the Notes in connection with the Offer and the Consent Solicitation (each as defined in the Solicitation Statement), that the validly tendered Notes are accepted for purchase pursuant to, and subject to the conditions set forth in, the Solicitation Statement. ARTICLE 11 MISCELLANEOUS   Section 11.01.        To the extent not expressly deleted pursuant to the amendments set forth in this First Supplemental Indenture, all references to a provision of the Indenture deleted from the Indenture pursuant to this First Supplemental Indenture are hereby deleted. Section 11.02.        Amendments to the Indenture pursuant to this First Supplemental Indenture shall also apply to the Notes, including without limitation, provisions of the Notes amended as set forth in the amendments to the Exhibits to the Indenture. 10 --------------------------------------------------------------------------------   Section 11.03.        The Trustee accepts the trusts created by the Indenture, as amended and supplemented by this First Supplemental Indenture, and agrees to perform the same upon the terms and conditions of the Indenture, as amended and supplemented by this First Supplemental Indenture. Section 11.04.        All capitalized terms used and not defined herein shall have the respective meanings assigned to them in the Indenture. Section 11.05.        When the Proposed Amendments set forth herein shall become operative as provided in Article 10 above, the terms and conditions of this First Supplemental Indenture shall be part of the terms and conditions of the Indenture for any and all purposes, and all the terms and conditions of both shall be read together as though they constitute one and the same instrument, except that in case of conflict, the provisions of this First Supplemental Indenture will control. Section 11.06.        Each of the Company and the Trustee hereby confirms and reaffirms the Indenture in every particular, except as provided by this First Supplemental Indenture. Section 11.07.        All covenants and agreements in this First Supplemental Indenture by the Company or the Trustee shall bind their respective successors and assigns, whether so expressed or not. Section 11.08.        In case any provisions in this First Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.09.        Nothing in this First Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and their successors under the Indenture and the Holders of the Notes, any benefit or any legal or equitable right, remedy or claim under the Indenture. Section 11.10.        The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. One signed copy is enough to prove this First Supplemental Indenture. Section 11.11.        This First Supplemental Indenture shall be governed by and construed in accordance with, the laws of the State of New York. Section 11.12.        If any provision of this First Supplemental Indenture limits, qualifies or conflicts with another provision of this First Supplemental Indenture or the Indenture or the Notes that is required to be included by the Trust Indenture Act of 1939, as amended, as in force at the date this First Supplemental Indenture is executed, the provision required by said Act shall control. Section 11.13.        All provisions of this First Supplemental Indenture shall be deemed to be incorporated in, and made a part of, the Indenture; and the Indenture, as amended and 11 -------------------------------------------------------------------------------- supplemented by this First Supplemental Indenture, shall be read, taken and construed as one and the same instrument. Section 11.14.        The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this First Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Company. 12 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the date first written above.   PANAMSAT HOLDING CORPORATION       By: /s/ James W. Cuminale     Name: James W. Cuminale     Title: Executive Vice President, General Counsel and Secretary           THE BANK OF NEW YORK           By: /s/ Geovanni Barris     Name: Geovanni Barris     Title: Vice President   13 --------------------------------------------------------------------------------

  Exhibit 10.1 EMPLOYMENT AGREEMENT      This Employment Agreement, dated as of June 29, 2006 (the “Agreement”), is between OXiGENE, Inc. (the “Company”), and Richard Chin (“Executive”). This Agreement is intended to confirm the understanding and set forth the agreement between the Company and Executive with respect to Executive’s future employment by the Company. In consideration of the mutual promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties agree as follows:         1.      Employment.       (a)      Title and Duties. Subject to the terms and conditions of this Agreement, the Company will employ Executive, and Executive will be employed by the Company, as President and Chief Executive Officer (“CEO”), reporting to the Board of Directors of the Company (the “Board”). Executive will have the responsibilities, duties and authority commensurate with said position. Executive will also perform such other services of an executive nature for the Company as may be reasonably assigned to Executive from time to time by the Board.       (b)      Devotion to Duties. For so long as Executive is employed hereunder, Executive will devote substantially all of Executive’s business time and energies to the business and affairs of the Company, provided that nothing contained in this Section 1(b) will be deemed to prevent or limit Executive’s right to manage Executive’s personal investments on Executive’s own personal time, including, without limitation, the right to make passive investments in the securities of (i) any entity which Executive does not control, directly or indirectly, and which does not compete with the Company, or (ii) any publicly held entity (other than the Company or its related entities) so long as Executive’s aggregate direct and indirect interest does not exceed two percent (2%) of the issued and outstanding securities of any class of securities of such publicly held entity. Except as set forth on Exhibit A hereto, Executive represents that Executive is not currently a director (or similar position) of any other entity and is not employed by or providing consulting services to any other person or entity, and Executive agrees to refrain from undertaking any such position or engagement without the prior written approval of the Board. Executive may continue to serve as a director and/or volunteer for the entities listed on Exhibit A provided that such service does not create any conflicts, ethical or otherwise, with Executive’s responsibilities to the Company and further provided that Executive’s time commitments do not unreasonably interfere with his fulfillment of his responsibilities hereunder, as determined by the Board or its designated committee thereof.       (c)      Board Membership. For as long as the Executive is the CEO, the Nominating Committee of the Board will nominate Executive for continuing membership on the Board. The restricted stock already granted to Executive as a board member will continue to vest according to the terms and conditions set forth in the applicable stock plan and restricted stock agreements.          2.      Term of Employment.       (a)      Term. The Executive’s employment by the Company under this Agreement shall commence seven (7) days after full execution of this Agreement by the Executive and the Company (the “Commencement Date”). The Executive is employed on an at-will basis and, subject to the provisions of Section 4, either the Executive or the Company may terminate the employment relationship at any time for any reason. The duration of Executive’s employment is hereafter referred to as the “Term.”       (b)      Termination. Notwithstanding anything else contained in this Agreement, Executive’s employment hereunder will terminate upon the earliest to occur of the following:   --------------------------------------------------------------------------------   (i)      Death. Immediately upon Executive’s death; (ii)     Termination by the Company.       (A)      If because of Disability (as defined below), then upon written notice by the Company to Executive that Executive’s employment is being terminated as a result of Executive’s Disability, which termination shall be effective on the date of such notice;       (B)      If for Cause, then upon written notice by the Company to Executive that states that Executive’s employment is being terminated for Cause (as defined below) and sets forth the specific alleged Cause for termination and the factual basis supporting the alleged Cause, which termination shall be effective on the date of such notice or such later date as specified in writing by the Board; provided that if such Cause arises under Section 2(d)(i), (ii), (iii), (vii) or (viii), the Executive shall be given a minimum period of thirty (30) days to reasonably cure such Cause; or       (C)      If without Cause (i.e., for reasons other than Sections 2(b)(ii)(A) or (B)), then upon written notice by the Company to Executive that Executive’s employment is being terminated without Cause, which termination shall be effective on the date of such notice or such later date as specified in writing by the Board; or (iii)    Termination by Executive.       (A)      If for Good Reason (as defined below), then upon written notice by Executive to the Company that states that Executive is terminating Executive’s employment for Good Reason (as defined below) and that sets forth the specific alleged Good Reason for termination and the factual basis supporting the alleged Good Reason, which termination shall be effective thirty (30) days after the date of such notice; provided that if the Company has reasonably cured the circumstances giving rise to the Good Reason by such date, then such termination shall not be effective; or       (B)      If without Good Reason, then upon written notice by Executive to the Company that Executive is terminating Executive’s employment, which termination shall be effective thirty (30) days after the date of such notice; provided that the Executive may request at such time to leave with a shorter notice period, and the Board shall not unreasonably withhold its consent to such shorter period.       Notwithstanding anything in this Section 2(b), the Company may at any point terminate Executive’s employment for Cause prior to the effective date of any other termination contemplated hereunder if such Cause exists.       (c)      Definition of “Disability”. For purposes of this Agreement, “Disability” shall mean Executive’s inability to further perform Executive’s duties and responsibilities as contemplated herein because Executive’s physical or mental health has become so impaired as to make such performance impossible or impractical, which inability continues for one hundred twenty (120) days or more within any twelve (12) month period (either consecutively or cumulatively). Determination of Executive’s physical or mental health will be determined by a medical expert appointed by mutual agreement between the Company and Executive.       (d)      Definition of “Cause”. For purposes of this Agreement, “Cause” shall mean that Executive has (i) intentionally committed an act or omission that materially harms the Company; (ii) been grossly negligent in the performance of Executive’s duties to the Company; (iii) willfully failed or refused to follow the lawful and proper directives of the Board, which failure or refusal continues despite Executive having   --------------------------------------------------------------------------------   received an opportunity to cure pursuant to Section 2(b)(ii)(B) of this Agreement; (iv) been convicted of, or pleaded guilty or nolo contendre, to a felony; (v) committed a criminal act involving moral turpitude, but excluding any conviction which results solely from Executive’s title or position with the Company and is not based on his personal conduct; (vi) committed an act relating to the Executive’s employment or the Company involving, in the good faith judgment of the Board, material fraud or theft; (vii) breached any material provision of this Agreement or any nondisclosure or non-competition agreement (including the Confidentiality, Non-Competition and Intellectual Property Agreement attached here as Exhibit B), between Executive and the Company, as all of the foregoing may be amended prospectively from time to time; or (viii) intentionally breached a material provision of any code of conduct or ethics policy in effect at the Company, as all of the foregoing may be amended prospectively from time to time.       (e)      Definition of “Good Reason”. For the purposes of this Agreement, “Good Reason” shall mean: (i) without the Executive’s express written consent, any material reduction in Executive’s title, or responsibilities compared to those prior to the Change in Control; (ii) without the Executive’s express written consent, a material reduction by the Company in the Executive’s total compensation as in effect on the date hereof or as the same may be increased from time to time, provided that it shall not be deemed a material reduction if (X) the amount of Executive’s Annual Bonus is less than the amount of any previously awarded Annual Bonuses or (Y) a benefit is amended and such amendment affects all eligible executive participants; or (iii) the Company breaches a material term of this Agreement; provided that failure to timely make any payments within the time frames set forth in this Agreement shall not be considered Good Reason if such payment is provided within the cure period set forth in Section 2(b)(iii)(A).       (f)      Definition of “Change in Control”. “Change in Control” of OXiGENE, Inc. as used in this Agreement shall mean the following, but only to the extent it is interpreted in a manner consistent with the meaning of “a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation” under Section 409A of Internal Revenue Code of 1986, as amended (“Code Section 409A”), and any successor statute, regulation and guidance thereto, and limited to the extent necessary so that it will not cause adverse tax consequences with respect to Code Section 409A: (i) a merger or consolidation of the Company whether or not approved by the Board of Directors, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (ii) the stockholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.       (g)      Board Membership. Upon termination of Executive’s employment for any reason, if so requested by the Chairman of the Board or a majority of the Board, Executive shall immediately resign in writing as a director of the Company.         3.      Compensation.       (a)      Base Salary. While Executive is employed hereunder, the Company will pay Executive a base salary at the gross annualized rate of $380,000.00 (the “Base Salary”), paid in accordance with the Company’s usual payroll practices. The Base Salary will be subject to review annually or on such periodic basis (not to exceed annually) as the Company reviews the compensation of the Company’s other senior executives and may be adjusted upwards in the sole discretion of the Board or its designee. The Company will deduct from each such installment any amounts required to be deducted or withheld under applicable law or under any employee benefit plan in which Executive participates.   --------------------------------------------------------------------------------         (b)      Annual Bonus. Executive may be eligible to earn an Annual Bonus relating to each fiscal year, based on the achievement of individual and Company written goals established on an annual basis by the Board within thirty (30) days of the beginning of the fiscal year. Executive shall be eligible for a pro-rated bonus for 2006. If the Executive meets the applicable goals, then the Executive shall be entitled to a minimum bonus for that year equal to 50% of his then-current Base Salary. The Board may in its discretion award the Executive a more generous bonus, up to 100% of his then-current Base Salary. At least 50% of the Annual Bonus awarded and paid in any year other than 2007 shall be comprised of restricted stock grants or other forms of equity, the amount of which shall be determined by dividing the Annual Bonus by the closing stock price on the date of grant. The Executive may elect to receive a greater percentage of the Annual Bonus in the form of equity, subject to the approval of the Board; provided that the Annual Bonus awarded and paid in 2007, if any, shall be comprised entirely of cash. Any Annual Bonus shall be paid as soon as practicable following the close of the fiscal year, but in any event no later than the time by which the Company is required to file its Annual Report on Form 10-K.       (c)      Commencement Bonus. The Company will pay Executive a Commencement Bonus of $200,000, less applicable taxes and deductions. The Commencement Bonus will be paid no later than sixty (60) days after the Commencement Date. If Executive’s employment hereunder is terminated either by the Company for Cause or voluntarily by Executive in the absence of a Good Reason within one (1) year of the Commencement Date, Executive will promptly repay a portion of the Commencement Bonus equal to the amount of the Commencement Bonus, net of applicable taxes and deductions, multiplied by a fraction, the numerator of which equals the number of days from the effective date of such termination to the first anniversary of the Commencement Date and the denominator of which will be 365 (or the Company may withhold such amount from any payments otherwise due to Executive).       (d)      Equity Compensation.       (i)      The Company will grant to Executive as of the Commencement Date options to purchase 250,000 shares of the Company’s common stock at an exercise price equal to the fair market value of such stock on the date of grant, which options will vest in annual increments over the four (4) year period following the date of grant, with vesting to begin on the one (1) year anniversary of the grant date. To the extent allowed by law, the options shall be treated as incentive options.       (ii)     On January 2, 2007, the Company will grant to Executive 250,000 shares of restricted common stock, which restricted stock shall vest in annual increments over the four (4) year period measured from the Commencement Date, with vesting to begin on the one (1) year anniversary of the Commencement Date.       (iii)    On an annual basis beginning in 2007, the Board, in its discretion, shall grant to Executive additional options or restricted common stock, with a target of approximately 100,000 shares of common stock per year; provided that, in 2007 only, the Company shall consider a cash award of $250,000 to $350,000 in lieu of any award of options or restricted stock. The award and amount of such grants (or cash payment) shall be based on performance and shall be awarded at the sole discretion of the Board.       (iv)     The number of options or shares of restricted stock contemplated in this Agreement but not yet granted shall be proportionately adjusted for any increase or decrease in the number of issued shares of common stock of the Company resulting from a stock split, reverse stock split, combination or reclassification of such common stock.       (v)      Except as otherwise expressly provided in this Agreement, any options or shares of restricted stock granted to Executive shall be subject to the terms and conditions set forth in the   --------------------------------------------------------------------------------   agreements entered into by Executive and the Company governing such options or stock grants and the OXiGENE, Inc. 2005 Stock Plan (“Stock Plan”) or any successor or replacement plan thereto.       (e)      Fringe Benefits. In addition to any benefits provided by this Agreement, Executive shall be entitled to participate in all employee benefit, welfare and other plans, practices, policies and programs and fringe benefits maintained by the Company from time to time on a basis no less favorable than those provided to other similarly situated executives of the Company. Executive understands that, except when prohibited by applicable law, the Company’s benefit plans and fringe benefits may be amended, enlarged, diminished or terminated prospectively by the Company from time to time, in its sole discretion, and that such shall not be deemed to be a breach of this Agreement or a material change in the terms of Executive’s compensation for the purposes of Section 2(e), provided that Executive’s level of coverage under all such programs is at least as great as is such coverage provided to similarly situated executives of the Company.       (f)      Vacation. Executive will be entitled to accrue up to twenty (20) vacation days per year that Executive remains employed by the Company, administered in accordance with and subject to the terms of the Company’s vacation policy, as it may be amended prospectively from time to time.       (g)      Reimbursement of Expenses. The Company will promptly reimburse Executive for all ordinary and reasonable out-of-pocket business expenses that are incurred by Executive in furtherance of the Company’s business in accordance with the Company’s policies with respect thereto as in effect from time to time.       (h)      Relocation. As a condition of his employment hereunder, Executive is expected to relocate to a reasonable commuting distance from the Company’s current headquarters if the Board and the Executive reasonably deem such relocation to be necessary to meet business needs; provided that the Executive shall not unreasonably withhold his consent to such relocation. The Board shall notify the Executive of the date by which such relocation must be effectuated, which date shall be not less than ninety (90) days after the date of such notice. The Company shall reimburse Executive for up to $100,000 in Relocation Expenses (as defined below) relating to such relocation, so long as the Executive is employed by the Company at the time of the relocation. Such reimbursement shall be promptly made upon presentation of reasonably detailed documentation of such Relocation Expenses. For purposes hereof, “Relocation Expenses” shall mean reasonable expenses incurred by Executive related to costs of looking for a new primary residence, costs associated with the sale of Executive’s California residence and the purchase of Executive’s new residence (but excluding taxes or the actual purchase price of such residence), and the physical movement of all goods and vehicles that are in Executive’s California home. The foregoing notwithstanding, if within one (1) year of the Commencement Date, Executive’s employment with the Company is terminated either by the Company for Cause or voluntarily by Executive in the absence of a Good Reason, then Executive shall repay to the Company, within three (3) months of termination, the amount of the actually-reimbursed Relocation Expenses multiplied by a fraction, the numerator of which equals the number of days from the effective date of such termination to the first anniversary of Executive’s Commencement Date and the denominator of which will be 365 (and the Company may withhold such amount from any payments otherwise due to Executive).       To the extent permitted by law, commuting expenses, including travel, lodging, and associated costs prior to relocation shall be treated and reimbursed as a business expense, and such expenses shall not be considered Relocation Expenses.         4.      Compensation Upon Termination.       (a)      Definition of Accrued Obligations. For purposes of this Agreement, “Accrued Obligations” means (i) the portion of Executive’s Base Salary that has accrued prior to any termination of Executive’s employment with the Company and has not yet been paid; (ii) to the extent required by law and the   --------------------------------------------------------------------------------   Company’s policy, an amount equal to the value of Executive’s accrued but unused vacation days; (iii) the amount of any expenses properly incurred by Executive on behalf of the Company prior to any such termination and not yet reimbursed; (iv) the Executive’s unvested equity compensation already granted and earned as part of Executive’s bonus in the previous year(s), which shall immediately vest and become exercisable upon termination; and (v) the Annual Bonus related to the most recently completed calendar year, if not already paid (the amount of which shall be determined in accordance with Section 3(b) above). Executive’s entitlement to any other compensation or benefit under any plan or policy of the Company, including but not limited to applicable option plans, shall be governed by and determined in accordance with the terms of such plans or policies, except as otherwise specified in this Agreement.       (b)      Termination for Cause, By the Executive Without Good Reason, or as a Result of Executive’s Disability or Death.       (i)      If Executive’s employment hereunder is terminated either by the Company for Cause, or by Executive without Good Reason, or if Executive’s employment terminates as a result of the Executive’s death, the Company will pay the Accrued Obligations to Executive promptly following the effective date of such termination.       (ii)     In case of termination by the Company as a result of the Executive’s Disability, the Company will pay Executive the Accrued Obligations plus an amount equal to two (2) months of Executive’s then-current Base Salary.       (c)      Termination By the Company Without Cause or By Executive With Good Reason. If Executive’s employment hereunder is terminated by the Company without Cause or by Executive with Good Reason, then:       (i)      The Company will pay the Accrued Obligations to Executive promptly following the effective date of such termination;       (ii)     The Company will pay Executive a total amount equal to twenty-four (24) months of Executive’s then current Base Salary, less applicable taxes and deductions; such payment to be held in escrow in an interest bearing account designated for Executive subject to the terms of the Separation Agreement set forth in Section 4(e) below, and to be made in twelve (12) approximately equal monthly installments in accordance with the Company’s usual payroll practices over a period of twelve (12) months; and       (iii)    The Company will continue to provide medical insurance coverage for Executive and Executive’s family at no cost to Executive for eighteen (18) months; provided, that the Company shall have no obligation to provide such coverage if Executive fails to elect COBRA benefits in a timely fashion or if Executive becomes eligible for medical coverage with another employer.       (d)      Termination Following A Change In Control Without Cause or for Good Reason. If Executive’s employment is terminated within the twelve (12) month period following a Change in Control by the Company without Cause or by the Executive for Good Reason, then:       (i)      the Executive shall be entitled to receive the payments and benefits set forth in Section 4(c) above; and       (ii)     all unvested options and restricted shares then held by Executive shall vest and be immediately exercisable.       (e)      Release of Claims/Board Resignation. The Company shall not be obligated to pay Executive any of the compensation or provide Executive any of the benefits or equity acceleration set forth in Section   --------------------------------------------------------------------------------   4(b), 4(c) or 4(d) (other than the Accrued Obligations) unless and until Executive has (i) executed a timely separation agreement in a form acceptable to the Company, which shall include a releases of claims between the Company and the Executive, including provisions regarding mutual non-disparagement and confidentiality; and (ii) resigned from the Board, if so requested pursuant to Section 2(g).       (f)      No Other Payments or Benefits Owing. The payments and benefits set forth in this Section 4 shall be the sole amounts owing to Executive as separation pay upon termination of Executive’s employment. Executive shall not be eligible for any other payments, including but not limited to additional Base Salary payments, bonuses, commissions, or other forms of compensation or benefits, except as may otherwise be set forth in this Agreement or other Company plan documents with respect to plans in which Executive is a participant.       (g)      Notwithstanding any other provision with respect to the timing of payments under Section 4, if, at the time of Executive’s termination, Executive is deemed to be a “specified employee” (within the meaning of Code Section 409A, and any successor statute, regulation and guidance thereto) of the Company, then limited only to the extent necessary to comply with the requirements of Code Section 409A, any payments to which Executive may become entitled under Section 4 which are subject to Code Section 409A (and not otherwise exempt from its application) will be withheld until the first (1st) business day of the seventh (7th) month following the termination of Executive’s employment, at which time Executive shall be paid an aggregate amount equal to the accumulated, but unpaid, payments otherwise due to Executive under the terms of Section 4.         5.      Confidentiality and Competition. Executive agrees to sign and return to the Company the Confidentiality, Non-Competition and Intellectual Property Agreement attached hereto as Exhibit B concurrently with the execution of this Agreement.         6.      Property and Records. Upon termination of Executive’s employment hereunder for any reason or for no reason, Executive will deliver to the Company any property of the Company which may be in Executive’s possession, including blackberry-type devices, laptops, cell phones, products, materials, memoranda, notes, records, reports or other documents or photocopies of the same.         7.      Stock Purchase. Subject to the Company’s policy regarding black-out periods and any applicable securities laws, within three (3) months after payment of the Commencement Bonus, Executive agrees to purchase in the open-market $250,000 worth of the common stock of the Company; provided that if the Company’s policy or applicable law would prohibit Executive from purchasing stock during such period, then Executive shall purchase such stock at the earliest possible time consistent with Company policy and applicable law.         8.      General.       (a)      Notices. Except as otherwise specifically provided herein, any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt. Notices to Executive shall be sent to the last known address in the Company’s records or such other address as Executive may specify in writing. Notices to the Company shall be sent to the Company’s Chairman or to such other Company representative as the Company may specify in writing.       (b)      Entire Agreement/Modification. This Agreement, together with the Confidentiality, Non-Competition and Intellectual Property Agreement attached hereto and the other agreements specifically referred to herein, embodies the entire agreement and understanding between the parties hereto and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No   --------------------------------------------------------------------------------   statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement (or in a subsequent written modification or amendment executed by the parties hereto) will affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.       (c)      Waivers and Consents. The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent will be deemed to be or will constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent will be effective only in the specific instance and for the purpose for which it was given, and will not constitute a continuing waiver or consent.       (d)      Assignment and Binding Effect. The Company may assign its rights and obligations hereunder to any person or entity that succeeds to all or substantially all of the Company’s business or that aspect of the Company’s business in which Executive is principally involved. Executive may not assign Executive’s rights and obligations under this Agreement without the prior written consent of the Company. This Agreement shall be binding upon Executive, Executive’s heirs, executors and administrators and the Company, and its successors and assigns, and shall inure to the benefit of Executive, Executive’s heirs, executors and administrators and the Company, and its successors and assigns.       (e)      Indemnification. Executive shall be entitled to the same rights to indemnification and coverage under the Company’s Directors and Officers Liability Insurance policies as they may exist from time to time to the same extent as other officers and directors of the Company.       (f)      Governing Law. This Agreement and the rights and obligations of the parties hereunder will be construed in accordance with and governed by the law of the Commonwealth of Massachusetts, without giving effect to conflict of law principles.       (g)      Severability. The parties intend this Agreement to be enforced as written. However, should any provisions of this Agreement be held by a court of law to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected or impaired thereby.       (h)      Headings and Captions. The headings and captions of the various subdivisions of this Agreement are for convenience of reference only and will in no way modify or affect the meaning or construction of any of the terms or provisions hereof.         9.      Taxation. The parties intend this Agreement to be in compliance with Code Section 409A. The Executive acknowledges and agrees that the Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Agreement, including but not limited to consequences related to Code Section 409A. The Company and Executive agree that both will negotiate in good faith and jointly execute an amendment to modify this Agreement to the extent necessary to comply with the requirements of Code Section 409A.      If any payment to the Executive by the Company, whether or not under this Agreement (“Payment”), becomes subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), the Company shall, as soon as reasonably practicable after written notice thereof to the Board, make an additional cash payment to the Executive (the “Gross-Up Payment”). The Gross-Up Payment shall equal the amount needed to place the Executive in substantially the same after-tax economic position that the Executive would have been in had the Excise Tax not applied to the Payments.       10.      Counterparts. This Agreement may be executed in two or more counterparts, and by different parties hereto on separate counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. For all purposes a signature by fax shall be treated as an original.   --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.                   RICHARD CHIN       OXiGENE, INC.                       /s/ Richard Chin       By:   /s/ James B. Murphy                       Signature           Name: James B. Murphy Title: Vice President and Chief Financial Officer       --------------------------------------------------------------------------------   Exhibit A Genmedica Therapeutics Stanford University School of Medicine UCSF School of Medicine   --------------------------------------------------------------------------------   Exhibit B OXiGENE, Inc. CONFIDENTIALITY, NONCOMPETITION AND INTELLECTUAL PROPERTY AGREEMENT           June 29, 2006 Richard Chin OXiGENE, Inc. Dear Richard:      As a condition of your employment with OXiGENE, Inc., you must sign and return this letter agreement (the “Agreement”). This Agreement confirms your promise to protect and preserve information and property which is confidential and proprietary to OXiGENE, Inc., its subsidiaries and affiliates (collectively, the “Company”), as well as other terms and conditions of your employment, including your agreement to reasonable limitations on the scope of your employment once your employment with the Company ends. No provision of this Agreement shall be construed to create an express or implied employment contract for any specific period of time, and the Company may terminate your employment at any time, with or without cause (in other words, you are an “at will” employee).      You agree as follows: 1.    Your Duties Regarding Confidentiality      The Company has developed, uses and maintains trade secrets1/ and other confidential and proprietary information including, without limitation, technical and scientific data and specifications, research, business and financial information, product and marketing plans, customer and client information, customer and client lists, customer, client and vendor identities and characteristics, agreements, marketing knowledge and information, sales figures, pricing information, marketing plans, business plans, strategy forecasts, financial information, budgets, software, projections and procedures, and Inventions (as defined in Section 3), in written, oral, electronic and/or other forms (“Confidential Information”), and the Company shall take all reasonable measures to protect the confidentiality of such Confidential Information. You acknowledge that during your employment with the Company you will be given direct access to and knowledge of Confidential Information.      You agree that all such Confidential Information is and shall remain the sole property of the Company and that you will hold in strictest confidence, and will not, either during or after the termination of your employment (except as required in the course of your duties on behalf of the Company), use, disclose or give to others (whether a business, firm, entity, person or otherwise), either directly or indirectly, any of the Confidential Information of the Company or of any third party provided to you during your employment by the Company, without the Company or such third party’s consent. Your obligation of confidentiality under this Agreement does not apply to information that (a) becomes a matter of public knowledge through no fault of your own or (b) must be disclosed pursuant to lawful subpoena, court order or statutory requirement.      You further agree that you will return all Confidential Information, including all copies and versions of such Confidential Information (including but not limited to information maintained on paper, disk, CD-ROM, network server, or any other retention device whatsoever), and all other property of the Company, to the Company immediately upon the earlier of (a) the request of the Company or (b) termination of your employment.   1/   The term “trade secrets,” as used in this Agreement, shall be interpreted in accordance with Massachusetts law and shall include, but not be limited to, anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement; and other confidential and proprietary information and documents.   --------------------------------------------------------------------------------        The terms of this Section 1 of this Agreement are in addition to, and not in lieu of, any other contractual, statutory or common law obligations that you may have relating to the protection of the Company’s Confidential Information or its property. The terms of this section shall survive indefinitely your employment with the Company, provided that the Confidential Information of the Company remains confidential and is not a matter of public knowledge. 2.    Your Duties Not To Compete Or Solicit      You acknowledge that the Confidential Information has been and will be developed by the Company at substantial investment of time, effort and money and that such Confidential Information would be useable by you to compete against the Company.      Further, in the course of your employment you will be introduced to customers and others with important relationships to the Company. You acknowledge and agree that any and all “goodwill” created through such introductions belongs exclusively to the Company, including, but not limited to, any goodwill created as a result of direct or indirect contacts or relationships between yourself and any customers, vendors and other key relationships of the Company.      A—Non-Competition      While you are employed by the Company and for a period of one (1) year following the termination of your employment for any reason (the “Non-competition Period”), you shall not, for yourself or on behalf of any other person or entity, directly or indirectly, whether as principal, partner, agent, independent contractor, stockholder, employee, consultant, representative or in any other capacity, own, manage, operate or control, be connected with, or employed by, or engage in or have a financial interest in any Restricted Business (as defined in Section 2B) anywhere in the world (the “Restricted Territory”) except that nothing in this Agreement shall preclude you from purchasing or owning securities of any such business if such securities are publicly traded, and provided that your holdings do not exceed two (2%) percent of the issued and outstanding securities of any class of securities of such business.      In addition, during the Non-competition Period you shall not, either individually or on behalf of or through any third party, solicit or divert or attempt to solicit or divert for the benefit of or on behalf of a Restricted Business, any customers, clients or vendors of the Company with whom you have had significant contact, access to Confidential Information about, or to whom you have provided services during your last two (2) years of employment with the Company.      B—Definition of “Restricted Business”      For purposes of this Agreement, the term “Restricted Business” shall mean any person, partnership, corporation, business organization or other entity (or a division or business unit of any entity) whose primary products are the same or similar to those that the Company is engaged in or is developing during your employment with the Company, including vascular targeting technologies to combat cancer, eye diseases and skin diseases, including but not limited to research, development, manufacture, marketing or sales; provided that (i) once your employment with the Company has terminated, this definition shall apply only with respect to products that are the same or similar to those that the Company was engaged in or developing during the last two (2) years of your employment with the Company, (ii) nothing in this definition shall operate to prevent you from working for or with respect to any subsidiary, division or affiliate (each, a “Unit”) of an entity if that Unit is not itself a Restricted Business engaged in any Restricted Activity (as defined below), irrespective of whether some other Unit of such entity constitutes a Restricted Business (as long as you do not provide any services for such other Unit), and (iii) Restricted Business will not include activities outside the spheres of vascular disrupting agents, ortho-quinone prodrugs, and bio-reductive agents.      C—Non-Solicitation      During the Non-competition Period you shall not, either individually or on behalf of or through any third party, directly or indirectly, solicit any Company employee or consultant to leave the Company, nor shall you, directly or indirectly, recruit, or hire away any Company employee. For purposes of this Section 2C, employees shall include any person who was an employee within the sixty (60) day period immediately preceding such solicitation or other prohibited action.   --------------------------------------------------------------------------------   3.    Ownership of Ideas, Copyrights and Patents      A—Property of the Company      You agree that apart from the “Textbook of Clinical Research Medicine,” all ideas, discoveries, creations, manuscripts and properties, innovations, improvements, know-how, inventions, designs, developments, apparatus, techniques, methods, writings, specifications, sound recordings, pictorial and graphical representations and formulae (collectively, “Inventions”) which may be used by or which relate to the business or activities of the Company, whether patentable, copyrightable or not, which you may conceive, reduce to practice or develop during your employment (or, if based on or related to any Confidential Information, made by you within six (6) months after the termination of such employment), whether or not during normal working hours and whether or not on the Company’s premises or with the use of its equipment, whether alone or in conjunction with others, and whether or not at the request or suggestion of the Company or otherwise, relating in anyway to the Restricted Business shall be “works made for hire,” and shall be the sole and exclusive property of the Company, and that you shall not publish any such Inventions without the prior written consent of the Company. You hereby assign to the Company all of your right, title and interest in and to such Inventions. The manuscript for a textbook of clinical research, “Textbook of Clinical Research Medicine,” that is currently under preparation by you is specifically excluded from this provision.      B—Your Duty to Cooperate      During your employment with the Company and afterwards, you agree that you will fully cooperate with the Company, its attorneys and agents in the preparation and filing of all papers and other documents as may be required to perfect the Company’s rights in and to any such Inventions, including, but not limited to, joining in any proceeding to obtain letters patent, copyrights, trademarks or other legal rights of the United States and of any and all other countries on such Inventions, provided that the Company will bear the expense of such proceedings, and that any patent or other legal right so issued to you, personally, shall be assigned by you to the Company without charge by you.      Further, you hereby irrevocably appoint the Company and its duly authorized officers and agents as your attorneys-in-fact to act for and on your behalf with respect to the Inventions, and, instead of you, to execute all documents and papers, including any application for patent, copyright or mask work, and to do all other lawfully permitted acts reasonably necessary to assign or otherwise transfer and perfect your right, title and interest in and to the Inventions to and in the Company, and to obtain, perfect, protect and enforce its rights in the Inventions. To the extent that cooperation is requested following your employment with the Company, you will be asked to devote no more than 40 hours of your time. For cooperation beyond 5 hours, appropriate compensation will be negotiated with the Company.      C—Data In Which You Claim Any Interest      Listed on Exhibit A to this Agreement are any and all Inventions in which you claim or intend to claim any right, title and interest, including but not limited to patent, copyright and trademark interest, which to the best of your knowledge shall be or may be delivered to the Company in the course of your employment, or incorporated into any Company product or system. You explicitly acknowledge that your obligation to disclose such information is ongoing during your employment with the Company, and that after you execute this Agreement, if you determine that any additional Inventions in which you claim or intend to claim any right, title or interest, including but not limited to patent, copyright and trademark interest, has been or is likely to be delivered to the Company or incorporated in any company product or system, you shall make immediate written disclosure of the same to the Company. 4.    Your Representations Regarding Prior Work and Legal Obligations      A—No Other Agreement Prohibits You From Working For The Company      By signing this Agreement, you represent that you have no agreement with or other legal obligation to any prior employer or to any other person or entity that restricts your ability to engage in employment discussions, to accept employment with, or to perform any function for the Company.      B—You Will Not Provide Us Confidential Information From Other Employers   --------------------------------------------------------------------------------        You also acknowledge that the Company has advised you that at no time, either during any pre-employment discussions or at any time thereafter, should you divulge to or use for the benefit of the Company any trade secret or confidential or proprietary information of any previous employer. By signing this Agreement, you affirm that you have not divulged or used any such information for the benefit of the Company, and that you have not and will not misappropriate any Invention that you played any part in creating while working for any former employer. 5.    Provisions Necessary and Reasonable/Injunctive Relief      You recognize and acknowledge that (i) the types of activities and employment which are prohibited by this Agreement are reasonable in relation to the skills which represent your principal salable asset both to the Company and to your other prospective employers, and (ii) the temporal and geographical scope of the provisions in this Agreement are reasonable, legitimate and fair to you and necessary for the protection of the Company. You acknowledge that given your skills and work experience, such restrictions will not prevent you from earning a living in your general field of occupation during the term of such restrictions. You further agree that a breach or threatened breach by you of Sections 1-3 of this Agreement may pose the risk of irreparable harm to the Company, and that in the event of a breach or threatened breach of any of such covenants, the Company shall be entitled to seek and obtain any remedies available to it at law or equity, including equitable relief, in the form of specific performance, or temporary, preliminary or permanent injunctive relief, or any other equitable remedy which then may be available. The seeking of such injunction or order shall not affect the Company’s right to seek and obtain damages or other equitable relief on account of any such actual or threatened breach. 6.    Disclosure to Future and Prospective Employers      You agree that the Company may notify any of your future or prospective employers or other third parties of this Agreement and may provide a copy of this Agreement to such parties without your further consent. 7.    Choice of Law; Enforceability; Waiver of Jury Trial      A—The Law of Massachusetts Applies to this Agreement      This Agreement shall be deemed to have been made in the Commonwealth of Massachusetts, shall take effect as an instrument under seal within Massachusetts, and the validity, interpretation and performance of this Agreement shall be governed by, and construed in accordance with, the internal law of Massachusetts, without giving effect to conflict of law principles.      B—Any Dispute Regarding This Agreement Will Take Place In Massachusetts      Both of us agree that any action, demand, claim or counterclaim relating to, or arising under, the terms and provisions of this Agreement, or to its breach, shall be commenced in Massachusetts in a court of competent jurisdiction. We both further acknowledge that venue shall exclusively lie in Massachusetts and that material witnesses and documents would be located in Massachusetts. 8.    General      A—Agreement Enforceable If You Are Transferred, Promoted or Reassigned      You acknowledge and agree that if you should transfer between or among any affiliates of the Company, wherever situated, or be promoted or reassigned to functions other than your present functions, all terms of this Agreement shall continue to apply with full force.      B—This is the Entire Agreement Between Us      This Agreement embodies the entire agreement and understanding between us with respect to its subject matter and supersedes all prior and contemporaneous oral and written agreements and understandings relating to its subject matter. No   --------------------------------------------------------------------------------   statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.      C—Modification and Amendment; Waiver; Assignment and Benefit      The terms and provisions of this Agreement may be modified or amended only by written agreement executed by both parties. The terms and provisions of this Agreement may be waived, or consent for the departure from its terms granted, only by a written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent. The Company may assign its rights and obligations under this Agreement at its sole discretion. As this Agreement is personal to you, you may not assign your rights and obligations under this Agreement. All statements, representations, warranties, covenants and agreements in this Agreement shall be binding on the parties, and shall inure to the benefit of you, your heirs, executors and administrators and the Company and its successors and/or permitted assigns.      D—Severability      The parties intend this Agreement to be enforced as written. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a duly authorized court having jurisdiction, however, we both desire that such portion or provision be modified by such a court so as to make it enforceable, and that the remainder of this Agreement be enforced to the fullest extent permitted by law. If such court deems any provision of this Agreement wholly unenforceable, then all remaining provisions shall nevertheless remain in full force and effect.      E—Meaning of Headings      The headings in this Agreement are for convenience only, and we both agree that they shall not be construed or interpreted to modify or affect the construction or interpretation of any provision of this Agreement. YOUR ACKNOWLEDGMENT      By signing this Agreement, you are acknowledging that you have had adequate opportunity to review this Agreement, to reflect upon and consider the terms and conditions of this Agreement and how they may affect you, that you fully understand this Agreement’s terms, and that you are agreeing voluntarily to its terms.      If this document accurately reflects our agreement, please so indicate by signing and returning to us the enclosed copy of this letter.             Very truly yours, OXIGENE, INC.       /s/ James B. Murphy       By: James B. Murphy      Its: Vice President and Chief Financial Officer      Accepted and Agreed:       /s/ Richard Chin           Richard Chin Date: June 29, 2006       --------------------------------------------------------------------------------   Exhibit A o   Textbook of Clinical Research Medicine  

EXHIBIT 10.4   EMPLOYMENT AGREEMENT   THIS EMPLOYMENT AGREEMENT (the “Agreement”) is effective as of January 30, 2006 (the “Effective Date”), 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 Mary E. Chowning, an individual resident at 49 Monroe Center NW, Unit 502, Grand Rapids, Michigan 49503 (“Executive”).   PREAMBLE:   X-Rite desires to employ Executive and to obtain the benefits of the covenants by, and restrictions imposed on, Executive contained herein; and   Executive desires to be employed by X-Rite and is willing to be bound by the covenants and restrictions imposed on Executive herein, all on the terms and conditions set forth herein.   THEREFORE, X-Rite and Executive hereby agree as follows:   1. Employment. X-Rite hereby employs Executive, and Executive hereby accepts employment, on the terms and subject to the conditions set forth herein.   2. Employment Period. Executive’s employment hereunder shall commence as of the Effective Date and shall continue until terminated as provided in this Agreement (the “Employment Period”).   3. Compensation. During the Employment Period, Executive shall be paid an annual salary, annual performance bonuses, incentive compensation, stock options and other fringe benefits, as determined from time to time by the Board of Directors of X-Rite (the “Board of Directors”) or the Compensation Committee thereof (the “Compensation Committee”), subject to the following:     (a) Base Salary. During the Employment Period, X-Rite shall pay to Executive a salary at the annual rate of Two Hundred Seventy-Five Thousand United States Dollars ($275,000), subject to increase in the discretion of the Compensation Committee (the “Base Salary”). Executive’s Base Salary shall be paid in accordance with X-Rite’s normal payroll practices.     (b) Short-Term Incentive (Bonus). Executive will be entitled to participate in any bonus plan or other incentive compensation program now or hereafter applicable to X-Rite’s executives. Executive’s annual performance bonus potential shall initially be forty-eight percent (48%) of her Base Salary if X-Rite achieves “Average Performance” and seventy-two percent (72%) of her Base Salary if X-Rite achieves “Excellent Performance,” each as defined in Exhibit A attached hereto. --------------------------------------------------------------------------------   (c) Long-Term Incentive. Executive will be entitled to participate in any long-term incentive compensation program now or hereafter applicable to X-Rite’s executives. Sixty percent (60%) of Executive’s total long-term incentive compensation amount shall consist of restricted stock awards granted pursuant to the terms and conditions of the X-Rite, Incorporated Restricted Stock Agreement substantially in the form attached hereto as Exhibit B and forty percent (40%) of Executive’s total long-term incentive compensation amount shall consist of stock option awards granted pursuant to the terms and conditions of the X-Rite, Incorporated Employee Stock Option Plan Officer Stock Option Agreement substantially in the form attached hereto as Exhibit C.     (d) Insurance and Other Fringe Benefits. Executive shall be offered such insurance and other fringe benefits including, but not limited to, medical, dental, long term disability, group life insurance, and accidental death and dismemberment insurance, employee stock purchase plan, and 401(k) retirement plan pursuant to X-Rite’s plans and policies in effect from time to time for its executives.     (e) Expense Reimbursement. Executive shall be entitled to payment and/or reimbursement for all reasonable expenses incurred by Executive in the course of performing her duties and responsibilities hereunder which are consistent with X-Rite’s policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to X-Rite’s expense reimbursement policy, including requirements with respect to reporting and documentation of such expenses. In addition, Executive may, at the expense of X-Rite, obtain legal advice with respect to officer and director liability under the Sarbanes-Oxley Act (or under this Agreement), which amount shall not exceed Four Thousand and No/100 Dollars ($4,000.00) in the aggregate during the Employment Period.     (f) Vacation. Executive will be entitled to four (4) weeks of vacation until such time as her X-Rite service entitles her to additional vacation under X-Rite’s vacation policy.     (g) Leased Car Program. During the Employment Period, Executive will be provided an automobile consistent with X-Rite’s executive automobile program.   Notwithstanding anything to the contrary contained in this Section 3, all of X-Rite’s practices, policies, and exhibits referenced are subject to change or amendment in accordance with X-Rite’s historic practice or as provided therein.   4. Duties. Executive’s duties shall be to serve as Vice President and Chief Financial Officer of X-Rite, and to perform such duties consistent with that position as the Board of Directors or Chief Executive Officer of X-Rite directs from time to time. During the Employment Period, Executive shall report to the Chief Executive Officer of X-Rite or his designee, shall devote substantially all her business time and energy to the business and affairs of X-Rite and shall use her best efforts to perform her duties as an executive of X-Rite. Executive shall obtain prior approval before accepting a seat, or serving, on the board of directors or advisory board of any other entity or organization, whether for profit or nonprofit.   -2- -------------------------------------------------------------------------------- 5. Loyalty. Executive agrees that during the Employment Period she will not, without the prior approval of the Board of Directors, either for herself or on behalf of any other person, firm or corporation, directly or indirectly divert or attempt to divert from X-Rite any business opportunity or business whatsoever, or attempt to negatively influence any X-Rite customers or potential X-Rite customers with whom Executive may have dealings.   6. Termination. Executive’s employment may be terminated as follows:     (a) Death. If Executive dies during the Employment Period, this Agreement shall terminate upon Executive’s death. If the Employment Period is terminated as a result of Executive’s death, Executive’s heirs or estate shall be entitled to receive her Base Salary accrued up to the date of termination of employment but shall not be entitled to receive any further salary, bonus, severance, compensation or benefits from X-Rite. Such termination of this Agreement shall not, however, affect Executive’s rights under any stock option incentive programs or agreements, or restricted stock plans or agreements in which Executive participates or to which Executive is a party, and all unvested stock options and restricted shares held by Executive at the time of her death will vest upon such termination of employment.     (b) Disability. For purposes of this Agreement, “Disability” means a physical or mental infirmity which impairs Executive’s ability to perform her duties under this Agreement which continues for a period of at least one hundred eighty (180) consecutive days. In the event of Executive’s Disability, this Agreement may be terminated as of the end of such one hundred eighty (180) days by X-Rite. If the Employment Period is terminated as a result of Executive’s Disability, Executive shall be entitled to receive her Base Salary accrued up to the date of termination of employment but shall not be entitled to receive any further salary, bonus, severance, compensation or benefits from X-Rite except for any benefits under applicable disability insurance. Such termination of this Agreement shall not, however, affect Executive’s rights under any stock option incentive programs or agreements, or restricted stock plans or agreements in which Executive participates or to which Executive is a party, and all unvested stock options and restricted shares held by Executive at the time of her Disability will vest upon such termination of employment.     (c) Termination by X-Rite for Cause. X-Rite shall have the right to terminate Executive’s employment for “Cause.” For purposes of this Agreement, “Cause” shall be limited to Executive:     (i) engaging in conduct involving dishonesty or fraud or being convicted of a crime involving moral turpitude;   -3- --------------------------------------------------------------------------------   (ii) engaging in conduct which is intentionally injurious to X-Rite, monetarily or otherwise; or     (iii) failing to perform assigned duties consistent with Section 4 above (other than any failure resulting from an illness or other similar incapacity or disability), provided that failing to achieve X-Rite’s business objectives shall not solely by itself constitute Cause, or to comply with policies applicable to all X-Rite executives, after a demand for performance or compliance is made in writing to Executive which specifically identifies the manner in which it is alleged that Executive has not substantially performed or complied, and, provided, that Executive has not, in the reasonable judgment of X-Rite, cured the failure described in the notice within ninety (90) days of such notice.   If the Employment Period is terminated by X-Rite for Cause, Executive shall be entitled to receive her Base Salary accrued up to the date of termination of employment but shall not be entitled to receive any further salary, bonus, severance, compensation or benefits from X-Rite.     (d) Termination by Executive for Good Reason. Executive shall have the right to terminate her employment with X-Rite for “Good Reason” by providing written notice of the termination to X-Rite within thirty (30) days of the occurrence of any of the following.     (i) without Executive’s express written consent, the assignment to Executive of duties materially inconsistent with Executive’s position, responsibilities and status with X-Rite as of the effective date of this Agreement;     (ii) a reduction by X-Rite in Executive’s Base Salary as of the effective date of this Agreement greater than twenty percent (20%); or     (iii) a material breach by X-Rite of its obligations under this Agreement.     (e) Termination by Notice. X-Rite and Executive shall each have the right to terminate their employment relationship for reasons other than those provided above in this Section 6 by giving written notice to the other party specifying the date of termination, provided such notice is given at least thirty (30) days prior to the specified date of termination. If X-Rite terminates the Employment Period pursuant to this Section 6(e), X-Rite shall have the obligations set forth in Section 7(b). If the Employment Period is terminated by Executive other than for “Good Reason”, Executive shall be entitled to receive her Base Salary accrued up to the date of termination of employment but shall not be entitled to receive any further salary, bonus, severance, compensation or benefits from X-Rite.     (f) Special Retirement Benefit. If Executive terminates the Employment Period pursuant to Section 6(e) by giving written notice to the Company (whether with or without “Good Reason”) at any time after the one (1) year anniversary of the date on which on which Michael C. Ferrara leaves the employ of X-Rite, Executive will be entitled to receive the severance pay and benefits set forth in Section 7(b).   -4- -------------------------------------------------------------------------------- 7. Severance Pay and Benefits.     (a) Severance Pay After Change In Control. Executive and X-Rite have entered into the Employment Arrangement Effective Upon a Change in Control which shall remain in full force and effect, notwithstanding the execution of this Agreement.     (b) Severance Pay and Benefits After Termination by X-Rite Notice or by Executive for “Good Reason”. If the Employment Period is terminated by X-Rite by written notice under Section 6(e) of this Agreement, by Executive under Section 6(d) of this Agreement, or by Executive under Section 6(f) of this Agreement, provided that Executive is not in breach of any of the provisions of Section 8, 9 or 10 of this Agreement, X-Rite shall provide to Executive:     (i) severance pay equal to Executive’s monthly salary for the last full month immediately preceding her termination for twelve (12) months; provided, that the aggregate amount of the first seven (7) months of installments shall be paid at the beginning of the seventh month following the date of termination of employment and the remaining installments shall be paid on a monthly basis thereafter;     (ii) the pro rata portion (based on the number of full months of service by Executive in the year in which the Employment Period is terminated) of any annual performance bonus to which Executive is entitled for the year in which the Employment Period is terminated by X-Rite under Section 6(e) or by Executive under Section 6(d), payable within ninety (90) days following the end of such year; provided that payment shall not occur prior to the six (6) month anniversary of the date of termination of employment; and provided, further, that if the Employment Period is terminated in the first six (6) months of any year in which any annual performance bonus is payable, Executive shall be entitled to receive a pro rata portion of such bonus based on six (6) months of service during such year;     (iii) payment of Executive’s continuation coverage premiums under the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended (“COBRA”), for twelve (12) months following the date of termination of employment; and     (iv) immediate vesting of all stock options and restricted stock held by Executive, which options will remain exercisable to the extent provided for in the stock option and restricted stock agreements to which they relate.   -5- --------------------------------------------------------------------------------   (c) Compliance with Code Section 409A. It is intended that any amounts payable under this Agreement and X-Rite’s and Executive’s exercise of authority or discretion hereunder shall comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended and the regulations and other guidance issued thereunder (“Section 409A”), so as not to subject Executive to the payment of interest and tax penalty which may be imposed under Section 409A.     (d) No Mitigation of Severance Benefits. Executive shall not be required to mitigate the amount of any severance benefits provided in this Section 7 by seeking other employment or otherwise, nor shall the amount of any payment provided in this Section 7 be reduced by any compensation earned by Executive as a result of her employment with another employer after termination.   8. Confidentiality and Proprietary Information. Executive 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, Executive agrees that she will not use such information for her benefit or the benefit of any third party. Executive also agrees that X-Rite owns and retains all rights to any inventions, innovations, ideas, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which pertain to X-Rite’s historical, current, or prospective businesses and that Executive may have developed by herself or with others while employed by X-Rite (collectively, “Work Product”). Executive hereby assigns all rights and interests that she may have in such Work Product to X-Rite, and agrees to cooperate with X-Rite with respect to, and to sign documents necessary to, perfect any of X-Rite’s intellectual property rights or protections such as domestic or foreign copyrights or patents. In addition, Executive and X-Rite have entered into the X-Rite Confidential and Proprietary Information Agreement which shall remain in full force and effect, notwithstanding execution of this Agreement.   9. Non-Competition; Non-Solicitation. Executive agrees that during the Employment Period and for a period of two (2) years thereafter, Executive shall not: (i) participate directly or indirectly, in the ownership, management, financing or control of any business which is, or is about to become, a competitor of X-Rite or its subsidiaries; (ii) provide consulting services or serve as an officer or director for any such business; or (iii) solicit for employment or other services or employ or engage as a consultant or otherwise any person who is or was an employee of X-Rite, or encourage or facilitate any person who is or was an employee of X-Rite to terminate his or her employment with X-Rite. Notwithstanding the foregoing, Executive shall not be prohibited from owning stock of any corporation whose shares are publicly traded so long as that ownership is in no case more than five percent (5%) of such shares of the corporation. The time period for the restrictions set forth in this Section shall be extended by the number of days in which Executive is in breach of such restrictions.   -6- -------------------------------------------------------------------------------- 10. Non-Disparagement and Non-Interference. Executive covenants and agrees that from the Effective Date and thereafter, Executive will not disparage, criticize, condemn, or impugn X-Rite, its related and affiliated companies, their products nor its or their former or current owners, directors, officers, employees, agents, insurers, and representatives. X-Rite covenants and agrees that from the Effective Date and thereafter, X-Rite will not disparage, criticize, condemn, or impugn Executive or her service for X-Rite. Executive also agrees that she will not directly or indirectly interfere with or adversely affect, X-Rite’s business relationships, reputation, contracts, pricing or other relationships that X-Rite has with its former, current, or prospective customers, suppliers, clients, employees, businesses, financial institutions, shareholders, or others persons or entities with whom X-Rite interacts or relates.   11. Injunctive Relief and Other Remedies. In the event of the breach or threatened breach by Executive of any of the provisions of Sections 8, 9 or 10 of this Agreement, X-Rite shall be entitled to specific performance and/or injunctive or other equitable relief from a court of competent jurisdiction in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security) in addition and supplementary to any other rights and remedies existing in X-Rite’s favor.   12. Indemnification. Each party agrees to indemnify the other party and any and all affiliates of the other party for any costs, expenses, and damages resulting from a party’s breach of this Agreement. Such costs, expenses, and damages include, but are not limited to, actual attorneys’ fees.   13. Executive Liability Insurance Coverage and Indemnification. Nothing in this Agreement shall deprive Executive, both during and subsequent to the termination of her employment pursuant to this Agreement, of the benefits of X-Rite’s existing or hereafter obtained executive liability insurance coverage, subject to the terms and conditions of such coverage, nor of any right to indemnification under X-Rite’s Articles of Incorporation and Bylaws or under any indemnification agreement between X-Rite and Executive, subject to the limitations on indemnification set forth therein.   14. Binding Agreement. This Agreement is intended to bind and inure to the benefit of and be enforceable by X-Rite, Executive and their respective heirs, successors and assigns. Executive may not assign her rights or delegate her duties or obligations hereunder without the prior written consent of X-Rite. X-Rite may assign its rights and obligations hereunder, without obtaining the consent of Executive, to any affiliate or subsidiary or to any person or entity that acquires X-Rite or its business or assets, provided that X-Rite will furnish Executive with notice of any such assignment.   15. 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 Executive at the address set forth on the first page of this Agreement, 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.   -7- -------------------------------------------------------------------------------- 16. Modification or Waiver. No provisions of this Agreement may be amended, modified, supplemented, waived, or discharged unless such waiver, modification, supplement, or discharge is agreed to in writing signed by Executive and such officer (other than Executive) as may be specifically designated by the Board of Directors. No waiver by either party to this Agreement at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party, nor any compliance with any such condition or provision by the party not required to so perform, shall be deemed a waiver of similar or dissimilar provisions or conditions at that time or at any prior or subsequent time. Failure to insist upon strict compliance with any of the terms, covenants or conditions of this Agreement shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed waiver or relinquishment of such right or power at any other time.   17. 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.   18. Arbitration. Except for matters arising pursuant to Sections 8, 9 or 10 of this Agreement, any dispute between the parties with respect to this Agreement shall be resolved exclusively by arbitration in accordance with the rules for commercial arbitration promulgated by the American Arbitration Association. The arbitration shall be conducted in Michigan and the award shall be final and binding upon the parties and enforceable in any court of competent jurisdiction.   19. Severability: Whenever possible, each provision and term of this Agreement will be interpreted in a manner to be effective and valid but if any provision or term of this Agreement is held by a court of competent jurisdiction to be prohibited or invalid, then such provision or term will be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provisions or terms or the remaining provisions or terms of this Agreement. If any of the covenants set forth in this Agreement are held by a court of competent jurisdiction to be unreasonable, arbitrary, or against public policy, such covenants will be considered divisible with respect to scope, time, and geographic area, and in such lesser scope, time and geographic area, will be effective, binding, and enforceable against Executive. The rights and remedies under this Agreement are cumulative and not alternative.   20. Miscellaneous. No agreements or representations, oral or otherwise, express or implied, with respect to the specific subject matter hereof have been made by either party except as set forth expressly in this Agreement. This Agreement is intended to supersede and override any other agreement between the parties with respect to the subject matter hereof, including any previous employment agreement between X-Rite and Executive and amendments thereto.   -8- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, X-Rite has caused this Agreement to be executed by a duly authorized corporate officer and Executive has executed this Agreement as of the date and year first above written.   X-RITE:       EXECUTIVE: X-RITE, INCORPORATED         By:   /s/    Michael C. Ferrara --------------------------------------------------------------------------------       /s/    Mary E. Chowning -------------------------------------------------------------------------------- Name:   Michael C. Ferrara       Mary E. Chowning Title:   CEO           -9-

  Exhibit 10.2   NILT TRUST, as Grantor and UTI Beneficiary, NISSAN MOTOR ACCEPTANCE CORPORATION, as Servicer, NILT, INC., as Trustee, WILMINGTON TRUST COMPANY, as Delaware Trustee, and U.S. BANK NATIONAL ASSOCIATION, as Trust Agent   2006-A SUBI SUPPLEMENT Dated as of November 21, 2006     --------------------------------------------------------------------------------                     ARTICLE ELEVEN   DEFINITIONS     2       Section 11.01   Definitions     2       Section 11.02   Interpretive Provisions     2       Section 11.03   Rights in Respect of the 2006-A SUBI     3   ARTICLE TWELVE   CREATION OF THE 2006-A SUBI     3       Section 12.01   Creation of 2006-A SUBI Assets and the 2006-A SUBI     3       Section 12.02   Transfer of 2006-A SUBI Interests     3       Section 12.03   Issuance and Form of 2006-A SUBI Certificate     4       Section 12.04   Actions and Filings     6       Section 12.05   Termination of the 2006-A SUBI     6       Section 12.06   Representations and Warranties of Trustee     7       Section 12.07   Transfer and Assignment of Certificates     7   ARTICLE THIRTEEN   2006-A SUBI PLEDGE     8       Section 13.01   Registration of the 2006-A SUBI Pledge     8   ARTICLE FOURTEEN   2006-A SUBI ACCOUNTS     8       Section 14.01   2006-A SUBI Collection Account     8       Section 14.02   2006-A Reserve Account     9       Section 14.03   Investment of Monies in 2006-A SUBI Accounts     9       Section 14.04   No Residual Value Surplus Account or Payahead Account     9   ARTICLE FIFTEEN   MISCELLANEOUS PROVISIONS     9       Section 15.01   Amendment     9       Section 15.02   Governing Law     10       Section 15.03   Notices     11       Section 15.04   Severability of Provisions     11       Section 15.05   Effect of Supplement on Titling Trust Agreement     11       Section 15.06   No Petition     12   EXHIBITS                 Exhibit A — Schedule of 2006-A Leases and 2006-A Leased Vehicles     A-1       Exhibit B — Form of 2006-A SUBI Certificate     B-1   i --------------------------------------------------------------------------------   2006-A SUBI SUPPLEMENT      This 2006-A SUBI Supplement, dated as of November 21, 2006 (as amended, supplemented or otherwise modified from time to time, this “2006-A SUBI Supplement”), is among NILT Trust, a Delaware statutory trust (“NILT Trust”), as grantor and initial beneficiary (in such capacity, the “Grantor” and the “UTI Beneficiary,” respectively), Nissan Motor Acceptance Corporation, a California corporation (“NMAC”), as servicer (in such capacity, the “Servicer”), NILT, Inc., a Delaware corporation, as trustee (the “Trustee”), Wilmington Trust Company, a Delaware banking corporation, as Delaware trustee (the “Delaware Trustee”), and U.S. Bank National Association, a national banking association (“U.S. Bank”), as trust agent (in such capacity, the “Trust Agent”). RECITALS      A. Pursuant to the Amended and Restated Trust and Servicing Agreement, dated as of August 26, 1998 (the “Titling Trust Agreement”), among the parties hereto, Nissan-Infiniti LT, a Delaware statutory trust (the “Titling Trust”), was formed to take assignments and conveyances of and hold in trust various assets (the “Trust Assets”);      B. The UTI Beneficiary, the Servicer and the Titling Trust have entered into the SUBI Servicing Agreement, dated as of March 1, 1999 (the “Basic Servicing Agreement”), which provides for, among other things, the servicing of the Trust Assets by the Servicer;      C. Pursuant to the Titling Trust Agreement, from time to time the Trustee, on behalf of the Titling Trust and at the direction of the UTI Beneficiary, will identify and allocate on the books and records of the Titling Trust certain Trust Assets and create and issue one or more special units of beneficial interest (each, a “SUBI”), the beneficiaries of which generally will be entitled to the net cash flows arising from the corresponding Trust Assets;      D. The parties hereto desire to supplement the Titling Trust Agreement (as so supplemented by this 2006-A SUBI Supplement, the “SUBI Trust Agreement”) to create a SUBI (the “2006-A SUBI”);      E. The parties hereto desire to identify and allocate to the 2006-A SUBI a separate portfolio of Trust Assets consisting of leases (the “2006-A Leases”), the vehicles that are leased under the 2006-A Leases (the “2006-A Vehicles”), and certain other related assets;      F. The parties hereto also desire to issue to NILT Trust a certificate evidencing a 100% beneficial interest in the 2006-A SUBI (the “2006-A SUBI Certificate”).      G. NILT Trust will transfer the 2006-A SUBI Certificate to Nissan Auto Leasing LLC II (“NALL II”) pursuant to the SUBI Certificate Transfer Agreement, dated as of November 21, 2006 (the “SUBI Certificate Transfer Agreement”), between NILT Trust and NALL II. NALL II will further transfer the 2006-A SUBI Certificate to Nissan Auto Lease Trust 2006-A (the “Issuing Entity”) pursuant to the Trust SUBI Certificate Transfer Agreement, dated as of November 21, 2006 (the “Trust SUBI Certificate Transfer Agreement”), between NALL II, as depositor (the “Depositor”) and the Issuing Entity, as transferee.               1   SUBI Supplement --------------------------------------------------------------------------------        H. Pursuant to the Indenture, dated as of November 21, 2006 (the “Indenture”), between the Issuing Entity, as issuer, and U.S. Bank, as Indenture Trustee (the “Indenture Trustee”), the Issuing Entity will (i) issue $228,300,000 aggregate principal amount of 5.34673% Asset Backed Notes, Class A-1 (the “Class A-1 Notes”), $548,000,000 aggregate principal amount of 5.23% Asset Backed Notes, Class A-2 (the “Class A-2 Notes”), $540,000,000 aggregate principal amount of 5.11% Asset Backed Notes, Class A-3 (the “Class A-3 Notes”), $252,500,000 aggregate principal amount of 5.10%Asset Backed Notes, Class A-4 (the “Class A-4 Notes,” and together with the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes, the “Notes”); and (ii) pledge the 2006-A SUBI Certificate to the Indenture Trustee for the benefit of the holders of the Notes.      I. The parties hereto also desire to register a pledge of the 2006-A SUBI Certificate to the Indenture Trustee for the benefit of the holders of the Notes.      NOW, THEREFORE, in consideration of the mutual agreements herein contained, and of other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE ELEVEN DEFINITIONS      Section 11.01 Definitions. Capitalized terms used herein that are not otherwise defined shall have the meanings ascribed thereto in the Agreement of Definitions, dated as of November 21, 2006, by and among the Issuing Entity , NILT Trust, as Grantor and UTI Beneficiary, the Titling Trust, NMAC, in its individual capacity, as Servicer and as administrative agent (in such capacity, the “Administrative Agent”), NALL II, NILT, Inc., as Trustee, Wilmington Trust Company, as Delaware Trustee and owner trustee (in such capacity, the “Owner Trustee”) and U.S. Bank, as Trust Agent and Indenture Trustee.      Section 11.02 Interpretive Provisions. For all purposes of this 2006-A SUBI Supplement, except as otherwise expressly provided or unless the context otherwise requires, (i) terms used herein include, as appropriate, all genders and the plural as well as the singular, (ii) references to this 2006-A SUBI Supplement include all Exhibits hereto, (iii) references to words such as “herein,” “hereof” and the like shall refer to this 2006-A SUBI Supplement as a whole and not to any particular part, Article, or Section herein, (iv) references to an Article or Section such as “Article Twelve” or “Section 12.01” shall refer to the applicable Article or Section of this 2006-A SUBI Supplement, (v) the term “include” and all variations thereof shall mean “include without limitation,” (vi) the term “or” shall include “and/or” and (vii) the term “proceeds” shall have the meaning ascribed to such term in the UCC.      Any reference in this 2006-A SUBI Supplement to any agreement means such agreement as it may be amended, restated, supplemented (only to the extent such agreement as supplemented relates to the Notes), or otherwise modified from time to time. Any reference in this 2006-A SUBI Supplement to any law, statute, regulation, rule, or other legislative action shall mean such law, statute, regulation, rule, or other legislative action as amended, supplemented, or otherwise modified from time to time, and shall include any rule or regulation promulgated thereunder. Any reference in this 2006-A SUBI Supplement to a Person shall include the successor or permitted assignee of such Person.               2   SUBI Supplement --------------------------------------------------------------------------------        Section 11.03 Rights in Respect of the 2006-A SUBI. Each Holder and Registered Pledgee of the 2006-A SUBI Certificate (including the Issuing Entity) is a third-party beneficiary of the SUBI Trust Agreement insofar as the Titling Trust Agreement and this 2006-A SUBI Supplement apply to the 2006-A SUBI, the Holders of the 2006-A SUBI Certificate, and the Registered Pledgees of the 2006-A SUBI Certificate. Therefore, to that extent, references in the SUBI Trust Agreement to the ability of a “Holder,” “Related Beneficiary,” or a “Registered Pledgee” of a SUBI Certificate to take any action shall be deemed to refer to the Issuing Entity acting at its own instigation or upon the instruction of the requisite voting percentage of holders of Securities or Rated Securities, as specified in the Indenture or the Trust Agreement, as applicable. ARTICLE TWELVE CREATION OF THE 2006-A SUBI      Section 12.01 Creation of 2006-A SUBI Assets and the 2006-A SUBI.      (a) Pursuant to Section 3.01(a) of the Titling Trust Agreement, the UTI Beneficiary directs the Trustee to create, and the Trustee hereby creates, one Sub-Trust which shall be known as the “2006-A SUBI”. The 2006-A SUBI shall represent a special unit of beneficial interest solely in the 2006-A SUBI Assets.      (b) Pursuant to Section 3.01(a) of the Titling Trust Agreement, the UTI Beneficiary hereby directs the Trustee to identify and allocate or to cause to be identified and allocated to the 2006-A SUBI on the books and records of the Titling Trust a separate Sub-Trust of Trust Assets consisting of 2006-A Eligible Leases and the related Leased Vehicles and other associated Trust Assets owned by the Titling Trust and not allocated to any Other SUBI or reserved for allocation to any Other SUBI (or owned or acquired by the Trustee on behalf of the Titling Trust but not yet allocated to, or reserved for allocation to, any specific Sub-Trust). Such Trust Assets (the “2006-A SUBI Assets”) shall be accounted for and held in trust independently from all other Trust Assets within the Titling Trust. Based upon their identification and allocation by the Servicer pursuant to the 2006-A Servicing Supplement, the Trustee hereby identifies and allocates as 2006-A SUBI Assets the 2006-A Leases and 2006-A Vehicles more particularly described on the Schedule of 2006-A Leases and 2006-A Vehicles and the related Trust Assets described above, each such 2006-A SUBI Asset to be identified on the books and accounts of the Titling Trust as being allocated to the 2006-A SUBI.      (c) The Titling Trust is hereby granted the power and authority and is authorized, and the Trustee is authorized on behalf of the Titling Trust, to execute, deliver and perform its obligations under the Basic Documents.      Section 12.02 Transfer of 2006-A SUBI Interests.      (a) Interests in the 2006-A SUBI may not be transferred or assigned by the UTI Beneficiary, and any such purported transfer or assignment shall be deemed null, void, and of no effect herewith; provided, however, that the 2006-A SUBI Certificate and the interests in the 2006-A SUBI represented thereby may be (i) sold to the Depositor pursuant to the SUBI Certificate Transfer Agreement, (ii) sold, transferred and assigned by the Depositor absolutely,               3   SUBI Supplement --------------------------------------------------------------------------------   or transferred and assigned or a security interest therein granted, in connection with a Securitized Financing, (iii) transferred to the Indenture Trustee or any subsequent Registered Pledgee to itself or any other Person following the occurrence of an Event of Default (which has not been rescinded) or any similar term in any subsequent Securitized Financing secured by the 2006-A SUBI Certificate or any interest therein and (iv) transferred to each direct or indirect permitted transferee of the Indenture Trustee or such subsequent Registered Pledgee, in each case in the circumstances contemplated in, and subject to the conditions set forth in, Section 3.04(b) of the Titling Trust Agreement. Each such transfer shall be registrable upon surrender of the 2006-A SUBI Certificate to be transferred for registration of the transfer at the corporate trust office of the Trustee (or the Trust Agent, if applicable), accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by the Holder thereof or such Holder’s attorney duly authorized in writing, and thereupon a new 2006-A SUBI Certificate of a like aggregate fractional undivided interest will be issued to the designated permitted transferee.      (b) For any transfer of the 2006-A SUBI Certificate or an interest therein to be effective, on or prior to the date of any absolute sale, transfer, or assignment, the related transferee must execute and deliver to the Trustee the non-petition covenant and the agreement required pursuant to Section 3.04(b) of the Titling Trust Agreement.      (c) The 2006-A SUBI Certificate (or any interest therein) may not be acquired by or on behalf of (i) an “employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that is subject to Title I of ERISA, (ii) a “plan” as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), that is subject to Section 4975 of the Code or (iii) any entity deemed to hold the “plan assets” (within the meaning of 29 C.F.R. Section 2510.3-101, as modified by Section 3(42) of ERISA) of any of the foregoing. The 2006-A SUBI Certificate (or any interest therein) may not be acquired by or on behalf of a governmental plan, foreign plan or any other plan that is subject to any applicable law that is substantially similar to Title I of ERISA or Section 4975 of the Code (“Similar Law”) if the acquisition, holding and disposition of the 2006-A SUBI Certificate (or any interest therein) would result in a nonexempt prohibited transaction under, or a violation of, Similar Law.      (d) Notwithstanding any other provision herein, no transfer or assignment of an interest in the 2006-A SUBI will be valid, and any such purported transfer or assignment shall be deemed null, void, and of no effect herewith, unless the purported transferee first shall have certified in writing to the Trustee that, for U.S. federal income tax purposes, the transferee is not a partnership, S Corporation, or grantor trust having more than one beneficial owner or having a single beneficial owner that is a partnership or S Corporation.      Section 12.03 Issuance and Form of 2006-A SUBI Certificate.      (a) The 2006-A SUBI shall be represented by a 2006-A SUBI Certificate that shall represent a 100% beneficial interest in the 2006-A SUBI and the 2006-A SUBI Assets, as further set forth herein. The 2006-A SUBI Certificate shall, upon transfer to the Issuing Entity, be registered in the name of the Issuing Entity, representing the beneficial interest in the 2006-A               4   SUBI Supplement --------------------------------------------------------------------------------   SUBI Assets allocated from the UTI. The Trustee shall register a pledge of the 2006-A SUBI Certificate in favor of the Indenture Trustee (for the benefit of the holders of the Notes), as provided in Article Thirteen, and shall deliver the 2006-A SUBI Certificate to the Indenture Trustee. The 2006-A SUBI Certificate shall be substantially in the form of Exhibit B attached hereto, with such appropriate insertions, omissions, substitutions and other variations as are required by this 2006-A SUBI Supplement and may have such letters, numbers or other marks of identification and such legends and endorsements placed thereon as may, consistently herewith and with the Titling Trust Agreement, be directed by the UTI Beneficiary. Any portion of any 2006-A SUBI Certificate may be set forth on the reverse thereof, in which case the following reference to the portion of the text on the reverse shall be inserted on the face thereof, in relative proximity to and prior to the signature of the Trustee executing such 2006-A SUBI Certificate:      Reference is hereby made to the further provisions of this certificate set forth on the reverse hereof, which provisions shall for all purposes have the same effect as if set forth at this place.      In addition, the 2006-A SUBI Certificate will bear a legend to the following effect:      THIS 2006-A SUBI CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE SECURITIES ACT”), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW. THE HOLDER HEREOF, BY PURCHASING THIS 2006-A SUBI CERTIFICATE, AGREES THAT THIS 2006-A SUBI CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS, INCLUDING PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”) TO AN INSTITUTIONAL INVESTOR THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A “QIB”), PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTIONS.      THIS 2006-A SUBI CERTIFICATE (OR ANY INTEREST HEREIN) MAY NOT BE ACQUIRED BY OR ON BEHALF OF (I) AN “EMPLOYEE BENEFIT PLAN” AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), THAT IS SUBJECT TO TITLE I OF ERISA, (II) A “PLAN” AS DEFINED IN SECTION 4975(e)(1) OF INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), THAT IS SUBJECT TO SECTION 4975 OF THE CODE OR (III) ANY ENTITY DEEMED TO HOLD THE “PLAN ASSETS” (WITHIN THE MEANING OF 29 C.F.R. SECTION 2510.3-101, AS MODIFIED BY SECTION 3(42) OF ERISA) OF ANY OF THE FOREGOING. IF THIS 2006-A SUBI CERTIFICATE (OR ANY INTEREST HEREIN) IS PURCHASED OR HELD BY A GOVERNMENTAL PLAN, FOREIGN PLAN OR ANY OTHER PLAN THAT IS SUBJECT TO ANY APPLICABLE LAW THAT IS SUBSTANTIALLY SIMILAR TO TITLE I OF ERISA OR SECTION 4975 OF THE CODE (“SIMILAR LAW”), IT SHALL BE DEEMED TO REPRESENT AND WARRANT THAT ITS ACQUISITION, HOLDING AND DISPOSITION OF THIS 2006-A SUBI CERTIFICATE (OR ANY INTEREST HEREIN) WILL NOT RESULT IN A NONEXEMPT PROHIBITED TRANSACTION UNDER, OR A VIOLATION OF, SIMILAR LAW.               5   SUBI Supplement --------------------------------------------------------------------------------        The 2006-A SUBI Certificate shall be printed, lithographed, typewritten, mimeographed, photocopied, or otherwise produced or may be produced in any other manner as may, consistently herewith and with the Titling Trust Agreement, be determined by the UTI Beneficiary. The 2006-A SUBI Certificate and the interest in the 2006-A SUBI evidenced thereby shall constitute a “security” within the meaning of Section 8-102(a)(15) of the UCC and a “certificated security” within the meaning of Section 8-102(a)(4) of the UCC.      (b) If (i) the 2006-A SUBI Certificate is mutilated and surrendered to the Trustee, or the Trustee receives evidence to its satisfaction of the destruction, loss, or theft of the 2006-A SUBI Certificate and (ii) there is delivered to the Trustee such security or indemnity as may reasonably be required by it to hold the Issuing Entity and the Trustee, as applicable, harmless, then the Trustee shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen 2006-A SUBI Certificate, a replacement 2006-A SUBI Certificate. Every 2006-A SUBI Certificate issued pursuant to this Section 12.03(b) in replacement of any mutilated, destroyed, lost, or stolen 2006-A SUBI Certificate shall constitute an original additional contractual obligation of the Issuing Entity, whether or not the mutilated, destroyed, lost, or stolen 2006-A SUBI Certificate shall be at any time enforceable by anyone and shall be entitled to all of the benefits of the SUBI Trust Agreement equally and proportionately with any and all other 2006-A SUBI Certificates duly issued hereunder. The provisions of this Section 12.03(b) are exclusive and preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost, or stolen 2006-A SUBI Certificates.      Section 12.04 Actions and Filings. Each of the UTI Beneficiary and the Trustee shall undertake all other and future actions and activities as may be deemed reasonably necessary by the Servicer pursuant to the Servicing Agreement to perfect (or evidence) and confirm the foregoing allocations of Trust Assets to the 2006-A SUBI, including filing or causing to be filed UCC financing statements and executing and delivering all related filings, documents or writings as may be deemed reasonably necessary by the Servicer or the Registered Pledgee hereunder or under any other Basic Document. The UTI Beneficiary hereby irrevocably makes and appoints each of the Trustee and the Servicer, and any of their respective officers, employees or agents, as the true and lawful attorney-in-fact of the UTI Beneficiary (which appointment is coupled with an interest and is irrevocable) with power to sign on behalf of the UTI Beneficiary any financing statements, continuation statements, security agreements, mortgages, assignments, affidavits, letters of authority, notices or similar documents necessary or appropriate to be executed or filed pursuant to this Section.      Section 12.05 Termination of the 2006-A SUBI.      (a) In connection with any purchase by the Servicer of the corpus of the Issuing Entity pursuant to Article Nine of the Trust Agreement, the succession of the Servicer to the interest in the 2006-A SUBI represented by the 2006-A SUBI Certificate, or should all of the interest in the 2006-A SUBI thereafter be held by the UTI Beneficiary or the Holders of the UTI               6   SUBI Supplement --------------------------------------------------------------------------------   Certificates, whether by transfer, sale, or otherwise, then upon the direction of such Holders, the 2006-A SUBI shall be terminated, the 2006-A SUBI Certificate shall be returned to the Trustee and canceled, and the Servicer shall reallocate all 2006-A SUBI Assets to the UTI.      (b) So long as the Notes are Outstanding, the 2006-A SUBI shall not be dissolved unless (a) required by law or (b) at the direction of the Holder of the 2006-A SUBI Certificate (but only with the consent of the Registered Pledgee); provided, however, that upon the sale of the Owner Trust Estate pursuant to Section 5.04 of the Indenture, this 2006-A SUBI Supplement shall terminate and the 2006-A SUBI shall be terminated; provided further, that such termination shall affect the Titling Trust only insofar as such termination relates to the 2006-A SUBI. Such termination shall not entitle the legal representatives of the 2006-A SUBI or any Holder of a 2006-A SUBI Certificate to take any action for a partition or winding up of the Titling Trust or any Trust Assets except with respect to the 2006-A SUBI Assets and the rights, obligations and Liabilities of the parties hereto shall not otherwise be affected. In connection with the sale of the Owner Trust Estate pursuant to Section 5.04 of the Indenture, the Registered Pledgee shall have the right to direct the Holder of the 2006-A SUBI Certificate to dissolve the 2006-A SUBI in accordance with the provisions of the Indenture, and the 2006-A SUBI Assets shall be distributed out of the Titling Trust at the direction of the Holder of the 2006-A SUBI Certificate acting in accordance with instructions from the Registered Pledgee and the purchaser shall take delivery of such 2006-A SUBI Assets. The Trustee and the other parties hereto shall cooperate with the Owner Trustee or the Trustee, as applicable, to cause the related 2006-A Vehicles to be retitled as directed by the purchaser. The proceeds of such sale shall be distributed in the following amounts and priority:      (i) to the Indenture Trustee, all amounts required to be paid under Section 6.07 of the Indenture, or to the Owner Trustee, all amounts required to be paid under Section 8.01 of the Trust Agreement, as the case may be;      (ii) to the Servicer, any Payment Date Advance Reimbursement;      (iii) to the Servicer, amounts due in respect of unpaid Servicing Fees; and      (iv) to the Certificate Distribution Account (or, if the Lien of the Indenture is outstanding, the Note Distribution Account) to be distributed pursuant to Section 5.04(b) of the Indenture.      Section 12.06 Representations and Warranties of Trustee. The Trustee hereby reaffirms, as of the Cutoff Date, the representations, warranties and covenants set forth in Section 5.12 of the Titling Trust Agreement, on which the Grantor and UTI Beneficiary, each of its permitted assignees, and each Holder or Related Beneficiary of a 2006-A SUBI Certificate (and beneficial owner of any portion thereof, including the Issuing Entity and the Trust Certificateholders) may rely. For purposes of this Section, any reference in Section 5.12 of the Titling Trust Agreement to the Titling Trust Agreement shall be deemed to constitute references to the SUBI Trust Agreement.               7   SUBI Supplement --------------------------------------------------------------------------------        Section 12.07 Transfer and Assignment of Certificates. For purposes of the SUBI Trust Agreement, the third sentence of Section 3.04(b) of the Titling Trust Agreement is hereby amended to read as follows:      Notwithstanding the foregoing, prior to becoming the Registered Pledgee or Holder of a SUBI Certificate or otherwise becoming entitled to distributions or any other rights hereunder, the related transferee, assignee, or pledgee in each case must (i) give a non-petition covenant substantially similar to that set forth in Section 8.08 of the Titling Trust Agreement and (ii) execute an agreement in favor of each Holder from time to time of a UTI Certificate and any certificate evidencing an Other SUBI to release all Claims to the UTI Assets and the related Other SUBI Assets, respectively, and, if such release is not given effect, to subordinate fully all Claims it may be deemed to have against the UTI Assets as defined in the Titling Trust Agreement or such Other SUBI Assets, as the case may be.      For so long as the 2006-A SUBI Certificate remains outstanding, each Supplement shall contain a similar amendment with respect to such Section. ARTICLE THIRTEEN 2006-A SUBI PLEDGE      Section 13.01 Registration of the 2006-A SUBI Pledge. The parties hereto hereby acknowledge the Issuing Entity’s pledge, assignment, and grant to the Indenture Trustee, for the benefit of the holders of the Notes, under the Indenture of a security interest in the 2006-A SUBI Certificate together with all rights appurtenant thereto and proceeds thereof, to secure the Notes. The Trustee hereby acknowledges such pledge, assignment, and grant of security interest, and the Trustee agrees to cause the Indenture Trustee to be listed in the Certificate Register as the Registered Pledgee of the 2006-A SUBI Certificate. The Issuing Entity has caused the Trustee to deliver the 2006-A SUBI Certificate to the Indenture Trustee, as Registered Pledgee, who shall have the rights with respect thereto described herein and in the Indenture. ARTICLE FOURTEEN 2006-A SUBI ACCOUNTS      Section 14.01 2006-A SUBI Collection Account.      (a) With respect to the 2006-A SUBI, the Trustee, at the direction of the Servicer, shall on or prior to the Closing Date establish, and the Trust Agent shall maintain, in the name of the Trustee, for the exclusive benefit of the holders of interests in the 2006-A SUBI, the 2006-A SUBI Collection Account, which account shall constitute a SUBI Collection Account. The 2006-A SUBI Collection Account initially shall be established with U.S. Bank, as Trust Agent, so long as the Trust Agent has the Required Deposit Rating. If the Trust Agent at any time does not have the Required Deposit Rating, the Servicer shall, with the assistance of the Trust Agent, as necessary, cause such 2006-A SUBI Collection Account to be moved as described in Section 4.02(a) of the Titling Trust Agreement. The 2006-A SUBI Collection Account shall relate solely to the 2006-A SUBI and the 2006-A SUBI Assets, and funds therein shall not be commingled with any other monies, except as otherwise provided for in, or contemplated by, the SUBI Trust Agreement or in the Servicing Agreement. All deposits into the 2006-A SUBI Collection Account shall be made as described in the Servicing Agreement.               8   SUBI Supplement --------------------------------------------------------------------------------        (b) On each Deposit Date and Payment Date, pursuant to the instructions from the Servicer, the Trustee (acting through the Trust Agent) shall make deposits and withdrawals from the 2006-A SUBI Collection Account as set forth in the 2006-A Servicing Supplement.      (c) Any transfer of funds to a Holder of a 2006-A SUBI Certificate shall be made as directed pursuant to the Basic Documents.      Section 14.02 2006-A Reserve Account.      (a) Pursuant to Section 5.01(b) of the Trust Agreement, the Servicer, on behalf of the Issuing Entity, shall on or prior to the Closing Date establish and maintain the Reserve Account (i) with the Indenture Trustee, until the Outstanding Amount is reduced to zero, and (ii) thereafter with the Owner Trustee. Deposits to and withdrawals from the Reserve Account shall be made as directed pursuant to the Basic Documents, including Section 8.04(b) of the Indenture, Section 10.01 of the Indenture, Section 8.04 of the Servicing Agreement and Section 14.03 of this 2006-A SUBI Supplement.      Section 14.03 Investment of Monies in 2006-A SUBI Accounts. All amounts held in the 2006-A SUBI Collection Account and the Reserve Account shall be invested in Permitted Investments in accordance with Section 4.02(a) of the Titling Trust Agreement. Any investment earnings on the 2006-A SUBI Collection Account and the Reserve Account will be taxable to the Depositor.      Section 14.04 No Residual Value Surplus Account or Payahead Account. The parties hereby acknowledge that there shall be no Residual Value Surplus Account or Payahead Account (as defined in the Titling Trust Agreement). ARTICLE FIFTEEN MISCELLANEOUS PROVISIONS      Section 15.01 Amendment.      (a) Notwithstanding any provision of the Titling Trust Agreement, the Titling Trust Agreement, as supplemented by this 2006-A SUBI Supplement, to the extent that it relates solely to the 2006-A SUBI, may be amended in accordance with this Section 15.01.      (b) Any term or provision of this 2006-A SUBI Supplement may be amended by the parties hereto, without the consent of any other Person; provided that (i) either (A) any amendment that materially and adversely affects the interests of the Noteholders shall require the consent of Noteholders evidencing not less than a Majority Interest of the Notes voting together as a single class or (B) such amendment shall not, as evidenced by an Officer’s Certificate of the Servicer delivered to the Indenture Trustee, materially and adversely affect the interests of the Noteholders and (ii) any amendment adversely affects the interests of the Trust Certificateholder, the Indenture Trustee or the Owner Trustee shall require the prior written consent of each Persons whose interests are adversely affected. An amendment shall be deemed not to materially               9   SUBI Supplement --------------------------------------------------------------------------------   and adversely affect the interests of the Noteholders if the Rating Agency Condition is satisfied with respect to such amendment and the Officer’s Certificate described in the preceding sentence is provided to the Indenture Trustee. The consent of the Trust Certificateholder or the Owner Trustee shall be deemed to have been given if the Servicer does not receive a written objection from such Person within 10 Business Days after a written request for such consent shall have been given. The Indenture Trustee may, but shall not be obliged to, enter into or consent to any such amendment that affects the Indenture Trustee’s own rights, duties, liabilities or immunities under this Agreement or otherwise.      (c) Notwithstanding the foregoing, no amendment shall (i) reduce the interest rate or principal amount of any Note, or change the due date of any installment of principal of or interest in any Note or the Redemption Price with respect thereto, without the consent of the Holder of such Note, or (ii) reduce the Outstanding Amount, the Holders of which are required to consent to any matter without the consent of the Holders of at least a Majority Interest of the Notes which were required to consent to such matter before giving effect to such amendment.      (d) Notwithstanding anything herein to the contrary, any term or provision of this 2006-A SUBI Supplement may be amended by the parties hereto without the consent of any of the Noteholders or any other Person to add, modify or eliminate any provisions as may be necessary or advisable in order to comply with or obtain more favorable treatment under or with respect to any law or regulation or any accounting rule or principle (whether now or in the future in effect); it being a condition to any such amendment that the Rating Agency Condition shall have been satisfied and the Officer’s Certificate described in Section 15.01(b)(i)(B) is delivered to the Indenture Trustee.      (e) It shall not be necessary for the consent of any Person pursuant to this Section for such Person to approve the particular form of any proposed amendment, but it shall be sufficient if such Person consents to the substance thereof.      (f) Not less than 15 days prior to the execution of any amendment to this 2006-A SUBI Supplement, the Servicer shall provide each Rating Agency, the Trust Certificateholder, the Depositor, the Owner Trustee and the Indenture Trustee with written notice of the substance of such amendment. No later than 10 Business Days after the execution of any amendment to this 2006-A SUBI Supplement, the Servicer shall furnish a copy of such amendment to each Rating Agency, The Issuing Entity, the Trust Certificateholder, the Indenture Trustee and the Owner Trustee.      (g) Prior to the execution of any amendment to this 2006-A SUBI Supplement, the Servicer shall provide an Opinion of Counsel to the Trustee to the effect that after such amendment, for federal income tax purposes, the Titling Trust will not be treated as an association (or a publicly traded partnership) taxable as a corporation and the Notes will properly be characterized as indebtedness that is secured by the assets of the Issuing Entity.      (h) None of U.S. Bank National Association, as trustee of NILT Trust and as Trust Agent, NILT, Inc., nor the Indenture Trustee shall be under any obligation to ascertain whether a Rating Agency Condition has been satisfied with respect to any amendment. When the Rating Agency Condition is satisfied with respect to such amendment, the Servicer shall deliver to a               10   SUBI Supplement --------------------------------------------------------------------------------   Responsible Officer of U.S. Bank National Association and the Indenture Trustee an Officer’s Certificate to that effect, and U.S. Bank National Association and the Indenture Trustee may conclusively rely upon the Officer’s Certificate from the Servicer that a Rating Agency Condition has been satisfied with respect to such amendment.      Section 15.02 Governing Law. This 2006-A SUBI Supplement shall be created under and governed by and construed under the internal laws of the State of Delaware, without reference to its conflicts of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.      Section 15.03 Notices. The notice provisions of Section 8.03 of the Titling Trust Agreement shall apply equally to this 2006-A SUBI Supplement. A copy of each notice or other writing required to be delivered to the Trustee pursuant to the SUBI Trust Agreement also shall be delivered to (i) the Owner Trustee at Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890 (telecopier no. (302) 651-8882), Attention: Corporate Trust Administration; (ii) the Servicer at BellSouth Tower, 333 Commerce Street, 10th Floor, B-10-C, Nashville, Tennessee 37201-1800 (telecopier no. (615) 725-1720), Attention: Treasurer; (iii) the Trust Agent at 209 South LaSalle Street, Suite 300, Chicago, Illinois 60604, Attention: NILT Inc. (telecopier no. (312) 325-8905); or (iv) at such other address as shall be designated by any of the foregoing in written notice to the other parties hereto.      Section 15.04 Severability of Provisions. If any one or more of the covenants, agreements, provisions, or terms of this 2006-A SUBI Supplement (including any amendment hereto) 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 2006-A SUBI Supplement, as the same may be amended, and shall in no way affect the validity or enforceability of the other provisions of the SUBI Trust Agreement or of the 2006-A SUBI Certificate or the rights of the Registered Pledgees thereof. To the extent permitted by applicable law, the parties hereto waive any provision of law that renders any covenant, agreement, provision, or term of this 2006-A SUBI Supplement invalid or unenforceable in any respect.      Section 15.05 Effect of Supplement on Titling Trust Agreement.      (a) Except as otherwise specifically provided herein or unless the context otherwise requires, (i) the parties hereto shall continue to be bound by all provisions of the Titling Trust Agreement, (ii) all references in the Titling Trust Agreement to the Titling Trust Agreement shall be to the SUBI Trust Agreement and (iii) the provisions set forth herein shall operate either as additions to or modifications of the existing obligations of the parties under the Titling Trust Agreement, as the context may require. In the event of any conflict between this 2006-A SUBI Supplement and the Titling Trust Agreement in respect of the 2006-A SUBI, the provisions of this 2006-A SUBI Supplement shall prevail with respect to the 2006-A SUBI only.      (b) For purposes of determining the obligations of the parties hereto under this 2006-A SUBI Supplement with respect to the 2006-A SUBI, except as otherwise indicated by the context, general references in the Titling Trust Agreement to (i) a SUBI Account shall be deemed to refer more specifically to a 2006-A SUBI Account, (ii) a SUBI shall be deemed to               11   SUBI Supplement --------------------------------------------------------------------------------   refer more specifically to the 2006-A SUBI, (iii) a SUBI Collection Account shall be deemed to refer more specifically to the 2006-A SUBI Collection Account, (iv) a SUBI Asset shall be deemed to refer more specifically to a 2006-A SUBI Asset, (v) a SUBI Supplement shall be deemed to refer more specifically to this 2006-A SUBI Supplement and (vi) a Servicing Supplement shall be deemed to refer more specifically to the 2006-A Servicing Supplement.      Section 15.06 No Petition. Each of the parties hereto and each Holder of a 2006-A SUBI Certificate, and each Registered Pledgee, by acceptance of a 2006-A SUBI Certificate, covenants and agrees that prior to the date that is one year and one day after the date upon which all obligations under each Securitized Financing have been paid in full, it will not institute against, or join any other Person in instituting against the Grantor, the Depositor, the Trustee, the Titling Trust, the Issuing Entity , any Special Purpose Affiliate or any Beneficiary, any bankruptcy, reorganization, arrangement, insolvency or liquidation Proceeding or other Proceeding under any federal or state bankruptcy or similar law. This Section shall survive the complete or partial termination of this 2006-A SUBI Supplement, the resignation or removal of the Trustee under the SUBI Trust Agreement and the complete or partial resignation or removal of the Servicer under the SUBI Trust Agreement or the Servicing Agreement. [Signature Pages to Follow]               12   SUBI Supplement --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the Grantor and UTI Beneficiary, the Servicer, the Trustee, the Delaware Trustee and, solely for the limited purposes set forth in Sections 14.01, 14.02, 14.03 and 14.04, the Trust Agent, have caused this 2006-A SUBI Supplement to be duly executed by their respective officers as of the day and year first above written.                       NILT TRUST, as Grantor and UTI Beneficiary                           By:   U.S. BANK NATIONAL ASSOCIATION, as Managing Trustee                               By: Name:   Patricia M. Child   Patricia M. Child             Title:   Vice President                       NISSAN MOTOR ACCEPTANCE CORPORATION, as Servicer                                     By:   Steven R. Lambert   Name: Steven R. Lambert             Title: President                       NILT, INC., as Trustee                       By:   Patricia M. Child   Name: Patricia M. Child             Title: Vice President                       WILMINGTON TRUST COMPANY, as Delaware Trustee                                     By:   J. Christopher Murphy   Name: J. Christopher Murphy             Title: Financial Services Officer                       U.S. BANK NATIONAL ASSOCIATION, as Trust Agent                                     By:   Patricia M. Child   Name: Patricia M. Child             Title: Vice President                   S-1   SUBI Supplement --------------------------------------------------------------------------------        Receipt of this original counterpart of this 2006-A SUBI Supplement is hereby acknowledged on this ___ day of November 2006.             U.S. BANK NATIONAL ASSOCIATION, as Indenture Trustee       By:   Patricia M. Child         Name:   Patricia M. Child        Title:   Vice President                  S-2   SUBI Supplement --------------------------------------------------------------------------------             EXHIBIT A SCHEDULE OF 2006-A LEASES AND 2006-A VEHICLES               A-1   SUBI Supplement --------------------------------------------------------------------------------   EXHIBIT B FORM OF 2006-A SUBI CERTIFICATE      THIS 2006-A SUBI CERTIFICATE MAY NOT BE TRANSFERRED OR ASSIGNED EXCEPT UPON THE TERMS AND SUBJECT TO THE CONDITIONS SPECIFIED HEREIN NISSAN — INFINITI LT 2006-A SPECIAL UNIT OF BENEFICIAL INTEREST CERTIFICATE evidencing a fractional undivided interest in the 2006-A SUBI Assets of Nissan-Infiniti LT, a statutory trust organized pursuant to the Delaware Statutory Trust Act (the “Titling Trust”). (This Certificate does not represent any interest in the UTI Assets or any Other SUBI Assets of the Issuing Entity or an obligation, of, or interest in, NILT Trust, Nissan Motor Acceptance Corporation, NILT, Inc. or any of their respective Affiliates.) THIS 2006-A SUBI CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE SECURITIES ACT”), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW. THE HOLDER HEREOF, BY PURCHASING THIS 2006-A SUBI CERTIFICATE, AGREES THAT THIS 2006-A SUBI CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS, INCLUDING PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”) TO AN INSTITUTIONAL INVESTOR THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A “QIB”), PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTIONS.      THIS 2006-A SUBI CERTIFICATE (OR ANY INTEREST HEREIN) MAY NOT BE ACQUIRED BY OR ON BEHALF OF (I) AN “EMPLOYEE BENEFIT PLAN” AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), THAT IS SUBJECT TO TITLE I OF ERISA, (II) A “PLAN” AS DEFINED IN SECTION 4975(e)(1) OF INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), THAT IS SUBJECT TO SECTION 4975 OF THE CODE OR (III) ANY ENTITY DEEMED TO HOLD THE “PLAN ASSETS” (WITHIN THE MEANING OF 29 C.F.R. SECTION 2510.3-101, AS MODIFIED BY SECTION 3(42) OF ERISA) OF ANY OF THE FOREGOING. IF THIS 2006-A SUBI CERTIFICATE (OR ANY INTEREST HEREIN) IS PURCHASED OR HELD BY A GOVERNMENTAL PLAN, FOREIGN PLAN OR ANY OTHER PLAN THAT IS SUBJECT TO ANY APPLICABLE LAW THAT IS SUBSTANTIALLY SIMILAR TO TITLE I OF ERISA OR SECTION 4975 OF THE CODE (“SIMILAR LAW”), IT SHALL BE DEEMED TO REPRESENT AND WARRANT THAT ITS ACQUISITION, HOLDING AND DISPOSITION OF THIS 2006-A SUBI CERTIFICATE (OR ANY INTEREST HEREIN) WILL NOT RESULT IN A NONEXEMPT PROHIBITED TRANSACTION UNDER, OR A VIOLATION OF, SIMILAR LAW.               B-1   SUBI Supplement --------------------------------------------------------------------------------   No. R-___ evidencing a 100% interest in all 2006-A SUBI Assets (as defined below).      This 2006-A Special Unit of Beneficial Interest Certificate does not represent an interest in or obligation of Nissan Motor Acceptance Corporation, NILT, Inc. or any of their respective affiliates.      THIS CERTIFIES THAT ___ is the registered owner of a nonassessable, fully-paid, 100% beneficial interest in the 2006-A SUBI Assets owned by the Titling Trust.      The Titling Trust was created pursuant to the Amended and Restated Trust and Servicing Agreement, dated as of August 26, 1998 as amended, supplemented or otherwise modified from time to time, (the “Titling Trust Agreement”), among NILT Trust, as grantor and initial beneficiary (in such capacities, the “Grantor” and the “UTI Beneficiary,” respectively), NILT, Inc., as trustee (the “Trustee”), Nissan Motor Acceptance Corporation, as servicer (the “Servicer”), Wilmington Trust Company, as Delaware trustee (the “Delaware Trustee”), and U.S. Bank National Association, as trust agent (the “Trust Agent”).      This certificate is a duly authorized 2006-A SUBI Certificate, and is issued under and is subject to the terms, provisions and conditions of the Titling Trust Agreement and the 2006-A SUBI Supplement thereto, dated as of November 21, 2006 (the “2006-A SUBI Supplement” and, together with the Titling Trust Agreement, the “SUBI Trust Agreement”). Capitalized terms used herein that are not otherwise defined shall have the meanings ascribed thereto in the Agreement of Definitions, dated as of November 21, 2006, by and among Nissan Auto Lease Trust 2006-A, as issuer, (the “Issuing Entity”) NILT Trust, as Grantor and UTI Beneficiary, the Titling Trust, Nissan Motor Acceptance Corporation, in its individual capacity, as servicer and administrative agent, Nissan Auto Leasing LLC II (the “Depositor”), NILT, Inc., as trustee to the Titling Trust, Wilmington Trust Company, as owner trustee and Delaware trustee, and U.S. Bank National Association, as trust agent and indenture trustee. By acceptance of this 2006-A SUBI Certificate, the Holder hereof assents to the terms and conditions of the SUBI Trust Agreement and agrees to be bound thereby. A summary of certain of the pertinent provisions of the SUBI Trust Agreement is set forth below.      The assets of the Titling Trust allocated to the 2006-A SUBI will generally consist of (i) cash capital, (ii) the 2006-A Leases (iii) the 2006-A Vehicles, (iv) certain related Trust Assets and (v) all of the Titling Trust’s rights thereunder, including the right to proceeds arising therefrom or in connection therewith.      Under the Titling Trust Agreement, from time to time the UTI Beneficiary may direct the Trustee to issue to or upon the order of the UTI Beneficiary one or more certificates (each, a “SUBI Certificate”) representing a beneficial interest in certain specified Leased Vehicles,               B-2   SUBI Supplement --------------------------------------------------------------------------------   Leases and related Trust Assets (such assets, the “SUBI Assets”). Upon the issuance of the SUBI Certificates relating to the SUBI Assets, the beneficial interest in the Titling Trust and the Trust Assets represented by the UTI shall be reduced by the amount of the Trust Assets represented by such SUBI Certificates. This certificate was issued pursuant to the 2006-A SUBI Supplement and represents a 100% beneficial interest in the 2006-A SUBI Assets.      The UTI and the 2006-A SUBI shall each constitute a separate series of the Titling Trust pursuant to Section 3806(b)(2) of the Delaware Statutory Trust Act for which separate and distinct records shall be maintained. The 2006-A SUBI Certificate and the interest in the 2006-A SUBI represented thereby constitutes a “security” within the meaning of Section 8-102(a)(15) of the Delaware UCC and a “certificated security” within the meaning of Section 8-102(a)(4) of the Delaware UCC.      The 2006-A SUBI Supplement may be amended by the parties thereto upon the terms and subject to the conditions set forth in the 2006-A SUBI Supplement.      The Holder, by acceptance of this 2006-A SUBI Certificate, covenants and agrees that prior to the date that is one year and one day after the date upon which all obligations under each Securitized Financing have been paid in full, it will not institute against, or join any other Person in instituting against, the Grantor, the Depositor, the Trustee, the Titling Trust, the Issuing Entity , any Beneficiary, any Special Purpose Affiliate, any bankruptcy, reorganization, arrangement, insolvency or liquidation Proceeding or other Proceedings under any federal or state bankruptcy or similar law. Such covenant shall survive the termination of the SUBI Trust Agreement, the resignation or removal of the Trustee under the SUBI Trust Agreement or the complete or partial resignation of the Servicer under the SUBI Trust Agreement or the Servicing Agreement.      The Holder hereof hereby (i) expressly waives any claim it may have to any proceeds or assets of the Trustee and to all of the Trust Assets other than those from time to time included within the 2006-A SUBI as 2006-A SUBI Assets and those proceeds or assets derived from or earned by such 2006-A SUBI Assets and (ii) expressly subordinates in favor of the Holder of any certificate evidencing an Other SUBI or a UTI Certificate any claim to any Other SUBI or UTI Assets that, notwithstanding the waiver contained in clause (i), may be determined to exist.      The Trustee shall keep the certificate register with respect to this 2006-A SUBI Certificate, and the Holder of this 2006-A SUBI Certificate shall notify the Trustee of any change of address or instructions on the distribution of funds.      The 2006-A SUBI shall be deemed dissolved solely with respect to the 2006-A SUBI Assets, and not as to any Trust Assets allocated to any other Sub-Trust, upon the written direction to the Trustee by the Holder of the 2006-A SUBI Certificate to revoke and dissolve the 2006-A SUBI. So long as the Notes are outstanding, the 2006-A SUBI shall not be dissolved except (a) as required by law or (b) at the direction of the Holder of the 2006-A SUBI Certificate (but only with the consent of the Registered Pledgee); provided, however, upon any sale of the Owner Trust Estate pursuant to Section 5.04 of the Indenture, the Registered Pledgee shall have the right to direct the Holder of the 2006-A SUBI Certificate to dissolve the 2006-A SUBI in accordance with the provisions of the Indenture. Upon such dissolution of the Titling Trust with respect to the 2006-A SUBI and delivery of the 2006-A SUBI Certificate to the Trustee for               B-3   SUBI Supplement --------------------------------------------------------------------------------   cancellation, the Trustee shall distribute to the Holder of the 2006-A SUBI Certificate or its designee all 2006-A SUBI Assets and shall cause the Certificates of Title to the 2006-A Vehicles to be issued in the name of, or at the direction of, the Holder of the 2006-A SUBI Certificate (which may include reallocation of the 2006-A SUBI Assets relating to the 2006-A Vehicles to the UTI). The Holder of the 2006-A SUBI Certificate to whom such 2006-A SUBI Assets relating to the 2006-A Vehicles are distributed shall pay or cause to be paid all applicable titling and registration fees and taxes.      The Titling Trust or the UTI may terminate upon the terms and subject to the conditions set forth in the SUBI Trust Agreement.      No SUBI or SUBI Certificate shall be transferred or assigned except to the extent specified in the SUBI Trust Agreement or in any related Supplement and, to the fullest extent permitted by applicable law, any such purported transfer or assignment other than as so specified shall be deemed null, void, and of no effect under the SUBI Trust Agreement. Notwithstanding the foregoing, any SUBI Certificate and the interest in the SUBI evidenced thereby may be (i) transferred, assigned or pledged to any Special Purpose Affiliate or (ii) transferred, assigned or pledged by the Related Beneficiary or a Special Purpose Affiliate to or in favor of (A) a trustee for one or more trusts or (B) one or more other entities, in either case solely for the purpose of securing or otherwise facilitating one or more Securitized Financings.      This 2006-A SUBI Certificate shall be governed by and construed under the internal laws of the State of Delaware, without reference to its conflicts of law provisions.      Unless this 2006-A SUBI Certificate shall have been executed by an authorized officer of the Trustee, by manual signature, this 2006-A SUBI Certificate shall not entitle the holder hereof to any benefit under the SUBI Trust Agreement or be valid for any purpose.               B-4   SUBI Supplement --------------------------------------------------------------------------------        IN WITNESS WHEREOF, NILT, Inc., as Trustee of the Titling Trust and not in its individual capacity, has caused this 2006-A SUBI Certificate to be duly executed.      Dated:                                         , 2006                   NISSAN-INFINITI LT                       By:   NILT, INC.,             as Trustee                   (SEAL)                               By:                   Name:             Title:                   ATTEST:                                                This is the 2006-A SUBI Certificate referred to in the within-mentioned Supplement.                   NILT, INC., as Trustee                       By:                   Authorized Officer                   B-5   SUBI Supplement --------------------------------------------------------------------------------        FOR VALUE RECEIVED, the undersigned hereby sells, transfers and assigns unto ___ the within 2006-A SUBI Certificate, and all rights thereunder, hereby irrevocably constituting and appointing ___ as attorney to transfer said 2006-A SUBI Certificate on the books of the certificate registrar, with full power of substitution in the premises.               Dated:   By:             Name:             Title:                       B-6   SUBI Supplement

Exhibit 10.2   NATUS MEDICAL INCORPORATED   2000 EMPLOYEE STOCK PURCHASE PLAN   (As amended through December 29, 2005)   The following constitute the provisions of the 2000 Employee Stock Purchase Plan of Natus Medical Incorporated.   1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.   2. Definitions.   (a) “Board” shall mean the Board of Directors of the Company or any committee thereof designated by the Board of Directors of the Company in accordance with Section 14 of the Plan.   (b) “Code” shall mean the Internal Revenue Code of 1986, as amended.   (c) “Common Stock” shall mean the common stock of the Company.   (d) “Company” shall mean Natus Medical Incorporated and any Designated Subsidiary of the Company.   (e) “Compensation” shall mean all cash compensation reportable on Form W-2, including, without limitation, base straight time gross earnings, sales commissions, payments for overtime, shift premiums, incentive compensation, incentive payments and bonuses, plus any amounts contributed by the Employee to the Company’s 401(k) Plan from compensation paid to the Employee by the Company.   (f) “Designated Subsidiary” shall mean any Subsidiary that has been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan.   (g) “Employee” shall mean any individual who is an Employee of the Company for tax purposes whose customary employment with the Company is at least thirty (30) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. -------------------------------------------------------------------------------- (h) “Enrollment Date” shall mean the first Trading Day of each Offering Period.   (i) “Exercise Date” shall mean the last Trading Day of each Purchase Period.   (j) “Fair Market Value” shall mean, as of any date, the value of Common Stock determined as follows:   (i) If the Common Stock is listed on any established stock exchange or a national market system, including, without limitation, the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable;   (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock prior to the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or   (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board.   (k) “Offering Periods” shall mean with respect to Offering Periods that commence after December 31, 2005, the period of approximately six (6) months during which an option granted pursuant to the Plan may be exercised, commencing on the Enrollment Date on or after May 1 and November 1 of each year and terminating on the last Trading Day in the Purchase Period ending approximately six (6) months later from such Enrollment Date; provided however, that the first Offering Period to commence after December 31, 2005, shall commence on January 1, 2006 and shall end on April 30, 2006; and generally meant with respect to Offering Periods that commenced prior to December 1, 2005, the periods of approximately twenty-four (24) months during which an option granted pursuant to the Plan may be exercised, generally commencing on the first Trading Day on or after May 1 and November 1 of each year and terminating on the last Trading Day in the periods ending twenty-four months later. The duration and timing of Offering Periods may be changed as provided in this Plan. All Offering Periods that commenced prior to December 1, 2005, shall terminate on December 31, 2005, unless already terminated prior to December 31, 2005.   (l) “Plan” shall mean this 2000 Employee Stock Purchase Plan.   (m) “Purchase Period” shall mean with respect to Offering Periods that commence after December 31, 2005, the period commencing on the Enrollment Date and ending with the next June 30 or December 31 after the Exercise Date; and generally meant with respect to Offering Periods that commenced prior to December 1, 2005, the approximately six month period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date. For all Offering Periods that commenced prior to December 1, 2005, the last Purchase Period shall end on December 31, 2005, if such Offering Period has not already terminated prior to December 31, 2005.   -2- -------------------------------------------------------------------------------- (n) “Purchase Price” with respect to Offering Periods that commence after December 31, 2005, shall mean 85% of the Fair Market Value of a share of Common Stock on the Exercise Date; and for Offering Periods that commenced prior to December 1, 2005, meant 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided, however in either event, that the Purchase Price may be adjusted by the Board pursuant to Section 20.   (o) “Reserves” shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option.   (p) “Subsidiary” shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.   (q) “Trading Day” shall mean a day on which national stock exchanges and the Nasdaq System are open for trading.   3. Eligibility.   (a) Any Employee (as defined in Section 2(g)) who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan.   (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time.   4. Offering Periods. After December 1, 2005, the Plan shall be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after January 1, 2006, and then on or after May 1 and November 1 each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter.   5. Participation.   (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company’s payroll office prior to the applicable Enrollment Date.   -3- -------------------------------------------------------------------------------- (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof.   6. Payroll Deductions.   (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding fifteen percent (15%) of the Compensation which he or she receives on each pay day during the Offering Period.   (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account.   (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period, including allowing such changes only at the beginning of each Purchase Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company’s receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant’s subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.   (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant’s payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period. Payroll deductions shall recommence at the rate provided in such participant’s subscription agreement at the beginning of the next Offering Period for which participation would be permissible under Section 423(b)(8) of the Code and Section 3(b) hereof, unless terminated by the participant as provided in Section 10 hereof.   (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company’s Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company’s federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the participant’s compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee.   7. Grant of Option. On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company’s Common Stock determined by dividing such Employee’s payroll   -4- -------------------------------------------------------------------------------- deductions accumulated prior to such Exercise Date and retained in the Participant’s account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Purchase Period more than a number of shares determined by dividing $12,500 by the Fair Market Value of a share of the Company’s Common Stock (subject to any adjustment pursuant to Section 19) on the Enrollment Date, and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 11 hereof. The Board may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company’s Common Stock an Employee may purchase during each Purchase Period of such Offering Period. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period.   8. Exercise of Option.   (a) Unless a participant withdraws from the Plan as provided in Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to such option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant’s account which are not sufficient to purchase a full share shall be retained in the participant’s account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant’s account after the Exercise Date shall be returned to the participant. During a participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable only by him or her.   (b) If the Board determines that, on a given Exercise Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Exercise Date, the Board may in its sole discretion (x) provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect, or (y) provide that the Company shall make a pro rata allocation of the shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 hereof. The Company may make pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company’s stockholders subsequent to such Enrollment Date.   9. Delivery. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option.   -5- -------------------------------------------------------------------------------- 10. Withdrawal.   (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant’s payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant’s option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement.   (b) A participant’s withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws.   11. Termination of Employment. Upon a participant’s ceasing to be an Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant’s account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant’s option shall be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant’s customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice.   12. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan.   13. Stock.   (a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof and as adjusted for the July 2000 two-for-five reverse split, the maximum number of shares of the Company’s Common Stock which shall be made available for sale under the Plan shall be 1,000,000 shares (post-split) together with an annual increase to the number of shares reserved for issuance thereunder on the first day of the Company’s fiscal year beginning in January 1, 2002, equal to the lesser of (i) 650,000 shares (post-split), (ii) four percent (4%) of the outstanding shares of the Company on the last day of the prior fiscal year or (iii) such amount as determined by the Board.   (b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised.   (c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse.   -6- -------------------------------------------------------------------------------- 14. Administration. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties.   15. Designation of Beneficiary.   (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant’s account under the Plan in the event of such participant’s death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant’s account under the Plan in the event of such participant’s death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.   (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.   16. Transferability. Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.   17. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.   18. Reports. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any.   -7- -------------------------------------------------------------------------------- 19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale.   (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the Reserves, the maximum number of shares each participant may purchase each Purchase Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.   (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the “New Exercise Date”), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Board. The New Exercise Date shall be before the date of the Company’s proposed dissolution or liquidation. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date and that the participant’s option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof.   (c) Merger or Asset Sale. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Purchase Periods then in progress shall be shortened by setting a new Exercise Date (the “New Exercise Date”) and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company’s proposed sale or merger. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant’s option has been changed to the New Exercise Date and that the participant’s option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof.   20. Amendment or Termination.   (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board   -8- -------------------------------------------------------------------------------- of Directors on any Exercise Date if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its stockholders. Except as provided in Section 19 and this Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain stockholder approval in such a manner and to such a degree as required.   (b) Without stockholder consent and without regard to whether any participant rights may be considered to have been “adversely affected,” the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant’s Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan.   (c) In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:   (i) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;   (ii) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and   (iii) allocating shares.   Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants.   21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.   22. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.   -9- -------------------------------------------------------------------------------- As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.   23. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company; provided, however, the Plan shall not become effective until the effective date of the Company’s initial public offering pursuant to a registration statement filed with the Securities and Exchange Commission. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20 hereof.   -10- -------------------------------------------------------------------------------- EXHIBIT A   NATUS MEDICAL INCORPORATED   2000 EMPLOYEE STOCK PURCHASE PLAN   SUBSCRIPTION AGREEMENT                Original Application    Enrollment Date:                                       Change in Payroll Deduction Rate                   Change of Beneficiary(ies)        1.                                  hereby elects to participate in the Natus Medical Incorporated Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”) and subscribes to purchase shares of the Company’s Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan.   2. I hereby authorize payroll deductions from each paycheck in the amount of             % of my Compensation on each payday during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that the percentage withholding must be between 1% and 15% and that no fractional percentages are permitted.)   3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option.   4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to stockholder approval of the Employee Stock Purchase Plan.   5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only):                                 .   6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I hereby agree to notify the Company in writing within 30 days after the date of any disposition of my shares and I will make adequate provision for Federal, state or other tax withholding obligations, if any, which arise upon the -------------------------------------------------------------------------------- disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain.   7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan.   8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan:   NAME: (Please print)____________________________________________________________________________________________________     (First)   (Middle)   (Last)   ______________________________   _____________________________________________________________________________ Relationship     _____________________________________________________________________________     (Address) Employee’s Social     Security Number:   ______________________________________________________________   Employee’s Address:   ______________________________________________________________       ______________________________________________________________       ______________________________________________________________   I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.   Dated:___________________________________     --------------------------------------------------------------------------------     Signature of Employee       --------------------------------------------------------------------------------     Spouse’s Signature (If beneficiary other than spouse)   -2- -------------------------------------------------------------------------------- EXHIBIT B   NATUS MEDICAL INCORPORATED   2000 EMPLOYEE STOCK PURCHASE PLAN   NOTICE OF WITHDRAWAL   The undersigned participant in the Offering Period of the Natus Medical Incorporated Employee Stock Purchase Plan which began on             ,              (the “Enrollment Date”) hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.   Name and Address of Participant: __________________________________________________________   __________________________________________________________   __________________________________________________________ Signature:   --------------------------------------------------------------------------------   Date:___________________________________________________

Exhibit 10.1 PREFERRED STOCK REPURCHASE AGREEMENT This Preferred Stock Repurchase Agreement (this “Agreement”) is entered into as of August 11, 2006, by and among US LEC Corp., a Delaware corporation (the “Company”), the persons identified on the signature pages hereto as the “Bain Seller” and the “THL Sellers”, solely to the extent provided in paragraph 21, PAETEC Corp., a Delaware corporation (“PAETEC”), and, solely to the extent provided in paragraph 21, each of Richard T. Aab (“Mr. Aab”), Melrich Associates, L.P., a New York limited partnership (“Melrich”), and Tansukh V. Ganatra (together with Mr. Aab and Melrich, the “Former Class B Stockholders”). The Bain Seller and the THL Sellers are collectively referred to in this Agreement as the “Sellers”. On this date, the Company, PAETEC, WC Acquisition Holdings Corp., a Delaware corporation and wholly-owned direct subsidiary of PAETEC (the “Holding Company”), WC Acquisition Sub U Corp., a Delaware corporation and a wholly-owned direct subsidiary of the Holding Company (“Merger Sub U”), and WC Acquisition Sub P Corp., a Delaware corporation and a wholly-owned direct subsidiary of the Holding Company (“Merger Sub P”), are entering into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, and subject to the terms and conditions thereof, Merger Sub U and Merger Sub P will merge, respectively, with and into the Company and PAETEC, respectively, whereby each share of Class A Common Stock of the Company (the “Company Common Stock”) will be converted into the right to receive the US LEC Merger Consideration (as defined in Section 2.1(a) of the Merger Agreement) and each share of Class A Common Stock of PAETEC (the “PAETEC Common Stock”) will be converted into the right to receive the PAETEC Merger Consideration (as defined in Section 2.1(d) of the Merger Agreement) (such transactions are referred to herein individually as the “Company Merger” and the “PAETEC Merger”, respectively, and collectively as the “Mergers”), as a result of which the holders of Company Common Stock and PAETEC Common Stock will together own all of the outstanding shares of Common Stock of the Holding Company (and the Holding Company will, in turn, own all of the outstanding shares of common stock of the surviving corporation in the Company Merger and all of the outstanding shares of common stock of the surviving corporation in the PAETEC Merger). As an integral part of the transactions contemplated by the Merger Agreement and either immediately prior to or as of the effective time of the Company Merger, all of the Company’s outstanding shares of Series A Convertible Preferred Stock (together with any accrued but unpaid dividends thereon, the “Preferred Stock”) held by the Sellers will be repurchased for cash on the terms and conditions set forth in this Agreement. Capitalized terms used herein without being defined have the same meanings that they are given in the Company’s Certificate of Designation relating to the Preferred Stock (the “Designation”). 1. Purchase and Sale of Preferred Stock. The Sellers and the Company agree that, immediately prior to or as of the effective time of the Company Merger (such timing to be determined by the Company), (a) the Sellers will sell, transfer, and deliver to the Company, free and clear of any liens, claims or encumbrances of any kind created by the Sellers (other than pursuant to the Preferred Stock Agreements (as defined in paragraph 5)), all of the shares of Preferred Stock issued to them which shall include the 200,000 shares issued on April 11, 2000   1 -------------------------------------------------------------------------------- (the “Original Shares”) and the total number of shares of Preferred Stock paid or accrued as dividends in kind through the day (the “Closing Date”) on which the effective time of the Company Merger occurs (the “Dividend Shares” and, together with the Original Shares, the “Shares”) and (b) the Company will pay $1,000 for each of the Original Shares and a price per share for each of the Dividend Shares equal to the amount determined by dividing (i) the excess of (A) the Liquidation Value for all Shares as of the Closing Date over (B) $230,000,000 (representing the $200,000,000 to be paid for the Original Shares and a $30,000,000 discount agreed to be the parties) by (ii) the number of Dividend Shares outstanding on the Closing Date. The Sellers agree that, upon the occurrence of such sale of the Shares, the Sellers shall have no further rights relating to the Preferred Stock, including as to any accrued but unpaid dividends. The number of Original Shares and Dividend Shares held as of July 11, 2006 by each Seller is set forth on Exhibit A to this Agreement. 2. Conditions; Closing. The Company’s obligation to purchase the Shares pursuant to paragraph 1 is subject to (w) the representations and warranties of each of the Sellers contained in paragraph 8 hereof being true and correct in all material respects on and as of the Closing Date as if made on and as of such date, (x) the compliance by each of the Sellers in all material respects with all of the covenants and agreements set forth in this Agreement that are required to be performed or complied with by each of the Sellers on or before the Closing Date, (y) the receipt of an adequate surplus opinion, dated on or about the Closing Date, addressed to the Company’s Board of Directors of an independent appraisal firm reasonably acceptable to the Company (it being agreed that Houlihan Lokey Howard & Zukin Financial Advisors, Inc. is reasonably acceptable to the Company) and (z) the consummation of the Company Merger as of or immediately following such purchase of the Shares pursuant to paragraph 1 (it being understood that the Company’s and PAETEC’s obligations to cause the consummation of the Company Merger is subject to the conditions set forth in the Merger Agreement). The Sellers’ obligations to sell the Shares pursuant to paragraph 1 are subject to (a) the representations and warranties of the Company contained in paragraph 8 hereof being true and correct in all material respects on and as of the Closing Date as if made on and as of such date, (b) the compliance by the Company in all material respects with all of the covenants and agreements set forth in this Agreement that are required to be performed or complied with by the Company on or before the Closing Date, and the provision by the Company to each Seller (or its attorney-in-fact) of such supporting documents with respect to the repurchase of the Shares pursuant to this Agreement as may be reasonably requested by the Sellers, (c) the receipt of an adequate surplus opinion, dated on or about the Closing Date, addressed to the Company’s Board of Directors of an independent appraisal firm reasonably acceptable to the Sellers (it being agreed that Houlihan Lokey Howard & Zukin Financial Advisors, Inc. is reasonably acceptable to the Sellers), (d) the determination by the Board of Directors of the Company that the Company shall have sufficient lawfully available funds to purchase the Shares in accordance with this Agreement in compliance with the Delaware General Corporation Law, and (e) the consummation of the Company Merger as of or immediately following such sale of the Shares pursuant to paragraph 1 (it being understood that the Company’s and PAETEC’s obligations to cause the consummation of the Company Merger are subject to the conditions set forth in the Merger Agreement). 3. Closing Mechanics. In order to facilitate the closing of the purchase of the Shares under paragraph 1, (a) the Sellers (i) agree to deposit with the Sellers’ counsel pending closing of   2 -------------------------------------------------------------------------------- the Company Merger and the sale of the Shares hereunder, not less than five business days prior to the scheduled closing date as advised by the Company, the stock certificates evidencing all Shares then outstanding and (ii) agree that certificates, if any, evidencing any additional Dividend Shares that may be issued during the term of this Agreement shall also be directly deposited with the Sellers’ counsel pending such closing (it being understood that prior to the date hereof, no such certificates have been issued), and (b) each THL Seller (i) agrees that Thomas H. Lee Equity Fund IV, L.P. shall act, and is hereby appointed, as the agent, proxy and attorney-in-fact for such THL Seller (the “THL Agent”) for purposes of any actions to be taken (including any documents delivered) by or on behalf of such THL Seller in connection with the transactions contemplated by this Agreement or any amendment to, waiver of or extension of this Agreement and (ii) agrees that all amounts payable to the THL Sellers hereunder shall be aggregated and satisfied by a single payment of such aggregate amount to be made to an account to be designated by the THL Agent to the Company before the closing of the Company Merger and the sale of the Shares hereunder. The parties agree that in the event any certificates evidencing the Shares of a Seller shall have been lost, stolen or destroyed, such Seller’s obligations under clause (a) of the foregoing sentence shall be satisfied upon the making by such Seller of an affidavit of that fact; provided, however, that the Company may, in its discretion, require such Seller to deliver an agreement of indemnification in a form reasonably satisfactory to the Company against any claim that may be made against the Company in respect of the certificates alleged to have been lost, stolen or destroyed. The parties agree that, if this Agreement is terminated without a purchase of the Shares having occurred, any certificates for the Shares previously deposited with the Sellers’ counsel shall be returned promptly (and in any event within two business days) to the Bain Seller and THL Agent, respectively. 4. Cooperation by Sellers. Unless and until this Agreement shall be terminated, the Sellers agree that, solely in their capacity as stockholders of the Company and not in their capacity as directors (as applicable), (a) the Sellers shall be deemed to have timely provided and not revoked as of the date of this Agreement or as of the consummation of the sale of the Shares hereunder, as required or necessary, any and all approvals, consents or waivers of, to or under, any terms of the Preferred Stock Agreements (and only such agreements), including but not limited to, in respect of Sections 6(e) and 10 of the Designation and Section 3.2(f) of the Corporate Governance Agreement, solely as are required or necessary for the Company to consummate the Company Merger, the other transactions contemplated in the Merger Agreement and the purchase of the Shares under paragraph 1 (in each case including any related financing) and to enter into this Agreement, the Merger Agreement and agreements specifically contemplated by the Merger Agreement without causing a breach of or default under any Preferred Stock Agreement; provided, that such approval, consent and waiver is contingent upon the consummation of the transactions contemplated by this Agreement, (b) provided that, at the time of such stockholders’ meeting, no condition specified in paragraph 2 could not reasonably be expected to be satisfied in full on or prior to the Outside Date (as defined in the Merger Agreement), at any stockholders’ meeting of the Company at which any approval or consent of matters in connection with the Company Merger shall be sought, the Sellers shall cause the Shares and any other voting securities of the Company, whether issued before or after the date of this Agreement, that the Sellers purchase or with respect to which the Sellers otherwise acquire record or beneficial ownership after the date of this Agreement (such Shares and such other voting securities of the Company, the “Voting Shares”) to be counted as present thereat for the   3 -------------------------------------------------------------------------------- purpose of establishing a quorum and voted in person or by proxy in favor of each of the Merger Agreement, the Company Charter Amendment and the New Equity Plan (as each of the foregoing terms is defined in the Merger Agreement) and any other transactions specifically contemplated by the Merger Agreement, (c) the Sellers shall not request any “demand registrations” under the Registration Rights Agreement, dated as of April 11, 2000, by and among the Company and the “Investors” identified therein, (d) the Sellers shall not take or permit their representatives to take actions inconsistent with their obligations under this Agreement and (e) the Sellers agree that each of Arunas A. Chesonis and Keith M. Wilson, in his capacity as an officer of PAETEC, shall act, and is hereby appointed, as the agent, proxy and attorney-in-fact for each such Seller, with full power of substitution and resubstitution, solely to cause the Voting Shares to be counted as present and to vote the Voting Shares prior to the termination of this Agreement in accordance with paragraph 4(b). With respect to the proxy and power of attorney granted by the THL Sellers under paragraph 3(b) and the proxy and power of attorney granted by the Sellers under paragraph 4(e), (w) such Sellers shall take such further action or execute such other instruments as may be reasonably necessary to effectuate the intent of such proxy, (x) such proxy and power of attorney shall be irrevocable during the term of this Agreement, shall be deemed to be coupled with an interest sufficient in law to support an irrevocable proxy and shall revoke any and all prior proxies granted by such Sellers inconsistent with such proxy, (y) such power of attorney is a durable power of attorney and shall survive the dissolution or bankruptcy of such Seller, and (z) such proxy and power of attorney shall terminate upon the termination of this Agreement. Notwithstanding anything herein to the contrary, without the prior written consent of each Seller or the THL Agent, as applicable, neither PAETEC nor the Company shall waive the condition set forth in Section 6.1(h) of the Merger Agreement requiring the repurchase of the Shares contemplated by this Agreement. 5. Termination of Existing Agreements. Effective upon the closing of the purchase of the Shares hereunder, all agreements among the Company and the Sellers or among the Company, the Sellers and the Former Class B Stockholders, in each case entered into as of April 11, 2000, and in each case, as amended and in effect as of the date hereof (collectively, the “Preferred Stock Agreements”), shall terminate and become null and void. 6. Conduct of Sellers Pending Closing. Unless and until this Agreement shall be terminated and except for the sale of the Shares hereunder, consents and approvals required by paragraph 4, the voting agreement and proxy appointment under paragraph 4 and all other agreements and obligations of the Sellers hereunder, unless authorized in advance by the Company’s Board of Directors, by the affirmative vote of at least a majority of its members not affiliated with the Sellers, and by PAETEC’s Board of Directors, the Sellers, solely in their capacity as stockholders of the Company and not in their capacity as directors (as applicable), agree (a) not to sell or otherwise transfer any of their Voting Shares or any economic, voting or other direct or indirect interest therein, (b) not to exercise any conversion or redemption rights they have pursuant to the terms of the Designation, (c) not to grant a proxy or enter into any voting agreement concerning any of the Voting Shares, and (d) at any meeting of the stockholders of the Company, to vote (or cause to be voted) the Voting Shares against (x) any merger agreement or merger, consolidation, combination, sale of substantial assets, reorganization or recapitalization of or by the Company or any of its subsidiaries (except in connection with the Mergers), or (y) any amendment of the Company’s certificate of   4 -------------------------------------------------------------------------------- incorporation or bylaws or other proposal or transaction involving the Company or any of its subsidiaries (except in connection with the Mergers), for the purpose of impeding, frustrating, preventing or nullifying the Merger Agreement, the Mergers or any of the other transactions contemplated by the Merger Agreement. Each Seller agrees that on the Closing Date such Seller (as applicable) shall cause its designees to the Company’s Board of Directors to resign. 7. Nature of Obligations. The obligations of each of the Sellers hereunder shall be several and not joint with any other party and be limited to the Voting Shares owned (beneficially or of record) by such Seller. 8. Representations and Warranties. Each of the Sellers hereby represents and warrants to the Company that: (a) such Seller has the power and authority to enter into and deliver this Agreement and perform its obligations under this Agreement and, with respect to Sellers that are not natural persons, such Seller’s execution and delivery of this Agreement and performance of its obligations hereunder have been duly and validly authorized by any necessary corporate or similar proceedings on the part of such Seller, (b) this Agreement is binding on such Seller and enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights generally or by general equitable principles relating to enforceability, (c) the execution and delivery of this Agreement and the performance by such Seller of its obligations hereunder do not require the authorization, consent, approval, license, exemption or other action by, or filing with, any third party or governmental authority, do not violate applicable law or conflict with or result in a breach of any of such Seller’s organizational documents (as applicable) or contractual obligations, (d) such Seller owns the Shares that are identified as to such Seller on Exhibit A to this Agreement and that such Shares are free and clear of any liens, claims or encumbrances of any kind apart from such Seller’s obligations under this Agreement and the Preferred Stock Agreements, and (e) other than the shares that are identified as to such Seller on Exhibit A to this Agreement, such Seller does not own (beneficially or of record) any voting securities of the Company. The Company hereby represents and warrants to the Sellers that (x) the Company has the power and authority to enter into this Agreement and perform its obligations under this Agreement and the Company’s execution and delivery of this Agreement and performance of its obligations hereunder have been duly and validly authorized by all necessary corporate proceedings on the part of the Company, except for the determination by the Board of Directors of the Company that the Company shall have sufficient lawfully available funds to purchase the Shares in accordance with this Agreement in compliance with the Delaware General Corporation Law, (y) this Agreement is binding and enforceable in accordance with its terms on the Company, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights generally or by general equitable principles relating to enforceability, and (z) the execution and delivery of this Agreement and the performance by the Company of its obligations hereunder do not require the authorization, consent, approval, license, exemption or other action by, or filing with, any third party or governmental authority, do not violate applicable law or conflict with or result in a breach of any of the Company’s organizational documents or contractual obligations.   5 -------------------------------------------------------------------------------- 9. Termination of Agreement. This Agreement shall remain in full force and effect until, and the provisions of paragraphs 1 through 6 (inclusive) and paragraph 8 shall terminate (with respect to each party to each such provision) upon, the earliest to occur of any of the following: (i) the Merger Agreement is amended or modified or provisions waived, without the prior written consent of the Sellers or their attorney-in-fact, in a manner that is materially adverse to the Sellers, it being understood that (x) any waiver or failure of the condition to consummate the purchase of the Shares, or any amendment or modification that materially impedes, materially frustrates, prevents or nullifies the purchase of the Shares, shall be a non-exclusive example of an event that is materially adverse to the Seller and (y) any change in the nature or amount of the consideration payable in the Mergers shall be deemed not to be materially adverse to the Sellers, (ii) the Merger Agreement, as it may be amended or modified from time to time, is terminated in accordance with its terms, (iii) the consummation of the Mergers and the sale and purchase of the Shares hereunder, (iv) the written agreement to terminate such provisions executed by each of the Company, the Sellers, and PAETEC in respect of the applicable PAETEC Provisions (as defined in paragraph 21) and (v) the Outside Date (as defined in the Merger Agreement in effect on the date hereof). 10. Notice. All notices, requests, claims, demands and other communications (“Notices”) under this Agreement shall be in writing and sent by certified or registered mail, return receipt requested, a recognized overnight courier service, telecopier or personal delivery, as follows: (a) if to the Company or to any Former Class B Stockholder, to: (a) US LEC Corp., Morrocroft III, 6801 Morrison Boulevard, Charlotte, North Carolina 28211, Attention: Chief Financial Officer, Telecopier: (704) 319-1200, with a required copy to: Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York 10036, Attention: Nancy Lieberman, Telecopier: (917) 777-2050, (b) if to the Bain Seller, in care of: Bain Capital, Inc., Two Copley Place, Boston, Massachusetts 02116, Attention: Michael A. Krupka, Telecopier: (617) 572-3274, with a required copy to: Ropes & Gray LLP, One International Place, Boston, Massachusetts 02110-2624, Attention: Julie H. Jones and Philip J. Smith, Telecopier: (617) 951-7050, (c) if to the THL Sellers, in care of: Thomas H. Lee Partners, L.P. 100 Federal Street, 35th Floor, Boston, Massachusetts 02110, Attention: Anthony J. DiNovi, Telecopier: (617) 227-3514, with a required copy to: Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624, Attention: Julie H. Jones and Philip J. Smith, Telecopier: (617) 951-7050, and (d) if to PAETEC, to: PAETEC Corp., One PAETEC Plaza, 600 Willowbrook Office Park, Fairport, New York 14450, Attention: Chief Financial Officer, Telecopier: (585) 340-2563, with a required copy to: Hogan & Hartson L.L.P., 8300 Greensboro Drive, Suite 1100, McLean, Virginia 22102, Attention: Richard Parrino, Telecopier: (703) 610-6200. All Notices shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; five business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if telecopied. A party may change its address for purposes of this Agreement by Notice in accordance with this paragraph 10. 11. Entire Agreement. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter.   6 -------------------------------------------------------------------------------- 12. No Other Rights. Nothing in this Agreement shall be considered to give any person other than the parties any legal or equitable right, claim or remedy under or in respect of this Agreement or any provision of this Agreement. This Agreement and all of its provisions are for the sole and exclusive benefit of the parties and their respective successors and permitted assigns. 13. Equitable Relief. Each of the parties acknowledges that a breach by it of any provision contained in this Agreement will cause the other parties to sustain damage for which they would not have an adequate remedy at law for money damages, and therefore each of the parties agrees that in the event of any such breach, the aggrieved party shall be entitled to the remedy of specific performance of such agreement and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. 14. Severability. If any provision of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement which is held invalid or unenforceable only in part shall remain in full force and effect to the extent not held invalid or unenforceable. 15. Headings. All references in this Agreement to “paragraph” or “paragraphs” refer to the corresponding numbered paragraph or paragraphs of this Agreement. All words used in this Agreement shall be construed to be of the appropriate gender or number as the context requires. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be considered an original copy of this Agreement and all of which, when taken together, shall be considered to constitute one and the same agreement. 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to that state’s conflicts of laws principles. 18. Amendments; Waivers. Any amendment or modification of or to: (a) any General Provision (as defined in paragraph 21), and any consent to any departure of any party to this Agreement from the terms of any provision of the General Provisions, shall be effective only if it is made or given in writing and signed by each party to this Agreement or its attorney-in-fact; (b) any PAETEC-Specific Provision (as defined in paragraph 21), and any consent to any departure of any party to any PAETEC-Specific Provision from the terms of any PAETEC-Specific Provision, shall be effective only if it is made or given in writing and signed by each party to such PAETEC-Specific Provision or its attorney-in-fact; (c) any Class B-Specific Provision (as defined in paragraph 21), and any consent to any departure of any party to any Class B-Specific Provision from the terms of any Class B-Specific Provision, shall be effective only if it is made or given in writing and signed by each party to such Class B-Specific Provision or its attorney-in-fact; and (d) any Other Provision (as defined in paragraph 21), and any consent to any departure of any party to any Other Provision from the terms of any Other Provision, shall be effective only if it is made or given in writing and signed by each party to such Other Provision   7 -------------------------------------------------------------------------------- or its attorney-in-fact. Notwithstanding the foregoing provisions of this paragraph 18, any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by any party entitled to the benefits thereof only by a written instrument signed by such party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. The failure of any party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. 19. Successors and Assigns. This Agreement shall apply to, be binding in all respects upon and inure to the benefit of the parties and their respective successors and permitted assigns. No party may assign any of its rights under this Agreement without the prior written consent of each of the Company, the Sellers and PAETEC. 20. Expenses. The Company agrees to pay the Sellers their reasonable out-of-pocket fees and expenses incurred in connection with the transactions contemplated by this Agreement, including those of Ropes & Gray LLP in an amount no greater than $100,000, payable within 10 days after presentation to the Company of reasonable documentation for such fees, expenses and costs. 21. Certain Provisions. Notwithstanding any provision of this Agreement to the contrary: (a) PAETEC shall be a party to this Agreement solely in respect of, and solely for the purposes of, the terms and conditions of this Agreement set forth in the General Provisions and paragraphs 4, 6, 7 and 9 (such terms and conditions, the “PAETEC-Specific Provisions” and, together with the General Provisions, the “PAETEC Provisions”), and PAETEC shall not be a party to this Agreement in respect of, or for purposes of, any of the terms and conditions of this Agreement that are not PAETEC Provisions; and (b) each Former Class B Stockholder shall be a party to this Agreement solely in respect of, and solely for the purposes of, the terms and conditions of this Agreement set forth in the General Provisions and paragraph 5 (such terms and conditions, the “Class B-Specific Provisions” and, together with the General Provisions, the “Class B Provisions”), and no Former Class B Stockholder shall be a party to this Agreement in respect of, or for purposes of, any of the terms and conditions of this Agreement that are not Class B Provisions, except that each Former Class B Stockholder’s rights and obligations under paragraph 5 may be terminated in accordance with paragraph 9. For the avoidance of doubt, the Company and the Sellers are parties to all provisions of this Agreement. For purposes of this Agreement: (x) “General Provisions” means the terms and conditions of this Agreement set forth in paragraphs 10 through 19 (inclusive) and this paragraph 21; and (y) “Other Provisions” means the terms and conditions of this Agreement, except for those set forth in the General Provisions, the PAETEC-Specific Provisions and the Class B-Specific Provisions.   8 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written.   US LEC CORP. By:   /s/ Richard T. Aab Name:   Richard T. Aab Title:   Chairman of the Board PAETEC CORP. (as a party to this Agreement solely to the extent provided in paragraph 21) By:   /s/ Arunas A. Chesonis Name:   Arunas A. Chesonis Title:   President, Chief Executive Officer and Chairman -------------------------------------------------------------------------------- THE “BAIN SELLER”: BAIN CAPITAL CLEC INVESTORS, L.L.C. By:   Bain Capital Fund VI, L.P.,   its Administrative Member By:   Bain Capital Partners VI, L.P.,   its General Partner By:   Bain Capital Investors VI, Inc.,   its general partner By:   /s/ Michael A. Krupka Name:   Michael A. Krupka Title:   Managing Director THE “THL SELLERS”: THOMAS H. LEE EQUITY FUND IV, L.P. By:   THL Equity Advisors IV, LLC,   its general partner By:   /s/ Anthony J. DiNovi Name:   Anthony J. DiNovi Title:   Managing Director THOMAS H. LEE FOREIGN FUND IV-B, L.P. By:   THL Equity Advisors IV, LLC,   its general partner By:   /s/ Anthony J. DiNovi Name:   Anthony J. DiNovi Title:   Managing Director THOMAS H. LEE FOREIGN FUND IV, L.P. By:   THL Equity Advisors IV, LLC,   its general partner By:   /s/ Scott M. Sperling Name:   Scott M. Sperling Title:   Managing Director -------------------------------------------------------------------------------- PUTNAM INVESTMENT HOLDINGS LLC By:   Putnam Investments, LLC, Its:   Managing Member By:   /s/ Woody Bradford Name:   Woody Bradford Title:   Managing Director 1997 THOMAS H. LEE NOMINEE TRUST By:   /s/ Paul D. Allen Name:   Paul D. Allen Title:   Vice President THOMAS H. LEE CHARITABLE INVESTMENT L.P. By:   /s/ Thomas H. Lee Name:   Thomas H. Lee Title:   President /s/ David V. Harkins DAVID V. HARKINS THE HARKINS 1995 GIFT TRUST By:   /s/ Sheryll J. Harkins Name:   Sheryll J. Harkins   Trustee /s/ Scott A. Schoen SCOTT A. SCHOEN /s/ C. Hunter Boll C. HUNTER BOLL /s/ Scott M. Sperling SCOTT M. SPERLING /s/ Anthony J. Dinovi ANTHONY J. DINOVI -------------------------------------------------------------------------------- /s/ Thomas M. Hagerty THOMAS M. HAGERTY /s/ Warren C. Smith, Jr. WARREN C. SMITH, JR. /s/ Seth W. Lawry SETH W. LAWRY /s/ Kent R. Weldon KENT R. WELDON /s/ Terrence M. Mullen TERRENCE M. MULLEN /s/ Todd M. Abbrecht TODD M. ABBRECHT /s/ Charles A. Brizius CHARLES A. BRIZIUS /s/ Scott Jaeckel SCOTT JAECKEL /s/ Soren Oberg SOREN OBERG /s/ Thomas R. Shepherd THOMAS R. SHEPHERD /s/ Wendy L. Masler WENDY L. MASLER /s/ Andrew D. Flaster ANDREW D. FLASTER ROBERT SCHIFF LEE 1988 IRREVOCABLE TRUST By:   /s/ Charles W. Robins Name:   Charles W. Robins Title:   Trustee   /s/ Stephen Zachary Lee   STEPHEN ZACHARY LEE -------------------------------------------------------------------------------- /s/ Charles W. Robins CHARLES W. ROBINS AS CUSTODIAN FOR JESSE LEE /s/ Charles W. Robins CHARLES W. ROBINS AS CUSTODIAN FOR NATHAN LEE /s/ Charles W. Robins CHARLES W. ROBINS /s/ James Westra JAMES WESTRA THL-CCI INVESTORS LIMITED PARTNERSHIP By:   THL Investment Management Corp.,   its general partner By:   /s/ Thomas H. Lee Name:   Thomas H. Lee Title:   /s/ Adam A. Abramson ADAM A. ABRAMSON /s/ Joanne M. Ramos JOANNE M. RAMOS /s/ P. Holden Spaht P. HOLDEN SPAHT /s/ Nancy M. Graham NANCY M. GRAHAM /s/ Gregory A. Ciongoli GREGORY A. CIONGOLI /s/ WM. Matthew Kelly WM. MATTHEW KELLY /s/ Kevin F. Sullivan KEVIN F. SULLIVAN /s/ Diane M. Barriere DIANE M. BARRIERE /s/ Kim H. Oakley KIM H. OAKLEY -------------------------------------------------------------------------------- /s/ Richard T. Aab Richard T. Aab (as a party to this Agreement solely to the extent provided in paragraph 21) MELRICH ASSOCIATES, L.P. (as a party to this Agreement solely to the extent provided in paragraph 21) By:   /s/ Richard T. Aab Name:   Richard T. Aab Title:   General Partner /s/ Tansukh V. Ganatra Tansukh V. Ganatra (as a party to this Agreement solely to the extent provided in paragraph 21) -------------------------------------------------------------------------------- Exhibit A   Sellers    Number of Original Shares    Number of Dividend Shares    Sum of Original Shares and Dividend Shares Bain Capital CLEC Investors, L.L.C.    100,000    45,094.5355    145,094.5355 Thomas H. Lee Equity Fund IV, L.P.    83,533    37,668.8181    121,201.8181 Thomas H. Lee Foreign Fund IV-B, L.P.    8,113    3,658.5197    11,771.5197 Thomas H. Lee Foreign Fund IV, L.P.    2,859    1,289.2528    4,148.2528 Putnam Investment Holdings, LLC    1,374    619.5991    1,993.5991 1997 Thomas H. Lee Nominee Trust    1,104    497.8436    1,601.8436 Thomas H. Lee Charitable Investment Limited Partnership    543    244.8633    787.8633 David V. Harkins    294    132.5779    426.5779 Scott A. Schoen    245    110.4817    355.4817 C. Hunter Boll    245    110.4817    355.4817 Scott M. Sperling    245    110.4817    355.4817 Anthony J. DiNovi    245    110.4817    355.4817 Thomas M. Hagerty    245    110.4817    355.4817 Warren C. Smith, Jr.    245    110.4817    355.4817 Seth W. Lawry    102    45.9964    147.9964 Kent R. Weldon    68    30.6642    98.6642 Terrence M. Mullen    54    24.3509    78.3509 Todd M. Abbrecht    54    24.3509    78.3509 Robert Schiff Lee 1988 Irrevocable Trust    50    22.5473    72.5473 Stephen Zachary Lee    50    22.5473    72.5473 Charles A. Brizius    41    18.4884    59.4884 The Harkins 1995 Gift Trust    33    14.8813    47.8813 Thomas R. Shepherd    29    13.0772    42.0772 Charles W. Robins as Custodian for the Jesse Lee 2000 Trust    25    11.2736    36.2736 Charles W. Robins as Custodian for the Nathan Lee 2000 Trust.    25    11.2736    36.2736 Charles W. Robins    20    9.0191    29.0191 James Westra    20    9.0191    29.0191 Wendy L. Masler    20    9.0191    29.0191 Andrew D. Flaster    17    7.6660    24.6660 Scott L. Jaeckel    15    6.7641    21.7641 Soren L. Oberg    15    6.7641    21.7641 Adam A. Abramson    12    5.4111    17.4111 Joanne M. Ramos    12    5.4111    17.4111 P. Holden Spaht    7    3.1564    10.1564 Nancy M. Graham    12    5.4111    17.4111 Gregory A. Ciongoli    12    5.4111    17.4111 Wm. Matthew Kelly    12    5.4111    17.4111 Kevin F. Sullivan    2    0.9017    2.9017 Diane M. Barriere    2    0.9017    2.9017 Kim H. Oakley    1    0.4509    1.4509                Total    200,000.00    90,189.0690    290,189.0690               

Exhibit 10.28   NONQUALIFIED STOCK OPTION TO PURCHASE SHARES OF COMMON STOCK UNDER THE HARVARD BIOSCIENCE, INC. 2000 STOCK OPTION AND INCENTIVE PLAN        Shares         (Option Issuance Date)         Pursuant to the Harvard Bioscience, Inc. 2000 Stock Option and Incentive Plan (the “Plan”), Harvard Bioscience, Inc., a Delaware corporation (including its successors, the “Company”), hereby grants to                              (the “Optionee”) an option to purchase (the “Option”) prior to the tenth (10th) anniversary of the date hereof (the “Expiration Date”), at an exercise price per share of $          all or any of            shares of Common Stock, $.01 par value, of the Company (the “Shares”), subject to the terms and conditions set forth herein and in the Plan (the “Agreement”).   This Option is intended to be a Nonqualified Stock Option granted under the Plan.   1.             Vesting Schedule.  No portion of this Option may be exercised until such portion shall have vested.  Except as set forth below and subject to the terms and conditions set forth below, this Option shall be vested and exercisable with respect to the following number of Shares on the dates indicated:     Cumulative   Number of   Shares Exercisable   Vesting Date         (25%)           (50%)           (75%)           (100%)       Once vested, this Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.   2.             Manner of Exercise.  The Optionee may exercise the Option only in the following manner: From time to time prior to the Expiration Date, the Optionee may give written notice to the Company of any election to purchase some or all of the vested Shares purchasable at the time of such notice.  Said notice shall specify the number of vested Shares to be purchased and shall be accompanied by payment therefor in cash, certified check, bank check or wire transfer, in U.S. funds, payable to the order of the Company in an amount equal to the purchase       --------------------------------------------------------------------------------   price of such Shares, or with the consent of the Board of Directors of the Company or a designated committee thereof (collectively, the “Board”) (i) by delivery to the Company of shares of its Common Stock (including shares of Common Stock to be acquired upon exercise of this Option in a “net exercise” of this Option) having a fair market value equal to the purchase price of such Shares, (ii) by delivery to the Company of a promissory note, in form and substance acceptable to the Board, in principal amount equal to the purchase price of such Shares, or (iii) any combination of the above.   The delivery of certificates representing the Shares will be contingent upon the Company’s receipt from the Optionee of full payment for the Shares, as set forth above and any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with the applicable laws and regulations.   Certificates for the shares of Stock purchased upon exercise of this Option shall be issued and delivered to the Optionee upon compliance, to the satisfaction of the Administrator, with all requirements under the applicable laws or regulations in connection with such issuance and with the requirements hereof and of the Plan.  The determination of the Administrator as to such compliance shall be final and binding on the Optionee.  The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Option unless and until this Option shall have been exercised pursuant to the terms hereof, the Company shall have issued and delivered the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company.  Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.   The minimum number of shares with respect to which this Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Option is being exercised is the total number of shares subject to exercise under this Option at the time.   3.             Termination of Employment or Death of Optionee.  The Option, as to any Shares not theretofore purchased, shall terminate on the earlier of the Expiration Date or 30 days after the Optionee is no longer employed by the Company or a Subsidiary (as defined in the Plan); provided, however, that if such termination of employment results from (i) the Optionee’s death or disability, the Option may be exercised as to vested Shares as of the date of such termination of employment within three (3) months thereafter (but in no event later than the Expiration Date) by the Optionee’s executors, administrators, personal representatives, or any person or persons to whom the Option may be transferred by will or by the laws of descent and distribution, but only to the extent that the Optionee was entitled to exercise the Option at the time of such termination of Optionee’s employment or (ii) the Optionee’s termination for Cause (as defined below), the Option (as to all vested and unvested Shares) shall immediately terminate and be of no further force or effect.  Following the termination of the Optionee’s employment and prior to the termination of the Option, unless otherwise determined by the Administrator, the Option may only be exercised as to vested Shares as of the date of the termination of the Optionee’s employment.  The Option does not confer upon the Optionee any right with respect to continuation of employment by the Company, nor shall it interfere with any right of the   2 --------------------------------------------------------------------------------     Company to terminate such employment at any time or any employee’s “employee-at-will” status.   “Cause” as such term relates to the termination of any person means the occurrence of one or more of the following:  (i) such person is convicted of, pleads guilty to, or confesses to any felony or any act of fraud, misappropriation or embezzlement, (ii) such person engages in a fraudulent act to the material damage or prejudice of the Company or any Subsidiary or in conduct or activities materially damaging to the property, business or reputation of the Company or any Subsidiary, (iii) any material act or omission by such person involving malfeasance or negligence in the performance of such person’s duties to the Company or any Subsidiary to the material detriment of the Company or any Subsidiary, which has not been corrected by such person within 30 days after written notice from the Company of any such act or omission, (iv) failure by such person to comply in any material respect with the terms of his employment agreement, if any, or any written policies or directives of the Board, which has not been corrected by such person within 30 days after written notice from the Company of such failure, or (v) material breach by such person of his noncompetition agreement with the Company, if any.   4.             Shares.  The Shares that are the subject of the Option are shares of the Common Stock, $.01 par value, of the Company as constituted on the date of the Option, subject to adjustment as provided in Section 3 of the Plan.   5.             Effect of Certain Transactions.  If (i) the Company is merged into or consolidated with another corporation and the Company is not the surviving corporation, (ii) one or more corporations are merged into the Company which continues as the surviving corporation and the stockholders of the Company immediately prior to the transaction own less than a majority of its outstanding Common Stock immediately after the transaction, or shares of Common Stock of the Company are converted into cash, securities or property other than shares of Common Stock of the Company, or (iii) the Company is liquidated, dissolved, or sells or otherwise disposes of all or substantially all of its assets to another entity while any portion of the Option remains unexercised and unexpired, then in any of such transactions the Board may, in its sole discretion, take one or more of the following actions:   (a)           The Compensation Committee of the Board (the “Committee”) may cancel the Option as of the effective date of any such transaction, provided that notice of such cancellation shall be given to the Optionee at least 15 days prior to the effective date of such transaction, and the Optionee shall have the right to exercise so much of the Option as is exercisable during said 15-day period, including Options which become exercisable due to acceleration of vesting, if any, by the Board;   (b)           The Committee may (i) cancel the Option as to unvested Shares as of the effective date of the transaction and (ii) provide for the repurchase of unexercised Options as to vested Shares as of the effective date of such transaction by the Company on the effective date of such transaction for the same cash, securities or other property received with respect to each outstanding Share in the transaction by the stockholders of the Company, less the exercise price of the Option;   3 --------------------------------------------------------------------------------   (c)           The Committee may provide for the voluntary exchange of the Option on the effective date of such transaction for an option or other rights granted by a successor corporation on terms reasonably acceptable to the Optionee; or   (d)           The Committee may provide that after the effective date of such transaction, the Optionee shall be entitled upon exercise of the Option as to any vested Shares to receive in lieu of each Share purchasable under the Option the same cash, securities or other property received with respect each outstanding Share in the transaction by the stockholders of the Company.   Upon the consummation of a Sale Event (as defined in the Plan) or occurrence of a Change of Control (as defined in the Plan), in either case, following the grant date of the Option, the Option shall become fully vested and exercisable with respect to all of the Shares as of the effective time of the Sale Event or the occurrence of the Change of Control, respectively.   6.             Transferability.   This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Option is exercisable, during the Optionees’s lifetime, only by the Optioneee, and thereafter, only by the Optionee’s legal representative or legatee.   7.             Miscellaneous.  Notices hereunder shall be mailed or delivered to the Company’s  principal place of business, 84 October Hill Rd., Holliston, MA 01746 and shall be mailed or delivered to the Optionee at the address set forth below, or in either case at such other address as one party may subsequently furnish to the other party in writing.   Harvard Bioscience, Inc.         By:   Name: Bryce Chicoyne Title: Chief Financial Officer       The foregoing Option is hereby acceptable and its terms and conditions are hereby agreed to.         Dated:               Address         Social Security Number       4 --------------------------------------------------------------------------------

Exhibit 10.01   AMENDMENT AND FEE WAIVER AGREEMENT   This Amendment and Fee Waiver Agreement dated as of January 13, 2006 (the “Amendment and Fee Waiver Agreement”) is entered into by and between Windswept Environmental Group, Inc., a Delaware corporation (the “Borrower”), and Laurus Master Fund, Ltd., a Cayman Islands company (“Laurus”), and is effective as of January 13, 2006. Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Securities Purchase Agreement (as defined below) and the Note (as defined below).   WHEREAS, the Borrower filed a registration statement on October 3, 2005 (as amended, modified or supplemented, the “Registration Statement”), in order to register certain shares of the Borrower’s Common Stock (as amended, modified or supplemented, the “Common Stock”) underlying (a) an Amended and Restated Secured Convertible Term Note the Borrower issued to Laurus on October 6, 2005 in the aggregate original principal amount of $7,350,000 (as amended, modified or supplemented, the “Note”) pursuant to the terms of the Securities Purchase Agreement, dated as of June 30, 2005 between the Borrower and Laurus (as amended, modified or supplemented, the “Securities Purchase Agreement” and together with the Related Agreements as defined therein, the “Loan Documents”); (b) a warrant issued by the Borrower to Laurus on June 30, 2005 to purchase 13,750,000 shares of the Common Stock (as amended, modified or supplemented, the “Warrant”); and (c) an option issued by the Borrower to Laurus on June 30, 2005 to purchase 30,395,179 shares of Common Stock (as amended, modified or supplemented, the “Option”);   WHEREAS, the Borrower and Laurus entered into an Amendment and Fee Waiver Agreement dated as of November 23, 2005 (the “November 23rd Amendment”);   WHEREAS, pursuant to Section 3.7 of the Note and Section 1 of the November 23rd Amendment, the Borrower is obligated to reserve from its authorized and unissued shares of Common Stock a sufficient number of shares to provide for the issuance of shares upon the full conversion and/or exercise of the Warrant, the Option and the Note after the earlier to occur of (x) January 31, 2006 and (y) the date of the Borrower’s next shareholder's meeting (the “Additional Authorization Date”);   WHEREAS, pursuant to Section 6 of the Option and Section 1 of the November 23rd Amendment, the Borrower is obligated to reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of shares upon the full exercise of the Option, after the Additional Authorization Date;   WHEREAS, pursuant to Section 6 of the Warrant and Section 1 of the November 23rd Amendment, the Borrower is obligated to reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of shares upon the full conversion of the Warrant, after the Additional Authorization Date;               --------------------------------------------------------------------------------     WHEREAS, the Borrower entered into a securities purchase agreement with Laurus on June 30, 2005 (the “Securities Purchase Agreement”) to set forth, among other things, the terms of the issuance of the Note, the Option and the Warrant;   WHEREAS, pursuant to Section 4.3(d) of the Securities Purchase Agreement and Section 1 of the November 23rd Amendment, the Borrower is obligated to reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of shares upon the full conversion and/or exercise of the Note, the Warrant and the Option, after the Additional Authorization Date;   WHEREAS, Laurus has agreed to extend the Additional Authorization Date to the earlier of (x) March 1, 2006 and (y) the date of the Borrower’s next shareholders’ meeting;   WHEREAS, the Borrower entered into a registration rights agreement with Laurus on June 30, 2005 (the “Registration Rights Agreement”) in order to set forth Borrower’s obligations to register the shares of Common Stock underlying the Note, the Option and the Warrant with the Securities and Exchange Commission;   WHEREAS, Laurus has agreed to extend the deadline for the Borrower to have its Registration Statement declared effective under the Registration Rights Agreement until March 1, 2006;   WHEREAS, pursuant to Section 2(b) of the Registration Rights Agreement and Section 2 of the November 23rd Amendment, the Borrower is required to pay a daily amount in cash equal to one-thirtieth (1/30th) of the product of the then outstanding principal amount of the Note multiplied by the following (the “Fees”) if the Registration Statement has not been declared effective by the Securities and Exchange Commission (prior to giving effect to this Amendment and Fee Waiver Agreement):     • 1.5% for the first 30 day period beginning on February 10, 2006;   • 2.0% thereafter; and   WHEREAS, Laurus has hereby agreed to postpone the date by which any Fees may accrue and become payable until March 2, 2006.   NOW, THEREFORE, in consideration of the mutual promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:   1.            Extension of Time for Reservation of Authorized and Unissued Common Stock. Laurus hereby agrees that the date by which the Borrower must reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of conversion of shares upon full conversion of the Note, the Warrant and the Option will be the earlier to occur of (x) March 1, 2006 and (y) the date of the Borrower’s next shareholders’ meeting. This modification shall apply to the following:       2       --------------------------------------------------------------------------------       • the Note;   • the Option;   • the Warrant; and   • the Securities Purchase Agreement.   2.            Extension of Deadline by which the Borrower must have the Securities and Exchange Commission Declare Effective its Registration Statement. Laurus hereby agrees to postpone the deadline by which the Borrower must have the Securities and Exchange Commission declare effective its Registration Statement from February 10, 2006 until March 1, 2006. This modification shall apply to the Registration Rights Agreement only.   3.            Postponement. Laurus hereby agrees to postpone the date by which any Fees may accrue and become payable until March 2, 2006.   4.            Laurus Representations. Laurus hereby represents and warrants to the Borrower that Laurus is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933 and a “qualified institutional buyer” as defined in Rule 144A under the Securities Act of 1933 and has knowledge and experience in financial and business matters such that it is capable of evaluating the merits and risks of the investment to be made hereunder.   5.            Borrower Representations. The Borrower hereby represents and warrants to Laurus that (i) no Event of Default exists on the date hereof, after giving effect to this Amendment and Fee Waiver Agreement, (ii) on the date hereof, all representations, warranties and covenants made by the Borrower in connection with the Loan Documents are true, correct and complete and (iii) on the date hereof, all of the Borrower’s and its Subsidiaries’ covenant requirements have been met.   6.            From and after the date hereof, all references in the Loan Documents and in the other Related Agreements to the Post-Closing Letter shall be deemed to be references to the Post-Closing Letter, as the case may be, as modified hereby.   7.            No Other Amendments. Except as expressly set forth in this Amendment and Fee Waiver Agreement no other term or provision of any Loan Document is hereby amended or affected in any way, and the Loan Documents shall remain in full force and effect after the date hereof.   8.            The Borrower understands that the Borrower has an affirmative obligation to make prompt public disclosure of material agreements and material amendments to such agreements.   9.            Governing Law.  This Amendment and Fee Waiver Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws.       3       --------------------------------------------------------------------------------     10.          Facsimile Signatures; Counterparts.  This Amendment and Fee Waiver Agreement may be executed by facsimile signatures and in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.       4       --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a sealed instrument as of the date set forth in the first paragraph hereof.     WINDSWEPT ENVIRONMENTAL GROUP, INC.           By: /s/ Andrew C. Lunetta       Andrew C. Lunetta     Vice President           LAURUS MASTER FUND, LTD.           By: /s/ David Grin     Name: David Grin   Title: Director                     5          

Exhibit 10.2.a   IATAN UNIT 2 AND COMMON FACILITIES OWNERSHIP AGREEMENT   KANSAS CITY POWER & LIGHT COMPANY,   AQUILA, INC.,   THE EMPIRE DISTRICT ELECTRIC COMPANY,   KANSAS ELECTRIC POWER COOPERATIVE, INC.   AND   MISSOURI JOINT MUNICIPAL ELECTRIC UTILITY COMMISSION   May 19, 2006     -------------------------------------------------------------------------------- TABLE OF CONTENTS     Page ARTICLE I Definitions 2 1.1 Accounting Manual 2 1.2 Actual Emissions 2 1.3 Actual Fuel Costs 2 1.4 Additional Unit 3 1.5 Adverse Action 3 1.6 Agreement 3 1.7 Agreements 3 1.8 Allowance Contribution 3 1.9 Allowances 3 1.10 Appraised Value 4 1.11 Aquila 4 1.12 Arrangements 4 1.13 Bankruptcy Code 4 1.14 Cash Flow Memorandum 4 1.15 Certificates of Public Convenience and Necessity 4 1.16 Closing or Closing Date 4 1.17 Code 4 1.18 Commercial Operation 4 1.19 Commercial Operation Date 4 1.20 Commercially Reasonable Efforts 4 1.21 Common Facilities 4 1.22 Common Facilities Ownership Share 4 1.23 Common Facilities Upgrades 5 1.24 Common Facilities Upgrades Completion Date 5 1.25 Construction Period Cash Flow Memorandum 5 1.26 Cost of Construction 5 1.27 Cost of Operation 5 1.28 Covered Owner 5 1.29 Defaulted Shares 5   i   -------------------------------------------------------------------------------- 1.30 Emissions Projection 5 1.31 Empire 5 1.32 EPA 5 1.33 Estimated In-Service Operation Date 5 1.34 Excess Allowances 5 1.35 Excess Share 6 1.36 Existing Common Facilities 6 1.37 Force Majeure 6 1.38 Fuel Commodity 6 1.39 Fuel Commodity Ownership Percentage 6 1.40 GAAP 6 1.41 Good Utility Practice 6 1.42 Iatan Station Site 6 1.43 Iatan Unit 1 Ownership Agreement 6 1.44 Iatan Unit 2 Facility 6 1.45 Indemnified Owner 7 1.46 Initial Iatan Station Site 7 1.47 Initial Net Accredited Capacity 7 1.48 In-Service Operation Date 7 1.49 Insolvency or Seizure 7 1.50 Interconnection Facilities 7 1.51 KCPL 7 1.52 KCPL Acquisition Election 7 1.53 KEPCO 7 1.54 KEPCO Attributable Ownership Rights 7 1.55 Lapse Date 7 1.56 Management Committee 8 1.57 Minimum Operable Capacity 8 1.58 MJMEUC 8 1.59 Moody’s 8 1.60 Net Generating Capacity 8 1.61 Net Generation Output 8 1.62 Nominal Gross Capacity 8   ii   -------------------------------------------------------------------------------- 1.63 Non-Financial Default 8 1.64 Notice to Arbitrate 8 1.65 Nower Property 8 1.66 Other Owner Acquisition Election 8 1.67 Operable Unit(s) 8 1.68 Operator 8 1.69 Operating Period Cash Flow Memorandum 8 1.70 Owners or Owner 8 1.71 Ownership Share 8 1.72 Prevailing Wage Act 8 1.73 Proposed Transferee 8 1.74 Reciprocal Conveyance Date 8 1.75 Remaining Owners 9 1.76 RTO 9 1.77 RUS 9 1.78 S&P 9 1.79 Secured Party 9 1.80 Site-Based Emissions 9 1.81 Site Representative 9 1.82 SPP 9 1.83 Total Gross Capacity 9 1.84 Transfer Share 9 1.85 Transferable Interests 9 1.86 Trigger Date 9 1.87 Uniform System of Accounts 9 1.88 Unit 1 Owners 9 1.89 Unit 1 Ownership Share 9 1.90 Unit 2 9 1.91 Unit 2 Debt Securities 9 1.92 Unit 2 Owners 9 1.93 Unit 2 Site 9 1.94 Voluntary Acquisition Election 10   iii   -------------------------------------------------------------------------------- ARTICLE II Iatan Unit 2 Facility; Common Facilities; Creation and Adjustment of Ownership Interests Therein; Additional Units; Representations, Warranties and Covenants 10 2.1 Ownership Shares in Iatan 2 10 2.2 Interests in Real Property and Common Facilities 11 2.3 Adjustment Upon Transfer 14 2.4 Additional Units 14 2.5 Common Facilities Additions and Retirements After the Reciprocal Conveyance Date 16 ARTICLE III Easements for Interconnection and Transmission Facilities 17 3.1 Interconnection and Transmission Facilities 17 3.2 Relocations and Modifications 17 3.3 Personal Property 17 3.4 Exclusive Right, Title and Interest 17 ARTICLE IV Construction and Testing 18 4.1 Responsibility for Construction 18 4.2 Responsibility for Interconnection Facilities 18 4.3 In-Service Operation Date 18 4.4 Construction Power 18 4.5 Site Representative 18 4.6 Reporting 19 4.7 Prevailing Wage 20 ARTICLE V Management and Operation of the Iatan Unit 2 Facility 20 5.1 Management Committee 20 5.2 Management Committee Action 21 5.3 Operator 21 5.4 Unit 2 Facility Additions and Retirements 24 5.5 Damage, Destruction or Condemnation 24 ARTICLE VI Capacity and Energy Entitlements; Financial Obligations; Access to Information; Defaults; Emissions Allowance Credits; Regional Transmission Organizations 26 6.1 Capacity Entitlement 26 6.2 Energy Entitlement 26   iv   -------------------------------------------------------------------------------- 6.3 Test Energy 26 6.4 Financial Obligations 27 6.5 Access to Information 27 6.6 Default 27 6.7 Emission Allowances 31 6.8 Quarterly Allowance Requirement, Initial Share, and Allowance Contribution 31 6.9 Annual Adjustment of Allowance Contribution 32 6.10 Excess Allowances 32 6.11 Procedures for Transferring Allowances; Compliance Use Dates 33 6.12 Restrictions on Allowance Transfers to Cover Excess Emissions 33 6.13 Acquisition of Allowances by Operator, Reimbursement of Costs 33 6.14 Compliance Not Measured on Unit Basis 33 6.15 Regional Transmission Organizations 34 6.16 Transaction with Other Parties 34 ARTICLE VII Fuel Supply 35 7.1 Procurement of Fuel 35 7.2 Negotiation and Renegotiation of Contracts 35 7.3 Ownership 35 7.4 Fuel Supply Interruption 35 7.5 KCPL Fuel Transportation 35 ARTICLE VIII Financial Responsibility 35 8.1 Demonstration of Creditworthiness During Construction 35 ARTICLE IX Taxes and Insurance 37 9.1 Taxes; Election Out of Partnership Treatment 37 9.2 Insurance 38 ARTICLE X Partition; Encumbrance; Transfer 39 10.1 Partition 39 10.2 Encumbrance 39 10.3 Transfer 42 10.4 Right of First Refusal 42 10.5 Restrictions on Transfer of KCPL’s Obligation as Operator 43   v   -------------------------------------------------------------------------------- 10.6 Required Transfer of Common Facilities and Interest in Real Property 43 10.7 Environmental Control Financing 43 ARTICLE XI Covenants and Obligations 44 11.1 Equitable Servitudes 44 11.2 Independent Covenants and Obligations 44 11.3 Several Obligations 44 11.4 Risk of Loss; Liability 44 11.5 Indemnity 45 11.6 Exculpation 45 11.7 Equal Opportunity 45 11.8 Buy American 46 ARTICLE XII Arbitration 46 12.1 Controversies 46 12.2 Notice to Arbitrate 46 12.3 Selection of Arbitrator and Venue 46 12.4 Scope of Arbitration 46 12.5 Findings and Award 46 12.6 Costs 48 ARTICLE XIII Force Majeure 48 13.1 Force Majeure 48 ARTICLE XIV Accounting and Payment Procedures 48 14.1 Planning of Cash Flow Requirements 48 14.2 Record-Keeping; Accounting Manual 48 14.3 Construction Fund 49 ARTICLE XV General Provisions 49 15.1 Implementing and Confirmatory Instruments 49 15.2 Waivers 49 15.3 Notices 49 15.4 Severability 50 15.5 Governing Law 50 15.6 Continued Effect of Other Agreements 50   vi   -------------------------------------------------------------------------------- 15.7 Amendment to the Agreement 50 15.8 Agreement Survives Departure of Owner or Owners 50 15.9 Conflicts between Agreements 51 15.10 Exhibits 51 ARTICLE XVI Term; Termination 51 16.1 Effective Date and Term 51 16.2 Termination 52 16.3 Disposition Upon Abandonment 52 ARTICLE XVII Confidentiality 53 17.1 Confidential Information 53 17.2 Limitation on Disclosure of Documents 53 ARTICLE XVIII Private Use Covenant 54 18.1 Private Use Covenant 54 ARTICLE XIX Representations and Warranties 55 19.1 KCPL’s Representations and Warranties 55 19.2 Aquila’s Representations and Warranties 56 19.3 Empire’s Representations and Warranties 57 19.4 KEPCO’s Representations and Warranties 57 19.5 MJMEUC’s Representations and Warranties 58 ARTICLE XX Memorandum of Agreement 58 20.1 Memorandum of Agreement 58 ARTICLE XXI Cooperation 58 21.1 Cooperation 58   vii   -------------------------------------------------------------------------------- EXHIBITS   A   Legal Description of Initial Iatan Station Site   B   Legal Description of Nower Property   C   General Description of Existing Common Facilities   D   General Description of Common Facilities Upgrades   E   Form of Assignment and Assumption Agreement   F   Description of Unit 2   G   Permits, Authorization and Approval   H   Iatan Station Unit 2 Site Ground Lease, Nower Property Ground Lease, and Easement Agreement   I-1   Construction Period Cash Flow Memorandum   I-2   Operating Period Cash Flow Memorandum   J   Accounting Manual     viii   -------------------------------------------------------------------------------- IATAN UNIT 2 AND COMMON FACILITIES OWNERSHIP AGREEMENT   This IATAN UNIT 2 AND COMMON FACILITIES OWNERSHIP AGREEMENT (this “Agreement”) is made as of May __, 2006, by and among KANSAS CITY POWER & LIGHT COMPANY, a Missouri corporation (“KCPL”), AQUILA, INC., a Delaware corporation (“Aquila”), THE EMPIRE DISTRICT ELECTRIC COMPANY, a Kansas corporation (“Empire”), KANSAS ELECTRIC POWER COOPERATIVE, INC., a not-for-profit generation and transmission cooperative organized under the laws of the State of Kansas (“KEPCO”), and MISSOURI JOINT MUNICIPAL ELECTRIC UTILITY COMMISSION, a body public and corporate of the State of Missouri (“MJMEUC”) (each of KCPL, Aquila, Empire, KEPCO and MJMEUC, individually, an “Owner” and, collectively, the “Owners”).   RECITALS   The Owners are engaged in the generation and transmission of electricity and its distribution and sale to the Owners’ respective customers, and intend to construct, own and operate a coal-fired electric generating facility of approximately 800-850 MW Net Generating Capacity (“Unit 2”) on the East bank of the Missouri River, near the Upper Iatan Bend, in Platte County, Missouri.   KCPL, Aquila and Empire (the “Unit 1 Owners”) own as tenants in common, each with an undivided ownership interest, a coal-fired electric generating facility (“Unit 1”) located adjacent to the proposed location of Unit 2 at the Initial Iatan Station Site (as hereinafter defined). KCPL operates Unit 1. The Unit 1 Owners also presently own as tenants in common, each with an undivided ownership interest, the Initial Iatan Station Site.   Unit 1 is and Unit 2 will be located on a parcel of real property that can accommodate up to four coal-fired generation units (the “Initial Iatan Station Site”). An adjacent parcel of real property will also be used in connection with the operation of Unit 1 and Unit 2 (“Nower Property”). KCPL is the sole owner of the Nower Property. The Initial Iatan Station Site and the Nower Property will be referred to collectively as the “Iatan Station Site.” Legal descriptions of the Initial Iatan Station Site and the Nower Property are attached as Exhibits A and B, respectively.   The Unit 1 Owners have set forth their agreement with respect to Unit 1, the Initial Iatan Station Site, and certain common facilities in the Iatan Station Ownership Agreement dated July 31, 1978 (the “Iatan Unit 1 Ownership Agreement”).   The Owners desire to participate in the construction of Unit 2 and ownership of the Iatan Unit 2 Facility (as hereinafter defined), and have agreed that the Iatan Unit 2 Facility shall be owned by the Owners as tenants in common, each with an undivided ownership interest therein as hereinafter provided.   The Unit 1 Owners own certain common facilities now in existence and serving Unit 1 (as more fully described in Exhibit C, but excluding any existing fuel inventory for Unit 1, the “Existing Common Facilities”) that are anticipated to be capable of joint utilization by and for Unit 1, Unit 2 and any Additional Units (as hereinafter defined).     -------------------------------------------------------------------------------- MJMEUC and KEPCO also desire to participate in the undivided ownership of the Existing Common Facilities to the extent they are utilized by Unit 2.   The Unit 2 Owners intend to construct and own (in common with the Unit 1 Owners as provided herein) certain enhancements and improvements to the Existing Common Facilities in order to facilitate the joint operation of Unit 1 and Unit 2 (such enhancements and improvements, as more fully described in Exhibit D, the “Common Facilities Upgrades” and, together with the Existing Common Facilities, the “Common Facilities”).   At the Closing (as defined below), pursuant to assignment and assumption agreements, the form of which is set out in Exhibit E, KCPL shall transfer and assign to the other Owners certain undivided interests in permits related to Unit 2, and by virtue of the other Owners’ payment of certain costs, they shall acquire undivided interests in the balance of the Iatan Unit 2 Facility and the Common Facilities and each such other Owner shall assume and agree to be bound by the provisions of all permits and other obligations under this Agreement to the extent of its Ownership Share therein as provided in Section 2.1 or Common Facilities Ownership Shares, as provided in Section 2.2, as applicable.   This Agreement is executed for the purposes of (i) confirming the nature and extent of the respective ownership interests of the Owners in the Iatan Unit 2 Facility and the Common Facilities and (ii) imposing certain covenants and obligations running with the rights, titles and interests of the Owners in and to the Iatan Unit 2 Facility and the Common Facilities, which covenants and obligations are intended to inure to the benefit of and be binding upon each of the Owners and any and all persons whomsoever having or claiming any right, title or interest therein by, from, through or under any of the Owners.   NOW, THEREFORE, the Owners, each for itself, its successors and assigns, and for the benefit of the other, its successors and assigns, hereby covenant and agree as follows:   ARTICLE I   Definitions   For purposes of this Agreement the following capitalized terms shall have the respective meanings set forth below.   1.1  “Accounting Manual” shall have the meaning specified in Section 14.2.   1.2  “Actual Emissions” shall have the meaning specified in Section 6.8(b).   1.3  “Actual Fuel Costs” shall mean the total of the following component costs:   (a)  the amount billed to KCPL by suppliers for coal and other fuel for the Iatan Unit 2 Facility, including any adjustments thereto;   (b)  the amount billed to KCPL by suppliers for limestone, ammonia, and any other Fuel Commodity used in pollution control equipment for the Iatan Unit 2 Facility, which are required and consumed as coal or other fuel is consumed, including any adjustments thereto;   2   -------------------------------------------------------------------------------- (c)  the amount billed to or otherwise incurred by KCPL for the transportation of coal or other Fuel Commodities referred to in Sections 1.3(a) and 1.3(b), which shall include, but is not limited to, tariff payments and any other charges of common carriers and all costs of operation, maintenance, leasing and financing (including interest, fees and principal, whether incurred directly or through rents under leases) of rail rolling stock or other transportation equipment, whether directly owned or leased (by capital lease or operating lease) by KCPL or any affiliate thereof and all reasonable consulting, rate costs, legal, and other administrative and general expenses relating to providing transportation service;   (d)  all charges incurred by KCPL in connection with the lease, maintenance and operation of all coal handling and storage equipment and facilities associated with and allocated to the Iatan Unit 2 Facility;   (e)  all sales, use, personal property or other taxes imposed on KCPL because of the transportation, delivery, purchase, transfer, storage, handling, sale or ownership of coal or other fuel with respect to the Iatan Unit 2 Facility;   (f)  all other costs, whether similar or dissimilar to the costs enumerated above, incurred by KCPL in performance of Article VII of this Agreement and not provided for in other parts of this Agreement, including but not limited to, pre-operating expenses (including fuel during testing) and related general and administrative costs for the Iatan Unit 2 Facility and the Common Facilities.   1.4  “Additional Unit” or “Additional Units” shall mean any subsequently developed Unit 3 and/or Unit 4, as contemplated in the certificate of public convenience and necessity for the Initial Iatan Station Site, Kansas City Power & Light Co., Case No. 17,895 (Dec. 14, 1973) or any other generating unit KCPL elects to build on the Iatan Station Site.   1.5  “Adverse Action” shall mean any action or inaction that adversely affects the exclusion of interest from gross income for U.S. federal income tax purposes of any MJMEUC tax-exempt debt used to finance MJMEUC’s Ownership Share and/or Common Facilities Ownership Share.   1.6  “Agreement” shall have the meaning specified in the caption hereof.   1.7  “Agreements” shall mean collectively this Agreement and other agreements and documents entered into by the Owners pursuant to this Agreement, including without limitation, the proposed Assignment and Assumption Agreement, and the Iatan Station Unit 2 Site Ground Lease, Nower Property Ground Lease and Easement Agreement, as this Agreement and such other agreements and documents may be amended from time to time.   1.8  “Allowance Contribution” shall have the meaning specified in Section 6.7(a).   1.9  “Allowances” or “Emission Allowances” shall mean all present and future authorizations to emit specified units of pollutants, which units are established by governmental agencies with jurisdiction over the Iatan Station Site under (i) an air pollution control and emission reduction program designed to mitigate interstate or intrastate transport or deposition of pollutants or (ii) any other air pollution reduction program with a similar purpose, in each case, regardless of whether the government agency establishes such authorizations or designates such authorizations by a name other than “allowances.”   3   -------------------------------------------------------------------------------- 1.10  “Appraised Value” shall have the meaning specified in Section 10.2(c).   1.11  “Aquila” shall have the meaning specified in the caption of this Agreement.   1.12  “Arrangements” shall have the meaning specified in Section 9.1(a).   1.13  “Bankruptcy Code” shall have the meaning specified in Section 5.3(b).   1.14  “Cash Flow Memorandum” shall mean, with respect to any construction (or reconstruction following a casualty loss) of Unit 2 or the Common Facilities, the Construction Period Cash Flow Memorandum, and otherwise, the Operating Period Cash Flow Memorandum.   1.15  “Certificates of Public Convenience and Necessity” shall mean the certificates issued in Kansas City Power & Light Co., Case No. 17,895 (December 14, 1973) and Kansas City Power & Light Co., St. Joseph Light & Power Co. and The Empire District Co., Case No. EM-78-277 (July 28, 1978).   1.16  “Closing” or “Closing Date” shall mean the time (i) at which KCPL transfers to each appropriate Owner (other than KEPCO, which shall be governed by Section 16.1(b)) pursuant to this Agreement and/or ancillary agreements an interest in permits, personal property and the real property acquired by KCPL for Unit 2 and/or the Common Facilities Upgrades through such time and (ii) each Owner (including KEPCO) pays to KCPL the portion of the Cost of Construction accrued through such time for the purchase of the Ownership Share or Common Facilities Ownership Share (as applicable) of that Owner as provided in this Agreement, in accordance with its terms, and (iii) each Owner (including KEPCO) assumes its respective liabilities therefor, as such time shall be stated in a notice of the Closing Date provided by KCPL to the other Owners at least 10 days before the Closing Date.   1.17  “Code” shall have the meaning specified in Section 9.1(a).   1.18  “Commercial Operation” shall mean Unit 2 shall have met all of the performance tests prescribed in KCPL’s test procedures for placing Unit 2 into commercial operation.   1.19  “Commercial Operation Date” shall mean the date on which Unit 2 achieves Commercial Operation.   1.20  “Commercially Reasonable Efforts” shall mean such diligent efforts, consistent with Good Utility Practice, that a party taking such actions would use in acting on its own behalf.   1.21  “Common Facilities” shall have the meaning specified in the Recitals to this Agreement.   1.22  “Common Facilities Ownership Share” shall have the meaning given in Section 2.2(g).   4   -------------------------------------------------------------------------------- 1.23  “Common Facilities Upgrades” shall have the meaning specified in the Recitals to this Agreement.   1.24  “Common Facilities Upgrades Completion Date” means the date construction and installation of the Common Facilities Upgrades is completed, as specified by the Operator in a notice to the Owners.   1.25  “Construction Period Cash Flow Memorandum” shall have the meaning specified in Section 14.1.   1.26  “Cost of Construction” shall mean all costs (excluding allowance for funds used during construction) incurred by KCPL in connection with the planning, design, licensing, permitting, acquisition, construction, completion, renewal, reconstruction, addition, upgrade, replacement or disposal of Unit 2, Common Facilities Upgrades, Interconnection Facilities (including those costs described in Section 4.2), or any portions of Unit 2 that are properly recordable to Unit 2 in accordance with the Electric Plant Instructions and in appropriate accounts as set forth in the Uniform System of Accounts. Costs of project development (other than costs associated with the acquisition and development of real property) incurred prior to May 1, 2004 shall not be included in Cost of Construction. Credits, reimbursements, refunds or rebates, including casualty insurance proceeds, with respect to amounts previously included in Cost of Construction, shall be applied as received to set off amounts otherwise due from the Owners at such time.   1.27  “Cost of Operation” shall mean all costs (excluding Actual Fuel Costs and financing costs) incurred by KCPL, in connection with the operation and maintenance of Unit 2, and Common Facilities that are properly recordable to Unit 2 in accordance with the Operating Expense Instructions and in appropriate accounts as set forth in the Uniform System of Accounts, and all such costs associated with pollution control facilities necessary for the operation of Unit 2. Credits, reimbursements, refunds or rebates, including casualty insurance proceeds, with respect to amounts previously included in Cost of Operation, shall be applied as received to set off amounts otherwise due from the Owners at such time.   1.28  “Covered Owner” shall have the meaning specified in Section 17.2.   1.29  “Defaulted Shares” shall have the meaning specified in Section 6.6(d).   1.30  “Emissions Projection” shall have the meaning specified in Section 6.8(b).   1.31  “Empire” shall have the meaning specified in the caption of this Agreement. 1.32  “EPA” shall have the meaning specified in Section 6.8(a).   1.33  “Estimated In-Service Operation Date” shall mean, as of the date of this Agreement, June 1, 2010, which may be modified from time to time by KCPL, provided KCPL provides written notice of any modification to Owners.   1.34  “Excess Allowances” shall have the meaning specified in Section 6.8(d).   5   -------------------------------------------------------------------------------- 1.35  “Excess Share” shall have the meaning specified in Section 2.1(c).   1.36  “Existing Common Facilities” shall have the meaning specified in the Recitals to this Agreement.   1.37  “Force Majeure” shall mean causes not within the control of the party directly affected and claiming suspension of its obligations and which by the exercise of due diligence and foresight could not reasonably have been avoided, and shall be deemed to include, but not be limited to, acts of God, acts of civil or military authorities, acts of war or public enemy, acts of any court, regulatory agency or administrative body having jurisdiction, insurrections, riots, strikes or other labor disturbances, breakdown of or accidents to plant, equipment or facilities, fires, explosions, floods, drought, interruption of transportation, embargoes or other causes of a similar nature; provided, however, that any strike or other labor disturbance may be settled at the sole discretion of the party directly affected thereby; and provided, further, that the inability to pay money shall not constitute Force Majeure.   1.38  “Fuel Commodity” or “Fuel Commodities” shall mean coal, oil, agricultural, mining or chemical products that are used in the process of producing steam or controlling emissions.   1.39  “Fuel Commodity Ownership Percentage” shall mean each Owner’s percentage interest in and share of the Iatan Station Fuel Commodity inventory, as defined in Section V.B.2 of the Accounting Manual, attached as Exhibit J, as may be amended from time to time.   1.40  “GAAP” shall mean generally accepted accounting principles as determined by the Financial Accounting Standards Board.   1.41  “Good Utility Practice” shall mean, at any time, the standards, practices, methods and acts with respect to construction and operation of electrical generating facilities engaged in or approved by a significant portion of the electric utility industry at such time. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather to be a spectrum of possible standards, practices, methods, or acts expected to accomplish the desired results, having due regard for, among other things, economic factors, manufacturers’ warranties and the requirements of governmental authorities of competent jurisdiction and the requirements of this Agreement. Notwithstanding any provision of this Agreement, failure to meet the Good Utility Practice standard shall not constitute a breach of this Agreement unless such failure constitutes gross negligence or willful misconduct.   1.42  “Iatan Station Site” shall have the meaning specified in the Recitals to this Agreement.   1.43  “Iatan Unit 1 Ownership Agreement” shall have the meaning specified in the Recitals to this Agreement.   1.44  “Iatan Unit 2 Facility” shall mean the tangible and intangible personal property related to Unit 2, including the following:   6   -------------------------------------------------------------------------------- (a)  equipment comprising Unit 2, including the boiler island, turbine-generator, fuel handling equipment, water treatment equipment, pollution control equipment, the buildings housing any such equipment, shops, warehouses, and the associated auxiliary equipment, all as more particularly described in Exhibit F;   (b)  the permits, authorizations and approvals listed in Exhibit G and all extensions, renewals and modifications thereof;   (c)  inventories of materials and supplies (exclusive of fuels) for use exclusively in connection with Unit 2, including spare parts, tools and equipment; and   (d)  such additions, betterments, improvements, facilities and other tangible property as may be acquired, constructed or installed, for use in connection with Unit 2 and appurtenances becoming part of Unit 2 hereunder; provided that the same shall have been acquired, constructed or installed for joint or common use among the Owners as a portion of the Iatan Unit 2 Facility and owned by the Owners as tenants in common under the provisions of this Agreement.   1.45  “Indemnified Owner” shall have the meaning specified in Section 11.5.    1.46  “Initial Iatan Station Site” shall have the meaning specified in the Recitals to this Agreement.   1.47  “Initial Net Accredited Capacity” shall mean the electrical rating achieved by a unit at the time it was placed into service, minus the generation capacity required to operate its related auxiliary equipment and transformers, all as measured in accordance with SPP’s then-applicable criteria for uniform rating of generation equipment.   1.48  “In-Service Operation Date” shall mean the date, as specified in a notice by KCPL to the other Owners, at which Unit 2 satisfies the in-service criteria established in In the Matter of a Proposed Experimental Regulatory Plan of Kansas City Power & Light Company, Case No. EO-2005-0329.   1.49  “Insolvency or Seizure” shall have the meaning specified in Section 5.3(b).   1.50  “Interconnection Facilities” shall have the meaning specified in Section 4.2.   1.51  “KCPL” shall have the meaning specified in the caption of this Agreement.   1.52   “KCPL Acquisition Election” shall have the meaning specified in Section 10.2(c).   1.53   “KEPCO” shall have the meaning specified in the caption of this Agreement.   1.54   “KEPCOAttributable Ownership Rights” shall have the meaning specified in Section 16.1(b).   1.55  “Lapse Date” shall have the meaning specified in Section 10.2(c). 7 -------------------------------------------------------------------------------- 1.56   “Management Committee” shall have the meaning specified in Section 5.1.   1.57   “Minimum Operable Capacity” shall mean the minimum Net Generation Output that Unit 2 must generate in order to operate in a reliable and economic manner.   1.58   “MJMEUC” shall have the meaning specified in the caption of this Agreement.   1.59   “Moody’s” shall have the meaning specified in Section 8.1(a).   1.60   “Net Generating Capacity” shall mean the Total Gross Capacity of a unit minus the generation capacity that must be used to operate the auxiliary equipment and transformers associated with the unit and any associated common facilities.   1.61   “Net Generation Output” shall mean at any time the actual generation output of Unit 1 or Unit 2, as the case may be, minus the energy that must be used to operate the Common Facilities, auxiliary equipment and transformers associated with such units.   1.62   “Nominal Gross Capacity” shall mean the Total Gross Capacity measured at the generation terminals.   1.63   “Non-Financial Default” shall have the meaning specified in Section 6.6(a).   1.64   “Notice to Arbitrate” shall have the meaning specified in Section 12.2.   1.65   “Nower Property” shall have the meaning specified in the Recitals to this Agreement.   1.66   “Other Owner Acquisition Election” shall have the meaning specified in Section 10.2(c).   1.67   “Operable Unit(s)” shall have the meaning given in Section 5.5(b).   1.68   “Operator” shall have the meaning specified in Section 5.3(a).   1.69   “Operating Period Cash Flow Memorandum” shall have the meaning specified in Section 14.1.   1.70   “Owners” or “Owner” shall have the meaning specified in the caption of this Agreement.   1.71   “Ownership Share” shall have the meaning specified in Section 2.1(a).   1.72   “Prevailing Wage Act” shall have the meaning specified in Section 4.7.   1.73   “Proposed Transferee” shall have the meaning specified in Section 10.4(a).   1.74   “Reciprocal Conveyance Date” means a date following the Common Facilities Upgrade Completion Date but prior to the Commercial Operation Date, as specified by the   8   -------------------------------------------------------------------------------- operator in a notice to the Owners, upon which MJMEUC and KEPCO will acquire shares of the Existing Common Facilities.   1.75   “Remaining Owners” shall have the meaning specified in Section 10.4(a).   1.76   “RTO” shall have the meaning specified in Section 6.15.   1.77   “RUS” shall have the meaning specified in Section 10.2(b).   1.78   “S&P” shall have the meaning specified in Section 8.1(a).   1.79   “Secured Party” shall have the meaning specified in Section 10.2(b).   1.80   “Site-Based Emissions” shall have the meaning specified in Section 6.14.   1.81   “Site Representative” shall have the meaning specified in Section 4.5.   1.82   “SPP” shall mean the Southwest Power Pool, Inc. or any successor.   1.83   “Total Gross Capacity” shall mean the maximum sustained amount of electric power that a unit is capable of generating in stable operation, as determined from time to time in accordance with SPP’s then applicable criteria for uniform rating of generation equipment.   1.84   “Transfer Share” shall have the meaning specified in Section 10.4(a).   1.85   “Transferable Interests” shall have the meaning specified in Section 10.2(c).   1.86   “Trigger Date” shall have the meaning specified in Section 10.2(c).   1.87   “Uniform System of Accounts” shall mean the Federal Energy Regulatory Commission Uniform System of Accounts prescribed for Public Utilities (Class A and Class B), as amended from time to time.   1.88   “Unit 1 Owners” shall have the meaning specified in the Recitals to this Agreement.   1.89   “Unit 1 Ownership Share” means “Ownership Share” or “Ownership Shares” as defined in Section 1.5 of the Iatan Unit 1 Ownership Agreement.   1.90   “Unit 2” shall have the meaning specified in the Recitals to this Agreement.   1.91   “Unit 2 Debt Securities” shall have the meaning specified in Section 17.2.   1.92    “Unit 2 Owners” shall mean KCPL, Aquila, Empire, KEPCO and MJMEUC.   1.93   “Unit 2 Site” shall mean that portion of the Initial Iatan Station Site on which Unit 2 and its related facilities will be located.   9   -------------------------------------------------------------------------------- 1.94   “ Voluntary Acquisition Election” shall have the meaning specified in Section 6.6(d).   ARTICLE II   Iatan Unit 2 Facility; Common Facilities; Creation and Adjustment of Ownership Interests Therein; Additional Units; Representations, Warranties and Covenants   2.1   Ownership Shares in Iatan Unit 2 Facility.   (a)  The Owners shall, pursuant to this Agreement, the Assignment and Assumption Agreement and, where appropriate, other instruments, take and receive title to and thereafter own the Iatan Unit 2 Facility as tenants in common, each with undivided ownership interests therein, expressed as percentages, as follows:     Iatan Unit 2 Facility Ownership Shares (with corresponding anticipated capacity entitlement based on 850 MW Net Generating Capacity)     KCPL     Aquila     Empire     MJMEUC     KEPCO     54.71% (465 MW)     18.00% (153 MW)     12.00% (102 MW)     11.76% (100 MW)     3.53% (30 MW)   For each Owner, the percentage set forth above for such Owner is herein called such Owner’s “Ownership Share.”   (b)  If the projected Net Generating Capacity of Unit 2, as reasonably determined by KCPL after the award of the contracts for the boiler island and turbine, is greater than or less than 850 MW, the Ownership Share of certain Owners shall be revised as follows: (i) MJMEUC’s Ownership Share shall be revised such that its Ownership Share equals the percentage necessary for MJMEUC to be entitled, pursuant to Sections 6.1 and 6.2 (assuming Net Generation Output is equal to the then current projected Net Generating Capacity of Unit 2), to 100 MW of capacity and associated energy from Unit 2; (ii) KEPCO’s Ownership Share shall be revised such that its Ownership Share equals the percentage necessary for KEPCO to be entitled, pursuant to Sections 6.1 and 6.2 (assuming Net Generation Output is equal to the then current projected Net Generating Capacity of Unit 2), to 30 MW of capacity and associated energy from Unit 2; (iii) Aquila and Empire shall have the right to retain their respective eighteen percent (18%) and twelve percent (12%) Ownership Shares, as set forth in Section 2.1(a), irrespective of the Net Generating Capacity of Unit 2; and (iv) KCPL’s Ownership Share shall be revised such that it owns the remaining Ownership Shares following the allocations of Ownership Shares to the other Owners as set forth herein. In the case of an adjustment of Ownership Shares pursuant to this Section 2.1(b), the parties shall make such balancing payments among one another such that the Cost of Construction paid by each Owner (after the netting of such balancing payments) shall equal such Owner’s Ownership Share of the total Cost of Construction incurred through the date of such balancing payments.   (c)  If, prior to the first notice from the Operator pursuant to Section 6.4, an Owner determines that it desires to reduce its Ownership Share, the amount (expressed as a   10   -------------------------------------------------------------------------------- percentage) by which such Ownership Share is to be reduced (the “Excess Share”) shall be allocated among the other Owners as follows: (i) first, between Aquila and Empire, in proportion to their Ownership Shares at the time of allocation, until their collective Ownership Shares equal thirty percent (30%); (ii) then, if any portion of such Excess Share remains unallocated, to KCPL, until its Ownership Share equals the percentage necessary for KCPL to be entitled, pursuant to Sections 6.1 and 6.2 (assuming Net Generation Output is equal to the then current projected Net Generating Capacity of Unit 2), to 500 MW of capacity and associated energy from Unit 2; and (iii) then, if any portion of such Excess Share remains unallocated, to KEPCO, until its Ownership Share equals the percentage necessary for KEPCO to be entitled, pursuant to Sections 6.1 and 6.2 (assuming Net Generation Output is equal to the then current projected Net Generating Capacity of Unit 2), to 50 MW of capacity and associated energy from Unit 2; and (iv) then, if any portion of such Excess Share remains unallocated, to MJMEUC, until its Ownership Share equals the percentage necessary for MJMEUC to be entitled, pursuant to Sections 6.1 and 6.2 (assuming Net Generation Output is equal to the then current projected Net Generating Capacity of Unit 2), to 100 MW of capacity and associated energy from Unit 2; and (v) if, after giving effect to this allocation process, any Excess Share remains unallocated, such Excess Share shall be allocated to KCPL. Each Owner, including KCPL, shall have the right to accept or reject all or a portion of its allocation of any Excess Share in its sole discretion. If any Excess Share remains unallocated following the process set forth in this Section 2.1(c), the Owner seeking to reduce its Ownership Share shall retain the unaccepted portion of the Excess Share and remain obligated under the terms of this Agreement for the obligations associated with such Ownership Share.   (d)   Each Owner’s Ownership Share shall be subject to adjustment from time to time as provided for in Sections 2.1, 2.3, and 6.6. The rights, titles and interests of the Owners in and to the Iatan Unit 2 Facility and any and all portions thereof, as the same may exist from time to time, shall be as provided for under this Agreement, and the covenants and obligations herein shall inure to the benefit of, and shall be binding upon their respective successors and assigns.   2.2  Interests in Real Property and Common Facilities.   (a)  On the Closing Date, the Unit 1 Owners shall execute and deliver a ground lease in recordable form¸ the form of which is set out in Exhibit H, that grants to MJMEUC and to KEPCO certain property rights with respect to the real property on which Unit 2 and the Common Facilities are or will be located, subject to the provisions of this Agreement, and subject to any necessary regulatory or lender approval or release of any applicable mortgage indenture. KCPL will use Commercially Reasonable Efforts to obtain any necessary regulatory or lender approval or release of any applicable mortgage indenture. If KCPL fails to obtain said approvals or releases within twelve (12) months of the execution date of this Agreement, KCPL shall reimburse any affected Owner for all payments made by said Owner prior to such date with respect to amounts described in the Agreements. Such ground lease, or at the Unit 1 Owners’ discretion, a memorandum of lease with respect thereto, shall be recorded in the offices of the Recorder of Deeds for Platte County, Missouri. Such ground lease shall be subject to the restrictions and limitations expressed in this Agreement as to use or enjoyment of such easements or rights of way.   11   -------------------------------------------------------------------------------- (b)  On the Closing Date, KCPL shall execute and deliver (or include in the ground lease described in Section 2.2(a)) a ground lease in recordable form that grants to the other Owners certain property rights with respect to the Nower Property, subject to the provisions of this Agreement, and subject to any regulatory and lender approval and release of any applicable mortgage indenture. Such ground lease, or at KCPL’s discretion, a memorandum of lease with respect thereto, shall be recorded in the offices of the Recorder of Deeds for Platte County, Missouri. Such ground lease shall be subject to the restrictions and limitations expressed in this Agreement as to use or enjoyment of such easements or rights of way.   (c)  On the Closing Date, each of the Owners shall execute and deliver, if required, one or more easements and rights of way in recordable form granting all other Owners the right to construct, install, operate, maintain, repair and replace, at their own cost and expense, at, on, along, over, under and across the Iatan Station Site such interconnection and transmission facilities as are described in Section 3.1 of this Agreement, subject, however, to any necessary regulatory or lender approval, release of any applicable mortgage indenture, and the restrictions and limitations expressed in this Agreement as to use or enjoyment of such easements or rights of way.   (d)  Instruments affecting the Iatan Station Site as provided in paragraphs (a) and (b) above and, if required, the easements and rights of way referred to in Article III, shall be filed of record and recorded in the offices of the Recorder of Deeds for Platte County, Missouri, in the order of precedence herein stated.   (e)  From time to time, to the extent required in the judgment of the Operator to permit the efficient and economical construction, siting, operation, or removal of Unit 2 or the Common Facilities, the Owners shall convey, if required, such other easements and other rights in the Iatan Station Site and/or the Common Facilities as the Operator may request, subject to, as necessary, regulatory and lender approval and release of any applicable mortgage indenture. (f)  On the Reciprocal Conveyance Date: (i)  to the extent necessary to accomplish the ownership interests provided in Section 2.2(g) of this Agreement, the Unit 1 Owners shall execute and deliver one or more bills of sale or other instruments conveying title to the Existing Common Facilities in the appropriate undivided interest percentages at book value to the Owners and their successors and assigns, as tenants in common, subject to the provisions of this Agreement and subject to any necessary regulatory and lender approval and release of any applicable mortgage indenture (provided, however, that any Owner whose ownership interest in the Existing Common Facilities is the same percentage as the Owner’s Common Facilities Ownership Share shall not be required to transfer title to Existing Common Facilities under this Section of the Agreement); and   (ii)  the Unit 2 Owners shall, if necessary, execute and deliver one or more bills of sale or other instruments conveying title to the Common Facilities in the appropriate undivided interest percentages (as determined pursuant to Section 2.2(g)) at actual cost to the Owners and their respective successors and assigns, as tenants in common, subject to the provisions of this Agreement and subject to any necessary regulatory and lender approval and release of any applicable mortgage indenture.   12   --------------------------------------------------------------------------------   (g)  The Owners shall, by paying their allocable shares of Common Facilities Upgrade costs and pursuant to the various conveying documents with respect to the Existing Common Facilities pursuant to Section 2.2(f), take and receive title to and thereafter own the Common Facilities as tenants in common, each with an undivided interest therein as determined for each Owner in accordance with the following formula and expressed as a percentage:   Each Owner’s Common Facilities Ownership Share equals the total number of net megawatts that each Owner is entitled to receive from all of the coal-fired generating units located at the Initial Iatan Station Site divided by the combined Net Generating Capacity of the coal-fired units located at the Initial Iatan Station Site. Based on the current expectations, the initial Common Facilities Ownership Shares are projected to be as follows:     Class of Property     Interests in Common Facilities       KCPL     Aquila     Empire     MJMEUC     KEPCO     Common Facilities     (based upon each Owner’s respective capacity from all units operating at the Initial Iatan Station Site)     61.45%     18.00%     12.00%     6.58%     1.97%   For each Owner, the percentage resulting from the formula set forth above for such Owner in respect of Common Facilities is herein called such Owner’s “Common Facilities Ownership Share.” Subject to any necessary regulatory or lender approval and release of any applicable mortgage indenture, the Owners’ Common Facilities Ownership Shares shall be recalculated, in accordance with the formula set forth above, only in the following circumstances, unless otherwise agreed by all affected Owners:   (i)  Upon the Reciprocal Conveyance Date, if the Net Generating Capacity of Unit 2 as then projected is at least five percent (5%) higher or lower than the projected Net Generating Capacity of Unit 2 used to determine KEPCO’s and MJMEUC’s Ownership Shares pursuant to Section 2.1(b), or if the Net Generating Capacity of Unit 1 has changed by at least five percent (5%) since such determination of KEPCO’s and MJMEUC’s Ownership Shares; provided, however, that such allocation shall only occur if a change in Net Generating Capacity results in a material net increase in the usage of the Common Facilities and corresponding net increase in the cost of operating and maintaining the Common Facilities. The revised Common Facilities Ownership Shares shall be used as the basis for the acquisition by KEPCO and MJMEUC of their shares of Existing Common Facilities, and any overpayment or underpayment by KEPCO and MJMEUC of costs of Common Facilities Upgrades resulting from the adjustment of their Common Facilities Ownership Shares shall be adjusted against their purchase price for the Existing Common Facilities.   (ii)  Subsequent to the Reciprocal Conveyance Date, upon any cumulative change in rated Net Generating Capacity, since the last calculation of Common Facilities Ownership Shares, of at least five percent (5%) (higher or lower) of any unit on the Initial Iatan Station Site that utilizes the Common Facilities; provided, however, that such allocation shall only occur if a change in Net Generating Capacity results in a material net increase in the usage of the Common Facilities and corresponding net increase in the   13   -------------------------------------------------------------------------------- cost of operating and maintaining the Common Facilities. Revised Common Facilities Ownership Shares resulting from adjustments under this subsection (ii) shall apply prospectively only (i.e., affecting responsibility for ongoing costs of operations and maintenance, capital additions, repairs, and the like, and for other liabilities relating to the Common Facilities), unless the affected parties agree otherwise.   (iii)  Upon the placement into service of any Additional Unit on the Initial Iatan Station Site that utilizes the Common Facilities and in connection with changes in Common Facilities Ownership Shares under this subsection (iii), KCPL and any party owning an interest in an Additional Unit shall be required to purchase the difference between any other Owner’s formerly determined Common Facilities Ownership Share and its newly determined Common Facilities Ownership Share, pursuant to Section 2.4(b), except to the extent that such purchase is effected by one or more other owners of the Additional Unit(s).   (iv)   Upon the retirement or abandonment of any coal-fired unit located on the Initial Iatan Station Site that utilizes the Common Facilities, the owners that have an ownership interest in the remaining coal-fired units shall purchase the Common Facilities, only to the extent they are necessary to operate the remaining coal-fired units, from the owner(s) whose Common Facilities Ownership Shares have decreased as a result of the retirement or abandonment. The purchase and sale between the owners shall take place at the depreciated original cost, plus any allowance for funds used during construction, or in the case of KEPCO or MJMEUC, capitalized interest or other similar cost component.   (v)   As provided in Section 6.6(c) or (d), in connection with defaults under this Agreement, with transfers and/or adjustments to the Common Facilities Ownership Shares of all affected Owners being accomplished pursuant to those provisions.   (h)  The rights, title and interests of the Owners in and to the Common Facilities and any and all portions thereof, as the same may exist from time to time, shall be as provided for under this Agreement, and the covenants and obligations herein shall inure to the benefit of, and shall be binding upon their respective successors and assigns.   2.3   Adjustment Upon Transfer.  Each Owner shall have the right to and may cause an adjustment of its Ownership Share and Common Facilities Ownership Share by transfer under Section 10.3 or 10.4, subject, however, to the receipt of (i) an amendment or supplement hereto reflecting such adjustment and (ii) appropriate releases of any encumbrance thereon and compliance with the provisions of any security agreement related thereto, as contemplated in Section 10.2.   2.4   Additional Units.   (a)  KCPL may, at its sole discretion, cause or permit (i) the construction and operation of an Additional Unit or Additional Units and all facilities related thereto on the Initial Iatan Station Site, and (ii) the relocation or modification of any of the facilities and property then included in Iatan Unit 2 Facility and any solely-owned facilities then located on the Initial Iatan Station Site for construction and operation of any such Additional Unit and its related facilities;   14   -------------------------------------------------------------------------------- provided (A) that such construction and operation will not unreasonably interfere with or materially impair the use of the facilities and property then included in the Initial Iatan Station Site or otherwise located on the Initial Iatan Station Site, or materially impair the generation output of Unit 2 or materially increase the costs of owning and/or operating Unit 2, (B) that, to the extent appropriate, proportional adjustments of the Common Facilities Ownership Shares shall be made, by the Unit 2 Owners pursuant to the formula in Section 2.2(g), to reflect the changed undivided ownership interests of the Owners in the Common Facilities and the Initial Iatan Station Site as capital transactions, subject to compliance with the applicable provisions of any related security agreement contemplated in Section 10.2 hereof, (C) that the use of the Common Facilities by any Additional Units shall not materially impair the generation output of Unit 2 or materially increase the costs of owning and/or operating Unit 2 or the Common Facilities, and (D) that all other costs thereof, including any such relocation or modification costs, are borne by the owners of such Additional Unit(s). Notwithstanding the provisions of Sections 15.6 and 15.9 of this Agreement, this Section 2.4(a) shall not be deemed to amend Section 1.8 of the Iatan Unit 1 Ownership Agreement.   (b)  Subject to any necessary regulatory or lender approval or release of any applicable mortgage indenture, the proportional adjustments to be made in such undivided ownership interests in the Common Facilities prior to the construction of any Additional Unit shall be reflected by purchases and sales (at the depreciated original cost thereof to the selling Owner, including any allowance for funds used during construction or in the case of KEPCO or MJMEUC, capitalized interest or other similar cost component) of such portions thereof as will result in the revised Common Facilities Ownership Shares of all Owners and the owners of such Additional Unit in the Common Facilities as determined in a manner consistent with the formula set forth in Section 2.2(g) taking into account the owners of such Additional Unit.   (c)  Subject to any necessary regulatory or lender approval or release of any applicable mortgage indenture, and if appropriate, the proportional adjustments to be made in such undivided ownership interests in the Initial Iatan Station Site, prior to the construction of any Additional Unit, shall be reflected by purchases and sales (at the depreciated original cost thereof to the selling Owner, including any allowance for funds used during construction properly recorded on the books of such seller) of such portions thereof as will adjust the Ownership Shares of the affected Owners, including the owners of such Additional Unit, in proportion to their ownership interests in the Total Gross Capacity, as related to the Initial Net Accredited Capacity, of all units including the Nominal Gross Capacity of the Additional Unit to be constructed at the Initial Iatan Station Site in proportion to (x) their resultant ownership interests in those Common Facilities applicable to all four units contemplated at the Initial Iatan Station Site, times (y) the number of units constructed at the Initial Iatan Station Site including the Additional Unit then to be constructed, divided by (z) four; provided that KCPL’s ownership interest in the Initial Iatan Station Site shall also include those portions of the Initial Iatan Station Site allocable to the remaining four units (i.e., exclusive of the existing and the Additional Unit then to be constructed) at the Initial Iatan Station Site.   (d)  It is intended that the Common Facilities for Unit 2 will not include any facilities that are exclusively for any Additional Units. Facilities that have no relation to a particular unit will not be allocated to the owners of such unit.   15   -------------------------------------------------------------------------------- (e)  Notwithstanding anything in this Section 2.4, neither MJMEUC nor KEPCO shall be required to obtain an ownership interest in the Initial Iatan Station Site.   2.5   Common Facilities Additions and Retirements After the Reciprocal Conveyance Date.   (a)  The Management Committee shall cause to be made such property additions to (whether in the nature of an operating, maintenance, or capital expense) and retirements from the facilities and property constituting the Common Facilities in the ordinary course of operation and ownership of the Common Facilities as may, from time to time, be deemed by the Management Committee to be necessary or desirable. Such additions and retirements shall be set forth in the annual operating and capital budget to the extent practicable.   (b)  Each Owner shall pay for the cost of any such property addition thereto or the expenses relating to the retirement therefrom in the same percentage as its Common Facilities Ownership Share, in accordance with Article XIV. The rights, titles and interests of any Owner in and to any such property addition shall be proportionate to its Common Facilities Ownership Share.   (c)  Upon removal or retirement of any facilities or property included in any portion of the Common Facilities and subject to compliance with the applicable provisions of any related security agreement contemplated herein, the Management Committee may either (i) divide or partition such removed or retired facilities or property, or (ii) sell or otherwise dispose of such removed or retired facilities or property and distribute the net proceeds thereof to or for the account of the Owners in proportion to their respective Common Facilities Ownership Shares.   (d)  If after the Commercial Operation Date, the Operator shall determine that, in order to fully utilize the then current Net Generating Capacity of Unit 1 and/or Unit 2 in compliance with any law, treaty, rule or regulation of the United States, the States of Missouri or Kansas or any instrumentality, agency or political subdivision of any thereof or any order or other determination of, or stipulation under the jurisdiction of, any court or administrative body of any thereof, or any determination of an arbitrator, it is necessary or advisable to construct an addition, upgrade, refurbishment or other change to the Common Facilities (any of the foregoing, an “Upgrade”) not authorized pursuant to Section 2.5(a), then the Operator shall so notify each member of the Management Committee in writing, shall develop a budget and plan for effecting such Upgrade and shall consult with the Management Committee with respect thereto. After such consultation, the Operator may proceed to construct (or contract for the construction of) such Upgrade. It shall be the obligation of the Owners to pay for the costs of such Upgrade in proportion to their Common Facilities Ownership Shares within ten (10) days of presentation of an invoice for such costs from time to time, and, upon completion thereof, the Owners’ rights, titles and interests therein shall be as provided under this Agreement.   16   -------------------------------------------------------------------------------- ARTICLE III     Easements for Interconnection and Transmission Facilities   3.1  Interconnection and Transmission Facilities.  Subject to the approval of the Management Committee, which shall not be unreasonably withheld, each Owner shall have the right to construct, install, own, operate, maintain, repair and replace, at its own cost and expense, at, on, along, over, under and across the Initial Iatan Station Site, such interconnection and transmission facilities as are reasonably required (i) to enable it to deliver to its own system the electric power and energy that it is entitled to receive from Unit 2, (ii) to establish interconnections between its system and the systems of others, and/or (iii) to connect separated portions of its own system facilities, provided that such solely-owned interconnection and transmission facilities shall be so installed, operated and maintained as not unreasonably to interfere with or materially impair the use of Unit 1, Unit 2, any Additional Unit, the Common Facilities, other generation facilities or any then existing facilities located on the Iatan Station Site or the ultimate full utilization of any thereof. To the extent any Owner exercises any rights under this Section, such Owner shall indemnify the remaining Owners for any liability resulting from the construction, installation, operation or retirement of interconnection and transmission facilities. Any facilities built pursuant to this Section shall be removed from the Iatan Station Site upon the retirement or abandonment of Unit 2 subject to any required RTO approval.      3.2  Relocations and Modifications.  In the event an Owner proposes to install and operate any such solely-owned interconnection and transmission facilities hereunder that would require the relocation or modification of any then existing facilities located on the Initial Iatan Station Site but would otherwise meet the requirements of this Article, such Owner shall have the right to cause such relocation or modification, provided (A) it will not materially impair the generation output of Unit 2 or materially increase the cost of owning and/or operating Unit 2 or materially impair or increase the costs of the use of any existing interconnection and transmission facilities, and (B) all costs associated with the relocation or modification are borne by such Owner.      3.3  Personal Property.  All interconnection and transmission facilities installed by an Owner at its own cost pursuant to the provisions of this Article III shall be and remain the sole property of the Owner installing them; shall not be a portion of Unit 1, Unit 2, the Common Facilities, Additional Units or other generation facilities; shall, where practicable, be identified by distinctive marking as the property of such Owner; and shall be deemed and considered to be personal property in which such Owner has reserved the right to remove the same at any time.     3.4  Exclusive Right, Title and Interest.  No provision hereof shall give to any other Owner or anyone claiming by, from, through or under such other Owner any right, title or interest in any such solely-owned interconnection and transmission facilities permitted by Section 3.1.   17   -------------------------------------------------------------------------------- ARTICLE IV   Construction and Testing     4.1  Responsibility for Construction.  Except as otherwise provided for herein, KCPL shall have sole responsibility, to be discharged in accordance with Good Utility Practice, for the planning, licensing, permitting, design, construction and testing of Unit 2 and the Common Facilities Upgrades. KCPL will use Commercially Reasonable Efforts to comply with all applicable requirements of all applicable statutes and the rules and regulations of such regulatory agencies as shall have competent jurisdiction over the planning, permitting, design, licensing, construction and testing of Unit 2. KCPL shall not be liable or responsible for any failure to perform hereunder where such failure to perform is caused by or is a result of Force Majeure. KCPL agrees that prior to making any discretionary design changes, as distinguished from design changes required for reliability purposes or by law, that are expected to increase Cost of Construction by $25 million or more, KCPL will submit said proposed change to a vote of the Management Committee.    4.2  Responsibility for Interconnection Facilities.  Aquila shall be responsible for (and shall use its Commercially Reasonable Efforts to complete in sufficient time to support the In-Service Operation Date) easement acquisition, development and construction of a 161 kV double circuit transmission line loop to interconnect the Iatan Station Site to the Platte City-Stranger Creek transmission line. This will also include but not be limited to relocation of the existing Iatan to St. Joseph, Missouri 345 kV line and any other transmission modifications as specified by the interconnection agreement. All such facilities to be constructed by KCPL and/or Aquila are referred to herein as the “Interconnection Facilities.” KCPL will be responsible for interconnecting as specified in the interconnection agreement to the Iatan 345 kV bus for Units 1 and 2. The Aquila scope of work described herein shall be part of the Cost of Construction to the extent the costs associated with constructing the Interconnection Facilities are required by the interconnection agreement. Aquila shall coordinate all construction activities with KCPL, including transmission line and substation scope. Aquila shall not be liable or responsible for any failure to perform hereunder where such failure to perform is caused by or is a result of Force Majeure. The costs of the Interconnection Facilities, as well as any transmission credits with respect to the Interconnection Facilities, shall be allocated among the Owners in proportion to their Common Facilities Ownership Shares.          4.3  In-Service Operation Date.  Subject to the terms and conditions of this Agreement, KCPL will use its Commercially Reasonable Efforts to have Unit 2 operating by the Estimated In-Service Operation Date.      4.4  Construction Power.  Construction power used in connection with construction of Unit 2 shall be provided by Aquila’s St. Joseph Light and Power Division under the applicable retail rate schedules or a special contract. Notwithstanding the foregoing, however, each of the Owners shall have the option to self-supply its share of construction power to the extent permitted by law.      4.5  Site Representative.  During the period from the Closing Date until a reasonable interval (not to exceed one hundred eighty (180) days) after the In-Service Operation Date, each   18   -------------------------------------------------------------------------------- Owner, at its expense, shall have the right to locate an employee (a “Site Representative”) at the Iatan Station Site to monitor Unit 2 construction. The Site Representative of a particular Owner may elect to be on-site either full time or part time at such particular Owner's discretion, provided such Site Representative agrees to inform the Operator of its presence on site and agrees to comply with all safety, security and other construction or operational rules and regulations applicable to personnel at the Iatan Station Site. Should an Owner desire to use a non-employee as its Site Representative, said Owner shall notify the Operator in writing of its desire to use a non-employee as its Site Representative. The written notification shall identify the individual that the Owner proposes to use as Site Representative, the company with which the non-employee is associated, the nature of the relationship between the Owner and its proposed non-employee representative and his or her company. The Operator shall have the right to reasonably reject the proposed non-employee representative, either the individual proposed to serve as Site Representative or the company with which the proposed non-employee Site Representative is associated. The Operator shall respond to an Owner’s request to use a non-employee Site Representative within thirty (30) days after receiving written notification. From the period from the Closing Date until a reasonable time (consistent with the demobilization of KCPL’s construction activities and in any event not to exceed six months) after the In-Service Operation Date, the Operator will provide, at no charge, a suitable area for trailers or other temporary space in the vicinity of other construction trailers on site, for such Owners to occupy, it being understood that Owners choosing to have a Site Representative shall be responsible for any and all costs (including utilities, employee compensation and benefits, and facilities) of doing so; after the In-Service Operation Date and during the life of Unit 2, the Operator will make reasonable accommodations for the Site Representative at the sole cost of the requesting Owner. The Operator will also provide the Site Representative the opportunity for reasonable access to discussions regarding the modification, operation and maintenance of the Iatan Unit 2 Facility. Each Owner shall cause its Site Representative to comply with all safety, security and other construction regulations imposed by the Operator on personnel at the Iatan Station Site. Each Owner having a Site Representative hereby agrees to indemnify, defend and hold harmless each other Owner (an “Indemnified Owner”) against, and agrees to hold each Indemnified Owner harmless from, any uninsured claims, damages, liabilities, liens, losses or other obligations whatsoever incurred or suffered by an Indemnified Owner (together with reasonable costs and expenses, including reasonable fees and disbursements of counsel relating thereto) arising out of any action, inaction or activity relating to an Owner’s Site Representative that results in liability of any sort. No Site Representative shall have the authority to direct contractor work or the Operator’s operations and shall in no way obstruct, impend, or cause delay to any work or operations on site.      4.6  Reporting.     (a)  During the construction period, from Closing through the Commercial Operation Date, the Operator shall report (monthly) on the status of construction and provide the other Owners with changes to budget and schedule on a monthly basis. Similarly, any other Owner with a project responsibility (including Aquila as provided for in Section 4.2 above) shall have the same obligation with respect to the other Owners.       (b)  During the construction period, from Closing through the Commercial Operation Date, the Operator shall make available to the other Owners copies of all monthly   19   -------------------------------------------------------------------------------- reports provided to the Operator from contractors and sub-contractors. Similarly, any other Owner with a project responsibility (including Aquila as provided for in Section 4.2 above) shall have the same obligation with respect to the other Owners. KCPL, and where appropriate other Owners, shall make available (and provide to Owners as requested) copies of planning studies, design and construction specifications, and contracts; and when practicable shall do so in time for Owners to comment before decisions are made.              (c)  Notwithstanding this Section 4.6, the duty to disclose documents is limited by Article XVII.   4.7  Prevailing Wage.  All contracts for the construction and installation of all or any part of the Iatan Unit 2 Facility and Common Facilities Upgrades shall contain a stipulation to the effect that (1) not less than the prevailing hourly rate of wages shall be paid to all workmen performing under the contract as provided in Sections 290.210 to 290.340, RSMo (the “Prevailing Wage Act”), (2) the contractor shall forfeit as a penalty to MJMEUC (or, if MJMEUC is not a party to the construction contract, to KCPL on behalf of MJMEUC) ten dollars for each workman employed or such other statutory penalty that may be in effect, for each calendar day, or portion thereof, such workman is paid less than the stipulated rates for any work done under said contract, (3) the contractor shall, before receiving final payment, provide to MJMEUC (or, if MJMEUC is not a party to the construction contract, to KCPL on behalf of MJMEUC) an affidavit stating that the contractor has complied with the provisions of the Prevailing Wage Act, and (4) the contractor shall ensure that all its subcontractors also comply with the foregoing requirements. Each contractor’s and subcontractor’s bonds shall guarantee the faithful performance of these provisions.   ARTICLE V   Management and Operation of the Iatan Unit 2 Facility   5.1  Management Committee.  All policies relating to the management, operation and maintenance of the Iatan Unit 2 Facility, the Common Facilities and the Iatan Station Site shall be determined and administered by a management committee consisting of two representatives of each Owner (the “Management Committee”). The Management Committee will act and operate Unit 2 in accordance with the Certificates of Public Convenience and Necessity. An appropriate corporate officer of each Owner shall designate, from time to time, its two representative members to serve on the Management Committee, at least one of whom shall be vested with decision-making authority. Such designation shall be by written notice to the other Owners. Prior to the In-Service Operation Date, the Management Committee shall meet not less often than monthly and after the In-Service Operation Date, the Management Committee shall meet not less often than quarterly, unless Owners mutually agree to change the meeting schedule. Meetings of the Management Committee may be conducted by telephone conference. To the extent possible and where appropriate, the Management Committee will coordinate the meetings of the Iatan Unit 2 Management Committee with the meeting of the Iatan Unit 1 Management Committee. The Management Committee shall approve five-year maintenance schedules and budgets, which shall be prepared on an annual basis and submitted to the Management Committee by the Operator by October 1 of each year, or as soon as practicable thereafter, as further provided in Section 6.5.   20   -------------------------------------------------------------------------------- 5.2  Management Committee Action.            (a)  The Management Committee shall determine and administer policies and take all other action relating to the management, operation and maintenance of the Iatan Unit 2 Facility, the Common Facilities and the Iatan Station Site by the vote of the Owners expressed through their respective representatives on the Management Committee. Each Owner shall have a vote on the Management Committee equal to its Ownership Share, in the case of decisions related to the Iatan Unit 2 Facility, and equal to its Common Facilities Ownership Share, in the case of decisions related to the Common Facilities or the Iatan Station Site. Except as specified in Section 5.5(d), the vote of an Owner or Owners whose Ownership Shares or Common Facilities Ownership Shares (as applicable) constitute a simple majority shall be necessary and sufficient for action to be taken by the Management Committee.            (b)  With regard to annual budgets (both (i) operation and maintenance and (ii) capital), should a Management Committee vote on either budget yield the result of KCPL “for” and all other Owners “against,” each Owner voting against shall have ten (10) business days to submit in writing its concerns with KCPL’s budget proposal and what modifications it would recommend to make the proposed budget acceptable. KCPL shall review these recommendations. After consideration KCPL will either submit a revised budget, or inform the Owners that the previously submitted budget will become effective. Should a revised budget be submitted, KCPL will convene the Owners via telephone or e-mail for a vote of the Management Committee on the revised budget. This process will only be completed once in a budget year.            (c)  Except for the rights contained in Section 3.1 of this Agreement, the Management Committee shall have the right, in its sole discretion, to prevent any lessee from taking any action as a result of its leasehold right to possession of any portion of the Unit 2 Site or the Nower Property.            (d)  The Management Committee shall not have authority to modify or take any action inconsistent with any provision of this Agreement. Any cost or expense incurred by an Owner’s Management Committee representative in connection with duties of such representative shall be borne and paid by the Owner represented by the representative.   5.3  Operator.            (a)  Each Owner hereby authorizes KCPL to act (and KCPL agrees to act) as the exclusive operator to perform (in such capacity, the “Operator”), through KCPL’s own employees, agents, servants and contractors, all such functions (including, without limitation, the entry into contracts for the benefit of the Owners) as may be required for the actual design, permitting, development, procurement, construction, operation and maintenance of the Iatan Unit 2 Facility, the Common Facilities and the Iatan Station Site, subject, however, to the direction and control of the Management Committee. The Operator shall at all times perform its duties in accordance with Good Utility Practice; provided, however, and notwithstanding any other provision in this Agreement to the contrary, the Operator shall not be liable to any other Owner for any loss, cost, damage or expense incurred by such Owner as a result of any action or failure to act by the Operator unless the Operator’s action or failure to act is determined to have been gross negligence or willful misconduct. Each Owner understands and agrees that the   21   -------------------------------------------------------------------------------- Operator shall have the sole discretion to manage its employees, agents, servants, and contractors on a day-to-day basis to accomplish needed work in the normal course of business. The Operator shall be responsible for the administration and enforcement of all contracts relating to the construction, ownership and operation of the Iatan Unit 2 Facility and Common Facilities; provided, however, that when requested by the Operator, the other Owners shall reasonably assist the Operator with these responsibilities. Although the Operator shall not be entitled to a management fee under this Agreement, each Owner shall pay its proportionate share of the Operator’s total reasonable costs, including administrative overhead and taxes, incurred while performing its duties as Operator for Unit 2 in proportion to the Owners’ Ownership Share and for the Common Facilities in proportion to the Owners’ Common Facilities Ownership Shares as set forth in the Accounting Manual attached hereto as Exhibit J.            (b)  Upon written notice to the Operator, the Owner with the next greatest Ownership Share which has the financial capability to act as Operator may, at its option, forthwith become, and assume the duties of, Operator hereunder in the stead of the existing Operator if at such time (i) the Management Committee has not elected a new Operator from among the Owners of Unit 2; (ii) either (A) the Operator shall have filed a petition commencing a voluntary bankruptcy case under Section 301 of Title 11 of the United States Code (the “Bankruptcy Code”) or shall have had filed against it a petition commencing an involuntary bankruptcy case under Section 303 of the Bankruptcy Code and such involuntary petition shall remain undismissed for a period of ninety (90) days, or KCPL’s or any other Owner’s Ownership Share shall have been seized and held by any governmental authority having jurisdiction (any of the foregoing, an “Insolvency or Seizure”) or (B) the Operator is in Default under Section 6.6 and such Default has not been cured within the applicable cure period; and (iii) such other Owner is not then the subject of an Insolvency or Seizure. KCPL shall automatically be redesignated and assume the full functions of Operator upon emerging from or otherwise curing the Insolvency or Seizure or Default that gave rise to KCPL’s removal as Operator. The Operator acting during any Insolvency or Seizure or Default of KCPL shall not have the right or power to replace the then current plant personnel with the acting Operator’s employees so long as KCPL’s plant personnel continue to work productively and in sufficient numbers to maintain Unit 2’s and the Common Facilities’ operations without material impairment; in such event Owners shall continue to pay to KCPL the Owners’ proportionate shares of the costs associated with such plant personnel as though KCPL were continuing to act as Operator. The acting Operator shall abide by, and shall not violate, any provision of any collective bargaining agreement KCPL has entered into with its employees; nor shall the acting Operator take any action that will materially impair the generation output or materially increase the cost of owning and/or operating any generation asset owned by KCPL. The acting Operator shall be responsible for the administration and enforcement of all existing contracts relating to the construction, ownership and operation of the Iatan Unit 2 Facility, the Common Facilities and the Iatan Station Site; provided, however, that when requested, the other Owners shall reasonably assist the acting Operator with these responsibilities, and KCPL will assist the acting Operator in any manner reasonably requested.            (c)  Contracts covering design, engineering, procurement, construction and installation of all or any part of the Iatan Unit 2 Facility and/or the Common Facilities Upgrades and all other contracts relating to procurement, operation and maintenance, including contracts for the acquisition of materials, inventories, supplies, spare parts, equipment, fuel or services,   22   -------------------------------------------------------------------------------- shall be executed solely by the Operator. Each Owner shall be severally and not jointly liable for its Ownership Share and/or Common Facilities Ownership Share of all amounts payable under all such contracts, including taxes. In the event that any Owner advances a proportion of any such funds in excess of its Ownership Share and/or Common Facilities Ownership Share under any such contract, such Owner shall have a right of contribution from each Owner that has made payments that are proportionately less than its Ownership Share and/or Common Facilities Ownership Share.            (d)  The Operator shall have the authority and responsibility to execute and, where appropriate, will make coordinated filings with all regulatory agencies having jurisdiction, of all such applications, amendments, reports and other documents and filings as shall be required in or in connection with the licensing and other regulatory matters with respect to the Iatan Unit 2 Facility and the Common Facilities; provided, however, that each Owner shall be responsible for obtaining all required approvals and authorizations relating to its participation in the Iatan Unit 2 Facility and the Common Facilities and to its performance of this Agreement.            (e)  The Operator shall give prompt notice to each of the other Owners of all material claims instituted or threatened against the Operator or any Owner, or any litigation initiated by the Operator relating to the construction, ownership or operation of the Iatan Unit 2 Facility and/or the Common Facilities. If requested by any Owner, the other Owners agree to enter into a joint defense agreement with terms and conditions sufficient to preserve (to the extent permitted by applicable law) the attorney-client privilege and/or work product protections for shared information and cooperation in connection with any such claim. The Owners shall cooperate in the defense or prosecution of any such claim. All decisions in connection with any legal actions shall be made by the Management Committee.            (f)  In performing its responsibilities, as set forth herein, the Operator shall (i) carry out the provisions of this Agreement in accordance with Good Utility Practice and may not enter into transactions with its affiliates unless the terms of such agreements are at least as favorable to the Owners as those that would be negotiated between unrelated third parties in a similar agreement, and (ii) use its Commercially Reasonable Efforts to secure, administer and enforce contracts for the construction of the Iatan Unit 2 Facility and Common Facilities Upgrades in a manner to achieve Commercial Operation in accordance with a completion schedule and budget established by, and as amended from time to time by, the Management Committee, and (iii) provide the Owners with their proportionate benefits, or the monetary equivalent thereof, received by the Operator that arise from or are associated with costs paid by the Owners hereunder. The Operator shall also consult with the Owners with respect to any anticipated material delays in the completion schedule or increases in the construction budget. In no event shall any failure by the Operator to follow Good Utility Practice give any Owner cause for a private cause of action, unless such failure constitutes gross negligence or willful misconduct.            (g)  Operator shall, except as otherwise provided in Article XVII, furnish to any Owner such information and copies of such documents and records as such Owner may reasonably request from time to time concerning any aspect of the construction, ownership and operation of the Iatan Unit 2 Facility and the Common Facilities to the extent they impact Unit 2. Should the Operator deem that the request for information is unreasonable, the Operator shall   23 -------------------------------------------------------------------------------- provide access to such information and the requesting Owner shall be allowed to bring in such copying equipment as necessary to make such copies as the Owner desires. Said Owner shall be solely responsible for the costs associated with such reproduction effort, including the Operator’s personnel assigned to ensure that the originals are not damaged, lost or misfiled throughout this process.            (h)  After the In-Service Operation Date, the Operator shall provide monthly reports to the Owners on fuel supply, operation and maintenance, environmental status or issues, monthly or quarterly Continuous Emission Monitoring System data and allowance consumption data.             (i)  The Operator will act and operate Unit 2 in accordance with the Certificates of Public Convenience and Necessity.   5.4  Unit 2 Facility Additions and Retirements.            (a)  The Management Committee shall cause to be made such property additions to (whether in the nature of an operating, maintenance, or capital expense) and retirements from the facilities and property constituting the Iatan Unit 2 Facility in the ordinary course of operation and ownership of the Iatan Unit 2 Facility as may, from time to time, be deemed by the Management Committee to be necessary or desirable. Such additions and retirements shall be set forth in the annual operating and capital budget to the extent practicable. Each Owner shall pay its proportionate share of costs associated with any such property additions or retirements.            (b)  Each Owner shall pay for the cost of any such property addition thereto or the expenses relating to the retirement therefrom in the same percentage as its Ownership Share, in accordance with Article XIV. The rights, titles and interests of any Owner in and to any such property addition shall be proportionate to its Ownership Share.            (c)  Upon removal or retirement of any facilities or property included in any portion of the Iatan Unit 2 Facility and subject to compliance with the applicable provisions of any related security agreement contemplated herein, the Management Committee may either (i) divide or partition such removed or retired facilities or property, in which case each Owner shall be responsible for the disposition thereof at its own cost, or (ii) sell or otherwise dispose of such removed or retired facilities or property and distribute the net proceeds thereof to or for the account of the Owners in proportion to their respective Ownership Shares.   5.5  Damage, Destruction or Condemnation.            (a)  If a portion of Unit 2 should be damaged, destroyed or condemned, the Management Committee shall vote on whether to repair, restore or reconstruct the damaged, destroyed or condemned facilities.               (i)  If the Management Committee shall elect to repair, restore, or reconstruct Unit 2 and the estimated cost of doing so is less than or equal to $650,000,000 (as adjusted for inflation from the Closing Date based on the Implicit Price Deflator for Gross Domestic Product (with year 2000 = index number 100), published quarterly by the Bureau of   24   -------------------------------------------------------------------------------- Economic Analysis of the United States Department of Commerce or, if no such data is published by such bureau, such successor or replacement index as may be reasonably selected by the Management Committee) in excess of the insurance proceeds available for repair, restoration or reconstruction, the Owners shall apply their Ownership Shares of Unit 2 insurance proceeds and shall fund their respective Ownership Shares of the additional costs of repair, restoration or reconstruction. Such repair, restoration or reconstruction shall be managed by KCPL in the same manner, and subject to the same terms, as the original construction of Unit 2 hereunder.               (ii)  If the Management Committee shall elect to repair, restore, or reconstruct Unit 2 and the estimated cost of doing so is greater than $650,000,000 (as adjusted for inflation from the Closing Date based on the Implicit Price Deflator for Gross Domestic Product (with year 2000 = index number 100), published quarterly by the Bureau of Economic Analysis of the United States Department of Commerce or, if no such data is published by such bureau, such successor or replacement index as may be reasonable selected by the Management Committee) in excess of the insurance proceeds available for repair, restoration or reconstruction, the Owners voting to repair, subject to any necessary regulatory or lender approval and release of any applicable mortgage indenture, may then purchase the dissenting Owners’ Ownership Shares at the depreciated original cost, including allowance for funds used during construction, or in the case of KEPCO or MJMEUC, capitalized interest or other similar cost component, minus the Owner’s pro-rata share of any Unit 2 insurance proceeds, plus the dissenting Owner’s outstanding prepaid Ground Lease rental payments, if any. If multiple Owners elect to purchase the dissenting Owners’ Ownership Shares, said shares shall be sold pro rata based on the purchasing Owners’ then-current Ownership Shares, unless they agree on a different method of allocation. If the Owners favoring repair do not purchase the dissenting Owner’s share at the above-described price, then the dissenting owner may either (A) forfeit its share and receive its pro-rata share of any insurance proceeds or (B) contribute its pro-rata share of the insurance proceeds and remain an Owner at a reduced Ownership Share.            (b)  If (i) all or any part of the Common Facilities shall be damaged, destroyed or condemned; and (ii) (A) Unit 1 or one or more Additional Units is then operating or, following repair, restoration or reconstruction of the Common Facilities and/or such unit or units, would be capable of operating, or (B) Unit 2 has not been damaged, or the Management Committee has elected to repair, restore or reconstruct Unit 2, then it shall be the obligation of the owners of such unit or units that are operating or capable of operating (“Operable Unit(s)”) to repair, restore or reconstruct the damaged, destroyed or condemned Common Facilities and to pay the costs thereof in proportion to their ownership interests in such Operable Unit(s).            (c)  In the event that all or any part of the Common Facilities shall be damaged, destroyed or condemned and they will not be repaired or reconstructed pursuant to Section 5.5(b) above, the proceeds from any insurance or condemnation award related to the Common Facilities shall be distributed to or for the account of such Owners in proportion to their Common Facilities Ownership Shares, and the remaining facilities shall be disposed of by the Owners in a manner as may then be mutually agreed by them and the net proceeds therefrom shall be distributed to or for the account of the Owners in proportion to their Common Facilities Ownership Shares, all subject to the liens of any encumbrance and the provisions of any related security agreement contemplated in Section 10.2. If all or a portion of the Common Facilities are rebuilt, but the Owners have determined that Unit 2 will not be rebuilt, then the Owners agree   25   -------------------------------------------------------------------------------- that the insurance proceeds derived from any casualty or loss shall be used to reconstruct the Common Facilities, and shall be applied to the extent the Common Facilities are used to serve Unit 1 or any Additional Unit. In such event, the Unit 1 Owners (if Unit 1 shall be the sole remaining unit), or the owners of the remaining operating coal-fired units shall purchase the Common Facilities, subject to any necessary regulatory or lender approval and release of any applicable mortgage indenture and only to the extent they are necessary to operate the remaining coal-fired units, from those Owners that will no longer have an ownership interest in any remaining coal-fired units on the Initial Iatan Station Site at a purchase price equal to the depreciated original cost, plus any allowance for funds used during construction or in the case of KEPCO or MJMEUC, capitalized interest or other similar cost component.            (d)  Unless approved by a majority of the Management Committee other than the Operator, the Operator shall not sell or otherwise dispose of any facilities pursuant to this Section 5.5 to an affiliate except for a cash price equal to the fair market value of such facilities or property as determined by an independent appraisal.            (e)  If the Management Committee determines not to repair, restore or rebuild any damage to Unit 2, then the Owners shall be pro-rata responsible for removal costs necessitated by the damage to Unit 2, which may be paid out of proceeds from the Unit 2 insurance.   ARTICLE VI   Capacity and Energy Entitlements; Financial Obligations; Access to Information; Defaults; Emissions Allowance Credits; Regional Transmission Organizations   6.1  Capacity Entitlement.  Subject to the other terms and conditions of this Agreement, each Owner shall be entitled to the electrical capacity of Unit 2 (as determined from time to time by the Operator and applicable rules of the reliability region, but not in excess of that then permitted by law) in proportion to its Ownership Share at such time, and it hereby acknowledges that it has no right to any capacity in excess of such amount.   6.2  Energy Entitlement.  Subject to the other terms and conditions of this Agreement, each Owner (a) shall be entitled at any time to schedule and have the right to receive electrical energy from Unit 2 at a rate not in excess of its Ownership Share of the Net Generation Output of electrical energy of Unit 2 and (b) if so requested in writing by the Operator, shall schedule and receive energy from Unit 2 at a rate not less than its Ownership Share of the Minimum Operable Capacity of Unit 2 (as determined by the Operator, but not less than that then permitted by law) at such time. Net Generation Output of Unit 2 shall be measured at the metering point for interconnection as defined by the SPP.   6.3  Test Energy.  Each Owner shall be entitled to all available test energy generated by Unit 2 in proportion to such Owner’s Ownership Share at such time. Regardless of whether an Owner accepts or receives any such test energy, each Owner shall be responsible for its Ownership Share of any costs, expenses or penalties resulting from the generation of test energy attributable to the Owner’s participation in any regional transmission organization or power pool that oversees or controls the dispatch of the Owner’s capacity and energy from Unit 2, including,   26   -------------------------------------------------------------------------------- but not limited to, energy imbalance charges and/or credits, uninstructed deviation penalties, less charges and uplift charges and/or credits.   6.4  Financial Obligations. On or after the Closing Date and within ten days of receipt of invoice from the Operator, each Owner (other than KCPL) shall pay its Ownership Share of the Cost of Construction incurred by KCPL as of the Closing Date, plus any interest charges or accumulated allowance for funds used during construction with respect to Cost of Construction incurred as of the Closing Date, all as reflected on said invoice. Thereafter, each Owner shall pay in accordance with the Construction Period Cash Flow Memorandum or the Operating Period Cash Flow Memorandum (as applicable) unless otherwise provided.   For the purposes of this Section 6.4, except as otherwise provided, expenditures shall not be deemed to include (i) interest charges on borrowed funds, income taxes, and property, business and occupation taxes of each Owner, which shall be borne entirely by such Owner, and (ii) depreciation, amortization and allowances for funds used during construction.   6.5  Access to Information.            (a)  Subject to Article XVII and pursuant to Section II of the Accounting Manual, each Owner shall have the right to inspect and audit the books and records of the Operator as they relate to the charges surrounding the Iatan Unit 2 Facility and Common Facilities. KCPL or the Operator shall keep complete and accurate records regarding Cost of Construction and Cost of Operation of Unit 2 and Common Facilities and will make available for Owners’ inspection and audit all records regarding Cost of Construction and Cost of Operation of Unit 2 and Common Facilities sufficient to allow Owners to determine that such costs and expenditures imputed to Unit 2 or the Common Facilities by KCPL under this and other ancillary agreements are accurate.            (b)  The Operator shall make Commercially Reasonable Efforts to provide operating, maintenance, and capital budgets to each Owner for the upcoming five-year period by October 1 of each year, or as soon as practicable thereafter.            (c)  To the extent reasonably practicable, by October 1 of each year, the Operator shall provide a schedule of planned maintenance outages to the Owners. Changes to such schedule shall be provided to the Owners, to the extent reasonably practicable, at least six (6) months prior to a scheduled outage. The Operator shall communicate as soon as practicable any changes to the outage schedule that occur within the six-month window, and the Operator will make a reasonable effort to minimize the impact of the change on all of the Owners.            (d)  In addition to the foregoing, the Operator shall notify the Owners in a timely manner of all significant events the Operator deems material to the construction and/or operation of Unit 2 and/or the Common Facilities.   6.6  Default.             (a)  Prior to the In-Service Operation Date, an Owner shall be in default if such Owner should:   27   --------------------------------------------------------------------------------    (i)  fail or be unable, for any reason whatsoever, within ten (10) days following written notice of delinquency to such Owner by the Operator, to make or cause to be made any payment owing hereunder for or on account of the construction of the Iatan Unit 2 Facility or the Common Facilities Upgrades, provided, however, that the Operator will first draw on such Owner’s letter of credit provided under Section 8.1(d), and if sufficient funds are available under the letter of credit, then the draw shall be deemed to cure the payment breach without further action on the part of the Owner so long as the amount available for drawing under such letter of credit is replenished to the amount required under Section 8.1(d) within ten (10) days of each such drawing;     (ii)  be in breach of any other obligation hereunder (“Non-Financial Default”) for a period of ten (10) days or more after notice thereof by the Operator or, if the Operator is in breach, by any other Owner; provided, however, such Owner or Operator will not be in default for a Non-Financial Default which does not materially affect the other Owners or construction of Unit 2 or the Common Facilities Upgrades, if the Owner or Operator makes diligent and continuous efforts to cure the breach and cures the breach within thirty (30) days of the notice of Non-Financial Default;     (iii)  admit in writing its inability to pay its debts generally as they become due or shall make a general assignment for the benefit of its creditors, or shall consent to the appointment of a receiver for the whole or any part of its utility assets; or shall be subject to an Insolvency or Seizure; or an adjudication order, judgment or decree shall be entered by any court or regulatory body of competent jurisdiction appointing, without such Owner’s consent, a receiver for the whole or any substantial part of its assets and such adjudication order, judgment, decree, or order shall not be vacated or set aside or stayed within ninety (90) days after the entry thereof; or     (iv)  be in default, under any mortgage, deed of trust, or other instrument under which a lien or other security interest has been granted or will be acquired in all or any part of such Owner’s ownership interest in the Iatan Unit 2 Facility if such default has not been waived by the affected creditor or cured within the applicable period for such default under such mortgage, deed of trust or other instrument. This provision shall not apply to KEPCO to the extent that KEPCO is then a borrower of RUS or RUS then guarantees or insures any loan to KEPCO.       (b)  After the In-Service Operation Date, an Owner shall be in default if such Owner should fail or be unable, for any reason whatsoever, within ten (10) days following notice of delinquency to such Owner, to make or cause to be made any payment due hereunder or shall fail to provide the required Emission Allowances pursuant to Section 6.8.           (c)  If, prior to the In-Service Operation Date, any Owner is in default pursuant to Section 6.6(a), then the Operator shall provide written notice thereof to all of the Owners. Such notice shall set forth in reasonable detail the name of the defaulting Owner, any amounts unpaid, and the date of such default. Within ten (10) days of receipt of such notice, each non-defaulting Owner may, by written notice to the other Owners, elect to fund all or a portion of the defaulting Owner’s share of the costs to complete construction of the Iatan Unit 2 Facility and Common Facility Upgrades in exchange for an increase in its Ownership Share pursuant to this   28 -------------------------------------------------------------------------------- Section 6.6(c). If multiple non-defaulting Owners so elect, the portions they fund shall be allocated pro rata based on their then-current Ownership Shares, unless they agree on a different allocation. If the defaulting Owner is in payment default under Section 6.6(a)(i) and if voluntary elections are not sufficient to fully cover the defaulting Owner’s payment obligations, all non-defaulting Owners shall be required to fund their pro-rata shares based on their then-current Ownership Shares, unless they agree on a different allocation. The defaulting Owner’s remaining Ownership Share in the Iatan Unit 2 Facility (and its corresponding entitlements to capacity and energy) shall, upon implementation of this Section 6.6(c), be irrevocably limited to the percentage thereof as is equal to the ratio of (a) the payments made by the defaulting Owner to (b) one hundred twenty-five percent (125%) of the total Iatan Unit 2 Facility construction expenditures of the Owners, exclusive of any allowance for funds used during construction and upon completion of the Iatan Unit 2 Facility the defaulting Owner shall remain subject to each of the provisions of this Agreement with respect to its reduced Ownership Share therein. The respective Ownership Shares (and their respective entitlements to capacity and energy) and the Common Facilities Ownership Shares of all affected Owners shall adjust automatically and proportionately to reflect the defaulting Owner’s decreasing Ownership Share and the non-defaulting Owners’ increasing Ownership Shares as and to the extent that additional construction expenditures are made or caused to be made by each non-defaulting Owner for completion of the Iatan Unit 2 Facility and the Common Facility Upgrades. If an Owner remains in default under Section 6.6(a) for a period of three consecutive calendar months, (i) the Operator may (but shall not be obligated to) cease making further demands on such defaulting Owner and (ii) the Ownership Share of such defaulting Owner shall continue to be irrevocably reduced as provided in this paragraph. Any defaulting Owner under this Section 6.6(c) shall forthwith, and without further demand, execute and deliver to KCPL for filing in the Recorder of Deeds for Platte County, Missouri, such conveyances, termination agreements, or other documentation or instruments as KCPL deems reasonably necessary and appropriate, including any instrument as may be appropriate to fully convey and vest in the remaining Owners the revised Ownership Shares in Unit 2 and/or Common Facilities, free and clear of all liens, claims, and encumbrances except as otherwise provided by this Agreement, together with such assignments and other releases or certificates as may be necessary to accomplish a reallocation of the Ownership Shares under this Agreement and any ancillary agreement.            (d)  If on or after the In-Service Operation Date, any Owner is in default pursuant to Section 6.6(b), upon written notice by the Operator to such defaulting Owner, such Owner shall not be entitled to schedule or receive any energy from Unit 2 during the continuance of such default; and during the remaining period of any such default (i) the defaulting Owner’s energy shall be sold by the Operator to pay the defaulting Owner’s allocation of the monthly operating costs, including the cost of Emission Allowances, of the Iatan Unit 2 Facility. In the event that such energy sales result in revenues in excess of the defaulting Owner’s arrearage, the Operator shall return to the defaulting Owner ninety percent (90%) of such excess revenues net of projected or actual taxes owed or expected as a result of exercising this remedy. The Operator shall retain the remaining excess revenues as an administrative fee. The Operator shall not be liable for any failure to maximize the revenues from such energy sale or to account to the defaulting Owner therefor. In the event that either the revenue from such sales is less than the defaulting Owner’s arrearage for more than three (3) consecutive months, or the defaulting Owner remains in default for more than three (3) consecutive months (during which time a defaulting Owner may cure the default), then the defaulting Owner shall offer to sell, subject to   29   -------------------------------------------------------------------------------- any necessary regulatory or lender approval and release of any applicable mortgage indenture, its Ownership Share to KCPL at depreciated original cost plus allowance for funds used during construction (or as to KEPCO or MJMEUC, its capitalized interest or other similar cost component), along with its proportionate interest in the Common Facilities (“Defaulted Shares”). Should KCPL elect not to acquire all of the Defaulted Shares, the other non-defaulting Owners may, subject to any necessary regulatory or lender approval and release of any applicable mortgage indenture, elect to acquire the Defaulted Shares of the defaulting Owner in proportion to their respective Ownership Shares at the defaulting Owner’s depreciated original cost plus allowance for funds used during construction (or as to KEPCO or MJMEUC, its capitalized interest or other similar cost component), each of which shall be defined as a “Voluntary Acquisition Election” under this Agreement Succeeding Voluntary Acquisition Elections for any remaining Defaulted Shares may continue until no Defaulted Shares remain. To the extent Defaulted Shares remain after all Voluntary Acquisition Elections, the non-defaulting Owners will be required to acquire the remaining Defaulted Shares pro-rata according to their respective Ownership Shares prior to the default, subject to any necessary regulatory or lender approval and release of any applicable mortgage indenture. The non-defaulting Owners shall not be obligated to accept a cure of a default by a defaulting Owner under this subparagraph (d) after the defaulting Owner has been in default for three consecutive months. If one year elapses after the date the Operator initially sells a defaulting Owner’s energy to pay the defaulting Owner’s allocation of monthly operating expenses and the defaulting Owner remains in default pending the sale of its Defaulted Shares, or otherwise, the non-defaulting Owners shall be required to sell, or use the defaulting Owner’s energy for their own account in proportion to their respective Ownership Shares, provided such Owners pay the corresponding proportion of operating and capital costs.            (e)  Nothing in Section 6.6(c) or 6.6(d) is intended to relieve, or shall relieve, a defaulting Owner of its liability for the default, and the exercise by the non-defaulting Owner or Owners of any rights provided for in this Section 6.6 (including rights that reduce the Ownership Share of the defaulting Owner or permit the non-defaulting Owner or Owners to use the capacity and energy entitlements of the defaulting Owner) shall be considered only in mitigation of the damages, and not liquidated damages, due the non-defaulting Owner or Owners for which the defaulting Owner shall be and remain liable until paid, together with interest thereon at a rate equal to one hundred twenty-five percent (125%) of each non-defaulting Owner’s rate of accrual of (i) allowance for funds used during construction, (ii) interest during construction, or (iii) other similar cost component regularly used by such non-defaulting Owner, each as applicable during such period.          (f)  In the event of default under Section 6.6, each Owner grants, covenants and agrees that the non-defaulting Owners shall have a lien on the defaulting Owner’s tenant in common interest, right to production, and any leasehold interest such defaulting Owner may have in the Unit 2 Site and Common Facilities. In addition, any Owners that possess an ownership interest in the Iatan Station Site shall have a right, in their discretion, to require any defaulting Owner that has a leasehold interest in the Iatan Station Site to execute and deliver an executed leasehold mortgage, in recordable form, and subject to such terms as the Owners possessing an ownership interest in the Iatan Station Site may reasonably require as a precondition to the grant of any leasehold interest in any portion of the Iatan Station Site.   30   --------------------------------------------------------------------------------           (g)  In the event that any dispute exists between or among the Owners or the Operator with respect to the payment or performance of any obligation of an Owner or the performance of the Operator under this Agreement, such Owner shall tender payment or performance as demanded by the Operator or any other Owner under protest and reservation of rights without waiving such Owner’s rights thereafter to initiate arbitration proceedings to resolve such dispute.   6.7  Emission Allowances.             (a)  Each Owner shall purchase or otherwise provide Emission Allowances to the Unit 2 Allowance account as set forth in Sections 6.8 through 6.14 (the “Allowance Contribution”), below, it being recognized that the term “allowance account,” may encompass more than one such account, each for a different pollutant for which Allowances are required by governmental agencies. In the event that a governmental agency allocates any Emission Allowances to Unit 2, such new Emission Allowances will be accounted for on an annual basis and consumed as needed for the operation of Unit 2. Any Allowances allocated by a governmental agency for an annual period (or other control period during that year, as applicable) that are not consumed during the year of allocation shall be apportioned among the Owners based on the difference between what was allocated to each Owner and what was consumed by such Owner. Any costs associated with such new Emission Allowances shall be borne by the Owners in proportion to their Ownership Shares, unless otherwise allocated to the Owners by the governmental agency.             (b)  The Owners hereby appoint KCPL, in its capacity as Operator to be the Designated Representative for Unit 2, as that term is defined under 40 C.F.R. § 72.2 and other currently and subsequently applicable regulations, which, for the duration of this appointment, and except as otherwise provided in this Agreement, will be responsible for complying with the Emission Allowance programs applicable to Unit 2 and have full powers of disposition over the Emission Allowances in the Unit 2 Allowance account; provided, however, that such appointment will in no way affect the responsibility of each Owner to comply with all requirements under applicable law and this Agreement pertaining to that Owner’s participation in the Iatan Unit 2 Facility and the Common Facilities, including, without limitation, the indemnity obligations of said Owner pursuant to Section 11.5 hereunder.   6.8  Quarterly Allowance Requirement, Initial Share, and Allowance Contribution.             (a)  The Operator shall provide each Owner on a quarterly basis a copy of the emissions data submitted to the U.S. Environmental Protection Agency (“EPA”) (or other authorized agency, if applicable) pursuant to the Acid Rain Program established under Title IV of the Clean Air Act Amendments of 1990 (or pursuant to another currently or subsequently applicable Emission Allowance program) unless an Owner waives this requirement pursuant to 40 C.F.R. § 72.21(d)(2) with respect to the Acid Rain Program (or other analogous regulation with respect to another currently or subsequently applicable Emission Allowance program).             (b)  By November 5th of each year, the Operator shall notify each Owner of its projected proportionate share (based on net megawatt hours taken by each Owner) of emissions from Unit 2 for the fourth quarter of such year (“Emissions Projection”). Within fifteen (15)   31   -------------------------------------------------------------------------------- days after the end of each calendar quarter, the Operator shall notify each Owner of its proportionate share of the actual emissions from Unit 2 for the calendar quarter just ended (“Actual Emissions”).             (c)  Within thirty (30) days of receipt of the Emissions Projection (in the case of the fourth quarter of each year) or the statement of Actual Emissions (in the case of the first three quarters of each year), each Owner other than KCPL shall provide its proportionate share of Emission Allowances for the calendar quarter covered by such projection or statement.             (d)  With respect to the fourth calendar quarter of each year, to the extent an Owner’s Emissions Projection exceeded its Actual Emissions (“Excess Allowances”), an Owner would be entitled to a refund or could leave its Excess Allowances in the Unit 2 account to be credited against the following quarter’s emissions. To the extent an Owner’s Actual Emissions exceeded its Emissions Projection, an Owner shall provide the Operator with sufficient Emission Allowances to cover the shortfall within thirty (30) days of such notice of Actual Emissions.             (e)  Any Owner that is also a Unit 1 Owner may fulfill its obligations to provide Allowances for Unit 2 hereunder by a reallocation of Allowances from Unit 1 to Unit 2, provided such reallocation is permitted by and effected in compliance with applicable law and provided such reallocation does not result in insufficient Allowances being available from such Owner for Unit 1.             (f)  Anything to the contrary in subsections (a) through (e) above notwithstanding, to the extent that any emissions are regulated under a program that requires Allowances to be in place on a calendar cycle that is not consistent with such subsections, the Operator shall provide notice to the other Owners at least sixty (60) days prior to any relevant compliance deadline and the Owners shall purchase or otherwise provide their allocable shares of any required Allowances at least thirty (30) days prior to the relevant compliance deadline. If the provision of Allowances is required in advance of the end of the applicable operating period or as soon after the applicable operating period that the Operator determines it is not feasible to base the allocation of Allowances on the Owners’ actual energy usage, the Owners’ allocable shares shall initially be based on their Ownership Shares, with a subsequent true-up based on the net megawatt hours taken by each Owner during the applicable operating period; otherwise, the allocable shares shall be based on the net megawatt hours taken by each Owner during the applicable operating period.   6.9  Annual Adjustment of Allowance Contribution.  Each Owner’s allocation of Allowances in Unit 2’s Allowance account shall be reduced upon EPA’s (or other authorized agency’s) annual deduction of Allowances from Unit 2’s Allowance account pursuant to 40 C.F.R. § 73.35, or other subsequently or currently applicable regulations, in an amount equal to its allocated share of Unit 2’s Allowances for the year or other control period. To the extent that an Owner’s Allowance allocation for the year just concluded exceeded its required share of Unit 2’s Emission Allowances, such excess Allowances shall be credited to that Owner’s Allowance Allocation for the current year.       6.10  Excess Allowances.  An Owner may direct the Operator at any time to file a request with applicable governmental agencies to transfer Allowances from a given year’s   32   -------------------------------------------------------------------------------- subaccount within Unit 2’s Allowance account to an account designated by such Owner. Notwithstanding the foregoing, however, there shall be no obligation on the part of the Operator to file a request for transfer if such transfer will result in the failure of Unit 2 to meet its Allowance requirements.       6.11  Procedures for Transferring Allowances; Compliance Use Dates.  All Allowance transfers required or authorized by this Article shall be effected in accordance with procedures specified by EPA (or other government agencies with jurisdiction over such transfers) under EPA’s Allowance Tracking System established pursuant to 40 C.F.R. Part 73, Subpart C (or analogous provisions of other currently or subsequently applicable Allowance programs). An obligation hereunder to transfer or acquire Allowances required for a given calendar year or other control period shall be deemed satisfied only if the Allowances transferred to the Unit 2 account bear a compliance-use date (as such term is currently defined in 40 C.F.R. § 72.2 or any currently or subsequently applicable regulations) for such year or control period (or any earlier year or control period).       6.12  Restrictions on Allowance Transfers to Cover Excess Emissions.  The Operator shall not authorize the transfer of any Allowances supplied by an Owner from the Iatan Unit 2 account to the account of any other unit to cover excess emissions at such other unit pursuant to 40 C.F.R. § 73.35(b) or any currently or subsequently applicable regulations, or for any purpose (other than an Owner’s exercise of its rights under Section 6.10), without the prior approval of such Owner.       6.13  Acquisition of Allowances by Operator, Reimbursement of Costs.  In the event that any Owner has failed to supply its Annual Allowance Contribution by the deadlines established under Sections 6.8 (c), (d), and (f) of this Agreement, the Operator shall provide notice thereof to such Owner. If such Owner does not provide its Allowance Contribution by February 15th of the year immediately subsequent to the year in which the emission occurred (or at least thirty (30) days prior to any deadline contemplated in Section 6.8(f)), the Operator may attempt to acquire Allowances to cover the shortfall. The costs incurred by the Operator to acquire Allowances pursuant to this Section 6.13 (including commercially reasonable brokerage fees) shall be reimbursed by such deficient Owner within ten (10) days after receipt by such deficient Owner of an invoice from the Operator documenting the incurrence and amount of such costs. In addition, the deficient Owner shall pay to the Operator a service fee equal to 25% of the costs incurred by the Operator to acquire the deficient Owner’s required Allowances. In the event that the Operator is unable or unwilling to obtain Allowances, the Owner shall be deemed to be in default of this Agreement. Any Owner that fails to true-up its allowance account by February 28th of each year (or other applicable compliance deadline) agrees to be responsible for any civil or criminal sanctions imposed as a result of such failure. Any Owner that fails to provide its proportionate share of Emission Allowances and said failure results in notice of violation and/or sanctions issued by a regulatory agency, shall publicly acknowledge, in a manner acceptable to KCPL, that it was its actions or inactions that resulted in said notice of violation and/or sanctions.       6.14  Compliance Not Measured on Unit Basis.  To the extent that compliance with Allowances and related requirements for any type of regulated emissions (“Site-Based Emissions”) from Unit 1, Unit 2, and/or any Additional Unit(s) is, pursuant to applicable law and   33 -------------------------------------------------------------------------------- regulations, measured based on total emissions from the Iatan Station Site as a whole rather than separately measured based on emissions from individual units thereon, the following provisions shall apply and shall supersede any contrary provisions of Sections 6.7 through 6.13:            (a)  The Management Committee shall make a reasonable allocation of Site-Based Emissions among the units on the Iatan Station Site from time to time based on the units’ actual or (if data regarding actual emissions is not readily available) projected output of the Site-Based Emissions.            (b)  To the extent that the Unit 1 emissions allocation determined pursuant to subsection (a) exceeds the emissions allowances for the relevant Site-Based Emissions that are available to Unit 1 under the applicable regulatory regime, the Owners that are Unit 1 owners shall be responsible (in proportion to their respective Unit 1 Ownership Shares) for purchasing or providing additional Allowances so that Unit 1 will at all times have sufficient Allowances to cover the Unit 1 emissions allocation.            (c)  The Owners shall be responsible (in proportion to their respective Ownership Shares) for purchasing or providing Allowances in addition to the Allowances referred to in clause (b) so that the Iatan Station Site will at all times have sufficient Allowances to comply with the applicable Site-Based Emissions requirements.            (d)  The foregoing items (a) through (c) shall be separately determined for each different type of Site-Based Emissions.       6.15  Regional Transmission Organizations.            (a)  Initially, Unit 2 will be designated as a network resource within SPP. Each Owner shall be authorized to register, and, if applicable, bid its entitlement to capacity and energy under this Agreement with a regional transmission organization or power pool (an “RTO”) that oversees or controls the dispatch of the Owner’s capacity and energy from Unit 2; provided, however, that such registration or bidding does not adversely affect the designation of Unit 2 as an SPP designated resource. All changes to RTO status will be determined by the Management Committee.            (b)  Capacity and energy from Unit 2 will be delivered to the Owners at the transmission interconnection point for Unit 2. Each Owner will be responsible for arranging for transmission service for its ratable share of such capacity and energy. Each Owner shall be responsible for any costs attributable to the Owner’s participation in an RTO that oversees or controls the dispatch of the Owner’s capacity and energy from Unit 2, including, but not limited to, energy imbalance charges and/or credits, uninstructed deviation penalties, loss charges and uplift charges/credits.       6.16  Transaction with Other Parties.  Each Owner is entitled to transact with other parties for the supply of capacity and energy from Unit 2 in accordance with applicable regulations and separate agreements; provided that such transactions shall not convey to any party any rights hereunder or with respect to the construction and/or operation of Unit 2 and no such transactions shall result in any person or entity being in privity with the Owners or Operator hereunder.   34   -------------------------------------------------------------------------------- ARTICLE VII   Fuel Supply       7.1  Procurement of Fuel.   KCPL shall procure, furnish, or cause to be furnished, the fuel supply for the Iatan Station, including Unit 2.       7.2  Negotiation and Renegotiation of Contracts.   KCPL shall have the right to negotiate, renegotiate or modify coal supply contracts, rail transportation and related (including but not limited to rail car supply and maintenance) contracts, and related Fuel Commodities supply contracts; and to settle disputes on all of the above.       7.3  Ownership.  Fuel for the Iatan Station shall be paid for and owned by each Owner in accordance with the Iatan Unit 2 Accounting Manual, a copy of which is attached hereto as Exhibit J. Fuel shall include Fuel Commodities and costs included in the definition of Actual Fuel Costs.       7.4  Fuel Supply Interruption.  If an interruption in fuel supplies or fuel transportation materially impairs the Net Generation Output of Unit 1 and/or Unit 2, then the Operator is authorized to determine how to allocate fuel supplies between Unit 1 and Unit 2. If the Owners do not unanimously agree with such allocation at the time of such fuel supply or transportation interruption, any energy generated under such circumstances shall be allocated among the Owners in proportion to their respective Common Facilities Ownership Shares. The Owners will determine at such time how to allocate equitably among the Owners the operating, maintenance and other costs incurred during such fuel interruption operation.       7.5  KCPL Fuel Transportation.  To the extent KCPL uses rail transportation facilities (including KCPL’s or its affiliates’ facilities) for delivery of fuel to the Iatan Station Site, the costs thereof shall comply with Section 5.3(f).   ARTICLE VIII   Financial Responsibility       8.1  Demonstration of Creditworthiness During Construction.   Each Owner shall maintain a proven ability to pay and perform all funding and other financial obligations required of it prior to the Commercial Operation Date. The Owners may demonstrate this in any of the following ways:           (a)  by maintaining a senior unsecured long-term debt rating of not less than BBB- as determined by Standard & Poor’s (“S&P”) and/or Baa3 as determined by Moody’s Investors Service (“Moody’s”) and an ability, as supported by financial projections for a term of at least five years and, at the request of the Owners whose Ownership Shares constitute a majority of the total Ownership Shares, by an evaluation performed by S&P pursuant to its Ratings Evaluation Service or by Moody’s pursuant to its equivalent product (if available), to maintain such a rating; or   35   --------------------------------------------------------------------------------           (b)  by maintaining a total indebtedness of sixty-two and one-half percent (62.5%) or less of total capitalization or maintaining net income plus interest, taxes, depreciation, amortization and certain other non-cash charges above two hundred percent (200%) of interest charges for the trailing four fiscal quarters at the end of each fiscal year; or           (c)  by providing a guarantee to KCPL (acting as agent for all the Owners) of all the Owner’s payment and performance obligations as an Owner of an undivided ownership interest in the Iatan Unit 2 Facility, in form and substance satisfactory to KCPL, in KCPL’s sole discretion, and issued by an entity having a senior unsecured long-term debt rating of not less than BBB by S&P and A3 by Moody’s and an ability, as supported by financial projections for a term of at least five years and, at the request of KCPL, by an evaluation performed by S&P pursuant to its Ratings Evaluation Service or by Moody’s pursuant to its equivalent product (if available), to maintain such a rating; or           (d)  by providing an irrevocable letter of credit to KCPL, to be held and utilized exclusively by KCPL as agent for and on behalf of the Owners (subject to the relevant Owner’s right to substitute letters of credit with subsequent irrevocable letters of credit having more favorable terms to the Owner, such as improved collateral requirements or terms that reflect improvements in the entity’s financial health) supporting the Owner’s payment obligations, in form and substance satisfactory to KCPL, in its sole and reasonable discretion; provided, any letter of credit provided pursuant to this provision will expire on the date on which such Owner obtains a senior unsecured long-term debt rating of not less than Baa3 and BBB- from Moody’s and S&P, respectively. The face value of the letter of credit obtained for KCPL’s benefit hereunder will at all times during the construction period be equal to the greater of (i) fifty percent (50%) of the Owner’s ratable share of the construction costs of Unit 2 over the remaining construction period or (ii) one hundred percent (100%) of the Owner’s ratable share of the construction costs of Unit 2 projected to be incurred over the next succeeding nine quarters of the construction period (or, if fewer than nine quarters remain in the construction period, such fewer quarters), in each case, as calculated quarterly in accordance with the construction budget. Any letter of credit obtained under this provision shall be issued by a financial institution having a senior unsecured long-term debt rating of not less than A- by S&P and A2 by Moody’s. The terms of the letter of credit shall provide for the release to KCPL of up to the entire face value of the letter of credit upon default by the Owner under this Agreement; or           (e)  by obtaining, within sixty (60) days of the effective date of this Agreement, two of three indicative project credit ratings of not lower than BBB- as determined by S&P, Baa3 as determined by Moody’s, and BBB- as determined by Fitch Ratings, and thereafter, by issuing electric system utility revenue bonds that receive two of three investment grade ratings of not less than BBB- as determined by S&P, Baa3 as determined by Moody’s, or BBB- by Fitch Ratings; or           (f)  by providing some alternate method of satisfying Section 8.1 that KCPL approves in its reasonable discretion.   36   -------------------------------------------------------------------------------- ARTICLE IX   Taxes and Insurance   9.1  Taxes; Election Out of Partnership Treatment.            (a)  The Owners agree that they intend that the arrangements provided for in this Agreement and any other ancillary agreements entered into in connection herewith (collectively, the “Arrangements”) be excluded from the application of Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue Code of 1986, as amended (the “Code”). Any allocation under this Agreement of general liabilities, expenses, costs, charges or reserves of Unit 2 that are not readily identifiable as belonging to any particular Owner shall not represent a joining together of the Owners to pool capital for the purposes of carrying on a trade or business or making common investments and sharing in profits and losses therefrom. In this regard, the Owners do not intend to create any joint venture, partnership, association taxable as a corporation, or other entity for the conduct of any business for profit. The Owners authorize KCPL to prepare and file a return satisfying the requirements of United States Treasury Regulations Section 1.761-2(b)(2) and on which an election for the Arrangements to be excluded from the provisions of Subchapter K is set forth. Each Owner agrees that it shall (i) take no action which would prevent the effectiveness of such election and (ii) report its respective share of the items of income, deduction and credit arising from the Arrangements for federal income tax purposes in a manner consistent with the exclusion of such arrangements from Subchapter K. Each Owner authorizes KCPL to take such steps as may reasonably be required to exclude the Arrangements from treatment as a partnership or corporation for state or local income or franchise tax purposes and the Owners agree that they shall provide such assistance and cooperation in relation thereto as may reasonably be requested. Where the Arrangements are not eligible for a complete exclusion from partnership treatment for federal or state income or franchise tax purposes, the Owners agree that they intend that the Arrangements be excluded from partnership treatment to the greatest extent possible and authorize KCPL to take such steps as may be reasonably necessary to secure such exclusion.            (b)  To the extent possible, KCPL and the other Owners shall each separately report and pay for all real property, franchise, business, or other taxes and fees, if applicable to said party, arising out of the acquisition, construction, operation, disposition and co-ownership of Unit 2; provided, however, that to the extent that such taxes, fees, payroll taxes, sales taxes and/or use taxes may be levied on or assessed against Unit 2, or its operation, or KCPL and other Owners in such a manner as to make impossible the carrying out of the foregoing provisions of this Section, then such taxes, fees, and, payroll taxes, sales taxes and/or use taxes shall be paid by KCPL, and Owners shall immediately reimburse KCPL for their proportionate share of such payment. Ad valorem taxes on the Existing Common Facilities for the year in which the Reciprocal Conveyance Date occurs shall be prorated between KCPL and the other Owners based upon their Common Facilities Ownership Shares. Owners shall be responsible for all sales and transfer taxes and recording fees incurred, if any, in connection with the conveyance to Owners of such undivided interests in Unit 2 and Existing Common Facilities, pursuant to this Agreement.   37   --------------------------------------------------------------------------------     9.2  Insurance.           (a)  KCPL, during the construction of Unit 2 and the Common Facilities Upgrades, shall maintain or cause to be maintained Builder’s Risk insurance in an amount and including such risks as is consistent with Good Utility Practice. KCPL shall evaluate an owner controlled insurance program (“OCIP”) and may adopt an OCIP provided 1) the coverages are equal to or broader than those available under a contractor provided insurance program and/or 2) it is economical. All deductibles payable under any program of insurance, together with any self-insured retention, shall be borne by the Owners in proportion to their respective Ownership Shares or Common Facilities Ownership Shares, as applicable.           (b)  For non-OCIP insurance coverages, and/or for the insurance coverages obtained from a contractor-provided insurance program, KCPL shall also reasonably satisfy itself and Owners that all contractors and subcontractors have minimum insurance coverages and limits with carriers approved by KCPL, and with a rating of not less than A- as determined by A.M. Best Company. The aggregate costs of all insurance procured pursuant to this Section shall be considered a Cost of Construction of Unit 2 and as such, shall be apportioned among the Owners in proportion to their Ownership Shares. KCPL will advise the other Owners of the type and coverages of insurance procured and, advise any Owner and/or the Management Committee of any changes in such insurance.           (c)  Owners, through the Management Committee, have the right to review and comment on KCPL’s safety program for construction of Unit 2.           (d)  With respect to the period after the In-Service Operation Date, the Operator shall obtain insurance for the Iatan Unit 2 Facility and the Common Facilities in an amount, and with coverages, approved by the Management Committee. Each Owner shall pay its proportionate Ownership Share or Common Facilities Ownership Share, as applicable, of the insurance premiums for the Iatan Unit 2 Facility, for the Common Facilities, and all other costs associated with insuring said facilities, unless otherwise agreed to by the Owners.           (e)  During the construction of Unit 2 and with respect to the period after In-Service Operation Date each Owner may supplement the insurance coverage maintained by KCPL at its own expense.           (f)  Each Owner and the Rural Utilities Service shall be a named as insureds (as their interests may appear) under the insurance policies, with subrogation rights waived.           (g)  The Operator, subject to confidentiality provisions it may require in its reasonable discretion and Article XVII, shall provide copies of insurance policies applicable to Unit 2 to Owners upon request.           (h)  Upon receipt of notice of premium payments due for any insurance coverage, the Operator shall send a copy thereof to each Owner, which shall pay its share of the premium due in accordance with the applicable Cash Flow Memorandum.   38   -------------------------------------------------------------------------------- ARTICLE X   Partition; Encumbrance; Transfer       10.1  Partition.  The Owners and their successors and assigns hereby waive their respective rights with respect to the partition of the Iatan Unit 2 Facility, the Common Facilities, and any portion thereof for a period of time ending with the abandonment of the use thereof for the generation, transmission or distribution of electricity. No Owner shall have the power or right to take or resort to any action (including, without limitation, any court proceeding at law or in equity) for the purpose of or which might result in a partition of the Iatan Unit 2 Facility, the Common Facilities, or any portion thereof. Each Owner, for itself and its successors and assigns, hereby releases all partition rights in respect thereof, whether now existing or hereafter accruing, whether under common law or statute, and whether in kind or otherwise, and each Owner shall from time to time, upon written request by any other Owner, execute and deliver such further instruments as may be necessary or appropriate to confirm the foregoing waiver and release of partition rights.       10.2  Encumbrance.           (a)  Each Owner and its successors and assigns of the Iatan Unit 2 Facility, the Common Facilities or any portion thereof shall have the right to and may encumber its Ownership Share and its Common Facilities Ownership Share, or any portion thereof, (subject to the provisions of this Ownership Agreement) by any deed of trust, mortgage indenture or other security agreement, whether now existing or hereafter created as security for its present or future bonds or other obligations or securities, without the prior consent of any other Owner, and any trustee or secured party thereunder, when acting pursuant to the provisions thereof, shall have the benefit of, and may require and enforce performance of, the covenants and obligations herein and may exercise all rights and powers of such Owner under this Agreement as the same may then be in effect; provided, however, that nothing herein shall be construed to change, abrogate or limit in any way any rights and/or protections available to any of the Owners pursuant to the Bankruptcy Code, including, but not limited to 11 U.S.C. § 363(h) therein, or Mo. Rev. Stat. § 393.105.            (b)  Notwithstanding the foregoing or any provision of any other of the Agreements, KEPCO shall have the right to and may encumber in favor of the United States of America, acting through the Administrator of the Rural Utilities Service (“RUS”), and its other lenders, by any deed of trust, mortgage indenture or other security agreement, whether now existing or hereafter created as security for its present or future bonds or other obligations or securities, its Ownership Share and its Common Facilities Ownership Share, or any portion thereof, and its interests in the Agreements, without the prior consent of any other Owner, and any trustee or secured party under any such security agreement (a “Secured Party”), when acting pursuant to the provisions thereof, (i) shall have the benefit of, and may require and enforce performance of, the covenants and obligations in the Agreements and may exercise all rights and powers of KEPCO under the Agreements as the same may then be in effect (provided, however, that nothing herein shall be construed to change, abrogate or limit in any way any rights and/or protections available to any of the Owners pursuant to the Bankruptcy Code, including, but not limited to 11 U.S.C. § 363(h) therein, or Mo. Rev. Stat. § 393.105), and (ii) without the approval   39   -------------------------------------------------------------------------------- of any Owner, may cause such encumbered Ownership Share, Common Facilities Ownership Share and interests in the Agreements to be sold, assigned or otherwise transferred pursuant to the exercise of its remedies under such security agreement or in connection with a settlement of a debt secured by such security agreement. Any transfer pursuant to clause (ii) of the immediately preceding sentence shall be made subject to (A) the provisions of Section 10.4 (except in the event that such Secured Party has complied with the provisions of Section 10.2(c), in which case the provisions of Section 10.4 shall not apply to such transfer if such transfer is consummated within twelve (12) months of the applicable Lapse Date), and (B) all of the other benefits and burdens of the covenants and obligations applicable thereto as provided in the Agreements. Any such transferee shall assume and agree, in writing, delivered to the other Owners, to perform the provisions of the Agreements, and at such point shall be deemed an Owner, an “Assignee,” “Unit 2 Site Lessee,” a “Nower Property Lessee” or other appropriate party under the Agreements.           (c)  Any transfer by a Secured Party pursuant to clause (ii) of the first sentence of Section 10.2(b) shall be made subject to the provisions of Section 10.4, unless the Secured Party shall have offered (or caused KEPCO to offer) to sell, subject to regulatory approval, its Ownership Share and its Common Facilities Ownership Share and its interests in the Agreements (collectively, the “Transferable Interests”) first to KCPL and then to the other Owners at the Appraised Value in compliance with the provisions of this Section 10.2(c). Should KCPL elect to purchase the entire Transferable Interests (a “KCPL Acquisition Election”) available, the other Owners shall have no right to purchase such available Transferable Interests. Should KCPL elect not to acquire all of the Transferable Interests within fifteen (15) days following receipt of the final calculation of the Appraised Value, the other Owners may, subject to regulatory approval, elect by written notice to KCPL within seven (7) days following the end of such fifteen (15) day period to acquire the remaining Transferable Interests in proportion to their respective Ownership Shares at the Appraised Value (each, an “Other Owner Acquisition Election”). To the extent that Transferable Interests remain after the initial round of KCPL Acquisition Elections and Other Owner Acquisition Elections, KCPL and the other Owners shall have the right to make subsequent KCPL Acquisition Elections and Other Owner Acquisition Elections for any remaining Transferable Interests (with KCPL’s right to make KCPL Acquisition Elections superseding the other Owners’ rights to make Other Owner Acquisition Elections). Succeeding rounds of KCPL Acquisition Elections and Other Owner Acquisition Elections may continue until no such Transferable Interests remain; provided, that all KCPL Acquisition Elections and Other Owner Acquisition Elections under this Section 10.2(c) shall be completed within forty-five (45) days following KCPL’s receipt of the final calculation of the Appraised Value (such forty-fifth day, the “Lapse Date”). In the event that by the Lapse Date not all of the Transferable Interests are elected to be acquired by KCPL or the other Owners, then none of the Transferable Interests shall be acquired by KCPL or the other Owners under this Section 10.2(c), and the Secured Party may then transfer or cause to be transferred the Transferable Interests pursuant to clause (ii) of the first sentence of Section 10.2(b) free of the requirements of Section 10.4, if such transfer is consummated within twelve (12) months of the Lapse Date. If all of the Transferable Interests are to be acquired by KCPL and the other Owners pursuant to this Section 10.2(c), KEPCO (or the Secured Party, as applicable), KCPL and the other Owners, as applicable, shall diligently work to complete the purchase of the Transferable Interests on arm’s length commercially reasonable terms, and the relevant Owners shall pay their respective shares   40   -------------------------------------------------------------------------------- of the Appraised Value in immediately available funds directly to the Secured Party at the completion of such purchase.   For purposes of this Section 10.2(c), “Appraised Value” shall mean the value of the Transferable Interest determined as follows:               (1)  Each of the Secured Party and KCPL shall appoint an appraiser within fifteen (15) days following the date that the Secured Party gives written notice to KCPL of the Secured Party’s intent to transfer or cause to be transferred the Transferable Interests pursuant to clause (ii) of the first sentence of Section 10.2(b) free of the requirements of Section 10.4 (such fifteenth day, the “Trigger Date”).               (2)  The Secured Party and KCPL shall jointly appoint a third appraiser from a list of four appraisers, which list shall be comprised of two appraisers proposed by the appraiser appointed by the Secured Party and two appraisers proposed by the appraiser appointed by KCPL. Such proposals shall be submitted by the first two appraisers within ten (10) days of the date on which the second such appraiser is appointed. If the Secured Party and KCPL are unable to agree on such jointly appointed appraiser within ten (10) days of receipt of the list of four proposed appraisers, each of the Secured Party and KCPL may strike one proposed appraiser from the list of four and names of the remaining two proposed appraisers shall be submitted to the senior officer resident in the American Arbitration Association office in St. Louis, Missouri (or such successor regional office thereof as shall serve the State of Missouri) who shall, or shall appoint a person to, choose one appraiser from the remaining two proposed appraisers. If the Secured Party or KCPL refuses or is unable to participate in the process of appointing appraisers as described above, the Appraised Value shall be determined by a single independent appraiser appointed by the party that is participating in the valuation process.               (3)  The three appraisers selected as provided above shall be instructed to determine the fair market value for the Transferable Interests within sixty (60) days following the selection of the third appraiser by using the discounted cash flow method of valuation.               (4)  The appraisers shall not be required to submit detailed appraisals but each shall be required to submit a single numerical value for the Transferable Interests. If the highest or lowest of the three values varies from the arithmetic mean of the other two values by more than 10% of such arithmetic mean, then the highest or lowest (or both, if both the highest and lowest vary from the arithmetic mean of the other two values by more than 10% of the mean of the other two values) shall be discarded and the Appraised Value shall be the arithmetic mean of the remaining two values (or the one remaining value if only one remains). If none of the values is discarded pursuant to the preceding sentence, then the Appraised Value shall be the arithmetic mean of all three values. The Appraised Value determined pursuant to the foregoing procedure shall be final and binding on the parties.               (5)  Each appraiser appointed or proposed hereunder must be an appraiser, accountant, investment banker, certified financial analyst (with the professional designation “CFA”) or commercial banker in each case experienced in the valuation of industrial assets. Any dispute regarding the qualification of any appraiser proposed or appointed hereunder shall be resolved by arbitration before the appraisal process proceeds.   41   --------------------------------------------------------------------------------             (6)  Each of KCPL and KEPCO shall bear the cost of the appraiser that it appoints (or is appointed on its behalf); provided, that if KCPL does not purchase the Transferable Interests the cost of the appraiser appointed by KCPL shall be borne by the Owners that are acquiring Transferable Interests pro rata in proportion to their Ownership Shares. KEPCO and the Owners acquiring Transferable Interests shall all bear all other costs of the appraisal (including the cost of the third appraiser) in proportion to their Ownership Shares.       10.3  Transfer.  No Owner shall have the power or the right, without the prior written consent of all other Owners, which consent shall not be unreasonably delayed or withheld, to sell, transfer or assign any right, title or interest in, or create any lien or encumbrance on, all or any part of the facilities and property represented by its Ownership Share therein, except that no consent shall be required for an Owner (a) to encumber or transfer such Ownership Share, Common Facilities Ownership Share and interests in the Agreements as provided in Section 10.2, or (b) to transfer such Ownership Share to another corporation or other entity (whether or not affiliated with such Owner), together with all or substantially all of its other utility property, whether by sale or pursuant to or as a result of a merger, consolidation, liquidation or corporate reorganization, provided that such corporation or other entity by written agreement or by operation of law assumes the obligations hereunder of the Owner transferring such Ownership Share, or (c) to transfer such Ownership Share or any portion thereof pursuant to the provisions of Section 10.4.       10.4  Right of First Refusal.           (a)  Except with respect to transfers permitted without the consent of any party under Section 10.2 or 10.3, should any Owner desire to sell, transfer, assign, convey or otherwise dispose of all or any part of its Ownership Share (the “Transfer Share”) to any other entity or agency whatsoever including any other Owner (the “Proposed Transferee”), the other Owners (the “Remaining Owners”) shall have rights of first refusal, as provided in this Section 10.4, to purchase such Transfer Share, and such Owner shall have neither the power nor the right to dispose of such Transfer Share except as follows:           (b)  Any Owner desiring to dispose of its Transfer Share shall first serve a written Notice of Intent to Transfer upon the Remaining Owners. Such Notice shall contain the approximate proposed date of disposition of such Transfer Share, the terms and conditions of the disposition to the Proposed Transferees, and the terms and conditions under which such Owner would sell such Transfer Share to the Remaining Owners (including, without limitation, the right to purchase for cash), which shall be at least as favorable to the Remaining Owners as the terms and conditions offered by the Proposed Transferee. The Owner desiring to dispose of its Transfer Share shall also provide the Remaining Owners with a copy of any bona fide offer, which the departing Owner desires to accept. The terms and conditions of any such written offer shall be subject to the confidentiality provisions of Article XVII.           (c)  Each Remaining Owner desiring to purchase all or any portion of such Transfer Share shall signify such desire by serving written Notice of Intent to Purchase upon the Owner desiring to dispose of such Transfer Share and the other Remaining Owners within ninety (90) days after receipt of Notice of Intent to Transfer under Section 10.4(b).   42   --------------------------------------------------------------------------------         (d)  If the Remaining Owners signify their intention under Section 10.4(c) to purchase in the aggregate more than the entire Transfer Share, then each such Remaining Owner shall have the right to purchase (i) the lesser of its requested amount or a portion of the Transfer Share equal to the ratio of its Ownership Share to aggregate Ownership Shares of the Remaining Owners who have served a Notice of Intent to Purchase under Section 10.4(c), plus (ii) additional shares to the extent available after (i), such that its total acquired amount does not exceed its original request.           (e)  If in their Notices of Intent to Purchase served under Section 10.4(c) the Remaining Owners should signify an intention to purchase less than the entire Transfer Share, the Remaining Owners shall have an additional sixty (60) days after receipt of the last Notice of Intent to Purchase under Section 10.4(c) to signify their intention to purchase the remaining portion of the Transfer Share.           (f)  If and when intention to purchase all or a portion of the Transfer Share has been signified by written Notices of Intent to Purchase from the Remaining Owners, disposal of such Transfer Share shall be effected by the Owner thereof to the Remaining Owners in accordance with their respective Notices of Intent to Purchase, subject to all required governmental regulatory approvals thereof, and release of any liens imposed thereon by or through the Owner thereof.           (g)  If, after the 60-day period specified in Section 10.4(e), the Remaining Owners still have not provided written notice of their intent to purchase all of the Transfer Share, the Owner thereof shall be free to dispose of the remaining portion (i.e., that portion which the Remaining Owners have not signified their intention to purchase) of such Transfer Share to the Proposed Transferee upon the terms and conditions stated in its bona fide written offer.           (h)  Any disposition of a Transfer Share hereunder, whether to any Remaining Owner or Owners or to any Proposed Transferee, shall be made subject to all of the benefits and burdens of the covenants and obligations applicable thereto as provided in this Agreement. Any such Proposed Transferee shall, upon receipt of such Transfer Share, assume and agree, in writing, delivered to the other Owners, to perform the provisions of this Agreement, and at such point shall be deemed an Owner under this Agreement.       10.5  Restrictions on Transfer of KCPL’s Obligation as Operator.  Notwithstanding anything in this Article X, KCPL shall not transfer or assign its obligations as Operator, except (a) as provided for in Section 5.3(b), or (b) in connection with a transfer of its entire Ownership Share subject to the restrictions and the consent requirement set forth in Section 10.3.       10.6  Required Transfer of Common Facilities and Interest in Real Property.  The Transfer Share shall include an appropriately allocable share of the transferring Owner’s Common Facilities Ownership Share and the transferring Owner’s interest in any real property at the Iatan Station Site.       10.7  Environmental Control Financing.   Insofar as it may be required for the financing of environmental control or other facilities through the Environmental Improvement and Energy Resources Authority of the State of Missouri, pursuant to §§ 260.005 through 260.125, RSMo, as   43   -------------------------------------------------------------------------------- amended, each of the Owners may individually sell, convey or grant leasehold estates in its undivided interest in such facilities and non-exclusive, appurtenant licenses, easements and rights-of-way over, across, through and under the Iatan Unit 2 Facility for the purposes of locating and maintaining such facilities on the Iatan Unit 2 Facility and providing such rights of access to such facilities as may be necessary for their inspection during the term of any such leasehold estate; provided, however, that no such sale, conveyance, leasehold, license, easement or right-of-way shall (i) grant or purport to grant any right to operate, remove and/or partition or cause any partition to occur with respect to any of the machinery, equipment, buildings, structures or facilities constituting a part of the Iatan Unit 2 Facility or (ii) unreasonably interfere with or materially impair the use of any then existing facilities located on Iatan Station Site; further provided, however, that nothing herein shall be construed to change, abrogate or limit in any way any rights and/or protections available to any of the Owners pursuant to the United States Bankruptcy Code, including, but not limited to 11 U.S.C. § 363(h) therein, or Mo. Rev. Stat. § 393.105.   ARTICLE XI      Covenants and Obligations       11.1  Equitable Servitudes.  The respective covenants and obligations of the Owners under this Agreement are intended to be in the nature of equitable servitudes (not liens) which shall run with the respective rights, titles and interests of their Ownership Shares and Common Facilities Ownership Shares and be for the benefit of and be binding upon any and all persons whomsoever having or claiming any right, title or interest in or to the Iatan Unit 2 Facility and the Common Facilities or any portion thereof by, from, through or under the Owners, or their successors or assigns.       11.2  Independent Covenants and Obligations.  As between and among the Owners, the covenants and obligations contained in this Ownership Agreement are to be deemed to be independent covenants, not dependent covenants, and the obligation of any Owner to keep and perform all of the covenants and obligations assumed by or imposed upon it hereunder is not conditioned upon the performance by any other Owner of all or any of the covenants and obligations to be kept and performed by it.       11.3  Several Obligations.  The obligations and liabilities of the Owners are intended to be several and not joint or collective, and nothing herein contained shall be construed to create an association, joint venture, trust or partnership. Each Owner shall be individually responsible for the performance of its own obligations herein provided. No Owner shall have a right or power to bind any other Owner without its express written consent, except as expressly provided in this Agreement or in an ancillary agreement.       11.4  Risk of Loss; Liability.  All risk, loss and damage arising out of the ownership, construction, operation or maintenance of any portion of the Iatan Unit 2 Facility and the Common Facilities, shall be borne by the Owners thereof in proportion to their Ownership Shares or Common Facilities Ownership Share, as applicable, all or portions of which shall be insured by the Operator as set forth in Section 9.2. If any Owner, by reason of joint liability, shall be called upon to make any payment or incur any obligation in excess of its proportionate   44   -------------------------------------------------------------------------------- Ownership Share or Common Facilities Ownership Share, as applicable, then the other Owners shall have the obligation to pay and reimburse, regardless of cost, such Owner proportionately to the extent of any such excess by tendering payment upon ten (10) business days’ notice of such Owner’s payment in excess of its Ownership Share or Common Facilities Ownership Share, as applicable. Nothing contained herein shall result in any Unit 1 owner being liable to any Owners for any loss or damage resulting from the ownership, construction, operation or maintenance of any portion of Unit 1, and nothing contained herein shall result in any Owner being liable to any Unit 1 owner for any loss or damage resulting from the ownership, construction, operation or maintenance of any portion of Unit 2.       11.5  Indemnity.           (a)  Subject to Section 11.6(a) and (b), and to the maximum extent permitted by law, each Owner hereby agrees to indemnify, defend and hold harmless each other Owner (an “Indemnified Owner”) against, and agrees to hold each Indemnified Owner harmless from any claims, damages, liabilities, liens, losses or other obligations whatsoever incurred or suffered by an Indemnified Owner (together with reasonable costs and expenses, including reasonable fees and disbursements of counsel relating thereto) to the extent arising out of: (a) the failure of the Owner to satisfy, discharge or pay any liability owed by it hereunder, or (b) any misrepresentation or material breach of warranty by the Owner in this Agreement or any material breach of a covenant or agreement made or to be performed by the Owner pursuant to this Agreement.           (b)  To the maximum extent permitted by law, each other Owner hereby agrees to indemnify KCPL (whether acting in its capacity as Operator or otherwise) against, and agrees to hold KCPL harmless in proportion to such Owner’s Ownership Share or Common Facilities Ownership Share, as applicable, from any claims, damages, liabilities, liens, losses or other obligations whatsoever incurred or suffered by KCPL (together with reasonable costs and expenses, including reasonable fees and disbursements of counsel relating thereto) to the extent arising out of KCPL’s (or Operator’s) planning, design, construction and operation of Unit 2, except to the extent of any losses shown to be the result of KCPL’s (or the Operator’s) gross negligence or willful misconduct.       11.6  Exculpation.           (a)  Anything to the contrary herein notwithstanding, KCPL (whether acting individually or in its capacity as Operator) shall not have any liability to any other Owner for any loss, cost, damage or expense incurred by such Owner except to the extent determined to have resulted from the gross negligence or willful misconduct of KCPL (or Operator).           (b)  No Owner shall be liable hereunder for consequential, special or exemplary damages, regardless of whether such damages were or are reasonably foreseeable.       11.7  Equal Opportunity.  During the performance of this Agreement, Operator agrees as follows:           (a)  Operator shall not discriminate against any employee or applicant for employment because of race, color, religion, sex or national origin. Operator shall take   45   -------------------------------------------------------------------------------- affirmative action to ensure that applicants, and employees are treated without regard to their race, color, religion, sex or national origin. Such action shall include, but not be limited to the following: employment, upgrading, demotion or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. Operator agrees to post in conspicuous places, available to employees and applicants for employment, notices to be provided setting forth the provisions of this nondiscrimination clause.           (b)  Operator shall, in all solicitations or advertisements for employees placed by or on behalf of Operator, state that all qualified applicants shall receive consideration for employment without regard to race, color, religion, sex or national origin.           (c)  Operator shall send to each labor union or representative of workers with which it has a collective bargaining agreement or other contract or understanding, a notice to be provided advising the said labor union or workers’ representative of Operator’s commitments under this Article, and shall post copies of the notice in conspicuous places available to employees and applicants for employment.           (d)  Operator shall comply with all provisions of Executive Order 11246 of September 24, 1965, and of the rules, regulations and relevant orders of the Secretary of Labor.              (e)  Operator shall furnish all information and reports required by Executive Order 11246 of September 24, 1965, and by the rules, regulations and orders of the Secretary of Labor, or pursuant thereto, and shall permit access to his books, records and accounts by the administering agency and the Secretary of Labor for purposes of investigation to ascertain compliance with such rules, regulations and orders.       11.8  Buy American.  In the performance of this Agreement, KCPL shall use Commercially Reasonable Efforts to use or furnish or cause to be used or furnished no unmanufactured articles, materials and supplies which have not been mined or produced in the United States or any eligible country, and no manufactured articles, materials and supplies which have not been manufactured in the United States or any eligible country substantially all from articles, materials and supplies mined, produced or manufactured, as the case may be, in the United States or any eligible country (except to the extent that compliance with the second paragraph of the Rural Electrification Act of 1938, being Title IV of the Work Relief and Public Works Appropriation Act of 1938 (Public Resolution No. 122, 75th Congress, approved June 21, 1938) has been waived by the Administrator of RUS), the cost of which in the aggregate exceeds (i) 100% minus the Ownership Share of KEPCO of (ii) the aggregate of the cost of all such articles, materials and supplies used or furnished in connection with the construction of the Iatan Unit 2 Facility and the related Common Facilities Upgrades. For purposes of this Section, an “eligible country” is any country that applies with respect to the United States an agreement ensuring reciprocal access for United States products and services and United States suppliers to the markets of that country, as determined by the United States Trade Representative. KCPL agrees to provide KEPCO such information, documents, and certificates with respect to articles, materials or supplies used in connection with the Iatan Unit 2 Facility as KEPCO may reasonably request from time to time.   46   -------------------------------------------------------------------------------- ARTICLE XII   Arbitration       12.1  Controversies.  Any controversy between or among Owners and/or the Operator arising out of or relating to this Agreement, or any breach hereof or default hereunder, shall be submitted to binding arbitration upon the request of any Owner in the manner provided herein; provided, however, that no Owner shall seek to arbitrate a controversy between or among the Owners without the Owner’s most senior executive first attempting in good faith to resolve the dispute with the most senior executive(s) of the other Owner(s) involved in the dispute. Such executives shall decide, within ten (10) days of a written notice of controversy specifically referring to this Section 12.1, the maximum period during which they will attempt to resolve the dispute before any Owners or the Operator may serve a Notice to Arbitrate as provided in Section 12.2. If such executives fail for any reason to agree upon a maximum period during which they will attempt to resolve the controversy, then the maximum period shall end forty-five (45) days after the written notice of controversy specifically referring to this Section 12.1.       12.2  Notice to Arbitrate.  The Owner submitting a request for arbitration shall serve a written notice (a “Notice to Arbitrate”) upon all Owners including the other Owner or Owners against which a remedy or determination is sought, setting forth in detail the matter or matters to be arbitrated, including a statement of the facts or circumstances giving rise to such controversy and such Owner’s contention with respect to the correct determination thereof.       12.3  Selection of Arbitrator and Venue.  If the Owners directly involved in such controversy are unable to agree upon and appoint, within twenty (20) days of the date of service of the Notice to Arbitrate, three persons to act as arbitrators, then the arbitrators shall be selected by the American Arbitration Association from its then current list of neutrals. The venue for any arbitration under this Agreement shall be Kansas City, Missouri.       12.4  Scope of Arbitration.  Any arbitrators serving hereunder shall give full force and effect to all provisions of this Agreement and any applicable ancillary agreement as may be involved, shall hear evidence submitted by the respective Owners, and may call for additional information, which additional information shall be furnished by the Owner(s) having such information. Consistent with the expedited nature of arbitration, each party will, upon the written request of the other party, promptly provide the other with copies of documents on which the producing party may rely in support of or in opposition to any claim or defense. Any dispute regarding discovery, or the relevance or scope thereof, shall be resolved by the arbitrators, whose findings shall be conclusive. All discovery shall be completed within forty-five (45) days following the appointment of the arbitrators, unless the arbitrators determine in their discretion that additional time is warranted, but not to exceed ninety (90) additional days. All objections to discovery are reserved for the arbitration hearing except for objections based on privilege, work product and proprietary or confidential information.       12.5  Findings and Award.  All decisions concerning the arbitration, including the ultimate findings, shall be made by majority vote of the three arbitrators. The award shall be made within six (6) months of the filing of the Notice to Arbitrate (or such shorter period as the parties may agree at the commencement of the arbitration), and the arbitrators shall agree to   47   -------------------------------------------------------------------------------- comply with this schedule before accepting appointment; provided, however, that this time limit may be extended by agreement of the parties or by the arbitrators if necessary. The arbitrators will have no authority to provide injunctive relief (except that the arbitrators may order the disclosure of documents which have been improperly withheld from a Covered Owner, subject to strict confidentiality to protect the disclosing party's right to retain such information as confidential and proprietary); nor shall the arbitrators have the authority to award punitive or other damages not measured by the prevailing party’s actual damages except as may be required by statute. The findings and award of the arbitrators shall be final, binding and conclusive with respect to the matter or matters submitted to arbitration subject to challenges alleging fraud or gross misconduct on the part of the arbitrators.       12.6  Costs.  The fees and expenses of the arbitrators shall be borne equally by the Owners directly involved in such arbitration. All other expenses and costs of the arbitration shall be borne by the Owner incurring the same.   ARTICLE XIII   Force Majeure       13.1  Force Majeure.  If, because of a Force Majeure, any Owner is unable to carry out and perform any of its obligations under this Agreement, and if such Owner promptly gives the other Owners written notice of such Force Majeure, then the obligation of the Owner giving such notice shall be suspended to the extent made necessary by such Force Majeure and during its continuance, provided the Owner exercises Commercially Reasonable Efforts to mitigate the effect of the Force Majeure.   ARTICLE XIV   Accounting and Payment Procedures       14.1  Planning of Cash Flow Requirements.  KCPL shall project, and the Owners shall pay, the funds required for the construction (and any reconstruction following a casualty) of the Iatan Unit 2 Facility and the Common Facilities Upgrades in accordance with the Cash Flow Memorandum attached as Exhibit I-1 (the “Construction Period Cash Flow Memorandum”). KCPL shall project, and the Owners shall pay, the funds required for the operation, maintenance and capital improvement of the Iatan Unit 2 Facility and the Common Facilities in accordance with the Cash Flow Memorandum attached as Exhibit I-2 (the “Operating Period Cash Flow Memorandum”). The Construction Period Cash Flow Memorandum shall be updated periodically by KCPL to reflect changes in the cash flow requirements, modifications to the critical path, and increases and decreases in the scope of the Iatan 2 project. Any variance in actual requirements from projected requirements shall not excuse timely payment by the Owners.       14.2  Record-Keeping; Accounting Manual.  KCPL will develop and keep all records and perform all accounting for the Iatan Unit 2 Facility and the Common Facilities according to GAAP and FERC guidelines as prescribed in 18 C.F.R. Pt. 101. Such accounting and record keeping shall be performed in accordance with the procedures set forth in the Accounting Manual, a copy of which is attached as Exhibit J (the “Accounting Manual”). Each Owner will   48   -------------------------------------------------------------------------------- be responsible for preparing and filing its required governmental reports. The Accounting Manual may be amended at any time by the unanimous written approval of the Owners, provided that each such amendment shall be in accordance with the principles set forth in this Agreement.       14.3  Construction Fund. Funds for the construction of the Iatan Unit 2 Facility and the Common Facilities Upgrades will be provided by the Owners and settlements therefor will be made in accordance with the Construction Period Cash Flow Memorandum.   ARTICLE XV   General Provisions       15.1  Implementing and Confirmatory Instruments.  Each Owner shall execute such instruments as may from time to time reasonably be requested by any other Owner to implement the provisions of this Agreement, including instruments of conveyance and transfer, to confirm the effective Ownership Shares in the facilities and property that then constitute the Iatan Unit 2 Facility or any portion thereof and/or the effective Common Facilities Ownership Shares. Each additional Owner shall sign and deliver to each other Owner a written document assuming its proportional obligations and agreeing to perform the provisions of this Agreement.       15.2  Waivers.  No waiver by an Owner of its rights with respect to a default under this Agreement shall be effective unless all nondefaulting Owners waive their respective rights. Any such waiver shall not be deemed to be a waiver with respect to any subsequent default or matter. No delay short of the statutory period of limitations in asserting or imposing any right hereunder shall be deemed a waiver of such right.       15.3  Notices.  Any notice, demand, request or consent provided for in this Agreement or made in connection herewith to any Owner shall be effective if given in writing and delivered to such Owner by hand, by overnight delivery service, by first-class mail, or by facsimile (confirmed by first-class mail, but deemed given on the date of the facsimile) at the address for such Owner provided below:   Kansas City Power & Light Company 1201 Walnut Street Kansas City, Missouri 64106 Attn: General Counsel; and Vice President, Production Facsimile: (816) 556-2787 Aquila, Inc. 20 W. 9th Street Kansas City, Missouri 64105 Facsimile: (816) 467-3591 Attn: General Counsel; and Vice President, Generation and Energy Resources Facsimile: (816) 467-9830   49   -------------------------------------------------------------------------------- The Empire District Electric Company 602 Joplin Street Joplin, Missouri 64801 Attn: Vice President, Energy Supply Facsimile: (417) 625-5153 Kansas Electric Power Cooperative, Inc. 600 SW Corporate View Topeka, Kansas 66615 Attn: General Counsel Facsimile: (785) 271-4888 Missouri Joint Municipal Electric Utility Commission 2407 West Ash Columbia, Missouri 65203 Attn: General Manager Facsimile: (573) 445-0680   Except as may be revised from time to time by the Owners in accordance with this Section 15.3.       15.4  Severability.  In the event any provision hereof or the application thereof to any person or circumstance shall be held invalid in any final arbitration award rendered in accordance with Article XII or final decision by a court having jurisdiction in the premises, the remainder of this Agreement and its application to persons or circumstances other than those as to which it was held invalid shall not be affected thereby.       15.5  Governing Law.  The validity, interpretation and performance of this Agreement and each of its provisions shall be governed by the laws of the State of Missouri, but without regard to said state’s conflict of law provisions.       15.6  Continued Effect of Other Agreements.  The Iatan Unit 1 Ownership Agreement shall survive the execution and delivery of this Agreement and continue in full force and effect without modification thereof except to the extent the provisions of this Agreement may be in conflict or inconsistent with provisions of the Iatan Unit 1 Ownership Agreement, in which case the provisions of this Agreement shall control except as specifically set forth in Section 2.4 of this Agreement.        15.7  Amendment to the Agreement.  This Agreement, including any and all provisions, terms and conditions contained herein, may only be amended or modified upon the unanimous written approval of the Owners.       15.8  Agreement Survives Departure of Owner or Owners.  In the event that one or more Owners transfer, sell or otherwise forfeit their Ownership Share pursuant to the terms of this Agreement, this Agreement shall survive with respect to the remaining Owners, and such remaining Owners shall continue to be bound by the terms of this Agreement.   50   --------------------------------------------------------------------------------       15.9  Conflicts between Agreements.  In the event of any conflicts among the Agreements, the terms of this Agreement shall control.       15.10    Exhibits.  Any and all exhibits attached hereto, together with any appendices or attachments referenced therein, are incorporated herein by reference and made a part hereof.   ARTICLE XVI   Term; Termination       16.1  Effective Date and Term.           (a)  Except as provided in Section 16.1(b), this Agreement shall be binding and effective as to each signatory upon execution hereof by all of the Owners and shall continue in full force and effect thereafter until terminated as provided in Sections 16.2 and 16.3; provided, however, that the obligations hereunder requiring regulatory or lender approval or the release of mortgage indentures shall not become effective until such approval or release, as applicable, has been obtained.           (b)  With the exception of Articles VIII, XII and XVII and this Section 16.1(b) of this Agreement, this Agreement and the other Agreements shall not be effective as to KEPCO (and KCPL shall retain the Ownership Share otherwise attributable to KEPCO under Section 2.1, the Common Facilities Ownership Share otherwise attributable to KEPCO under Section 2.2, and the other rights and interests created by the Agreements (collectively, the “KEPCO Attributable Ownership Rights”)) until receipt by KEPCO of the approval of RUS to enter into the Agreements; provided, however, that KEPCO shall receive its rights under the Agreements and to the KEPCO Attributable Ownership Rights following receipt of such RUS approval only if KEPCO has continued to comply with all of the financial and other obligations required by the Agreements that would have been applicable to KEPCO had the Agreements been effective as to KEPCO from the date the Agreements are effective as to the other Owners and by complying with such financial and other obligations, KCPL and the other Owners agree, for the benefit of KEPCO, (i) prior to receipt of such RUS approval, to permit KEPCO to receive all the benefits of being an Owner, Assignee, a Unit 2 Site Lessee, a Nower Property Lessee or other appropriate party under the Agreements and (ii) upon KEPCO’s receipt of such RUS approval, to provide KEPCO with all rights of an Owner, Assignee, a Unit 2 Site Lessee, a Nower Property Lessee or other appropriate party under the Agreements and to transfer to KEPCO the KEPCO Attributable Ownership Rights subject to any necessary regulatory or lender approval and the release of any applicable mortgage indenture; and provided further, however, that if KEPCO does not receive such RUS approval within twenty-four (24) months of the execution date of this Agreement, KCPL shall reallocate such rights and the KEPCO Attributable Ownership Rights to itself and the other Owners in the manner set forth in Section 2.1(c) (except that KCPL may not exercise its right of rejection under Section 2.1(c)), and any Owner or Owners receiving all or a portion of the KEPCO Attributable Ownership Rights shall promptly, and severally in proportion to the portion of the KEPCO Attributable Ownership Rights reallocated to such Owner, reimburse KEPCO for all payments made by KEPCO prior to such date with respect to amounts described in Section 6.4 and elsewhere in the Agreements with respect to the KEPCO Attributable Ownership Rights.   51   --------------------------------------------------------------------------------           16.2  Termination.  Except as provided in Section 16.3, for such Affected Owner(s), this Agreement shall terminate and be of no further force and effect from and after the date of the earliest to occur of the following:               (a)  the Owners shall file of record in the Office of the Recorder of Deeds for Platte County, Missouri (or such other office as may then serve such function) a duly executed agreement terminating this Agreement and discharging the rights, titles and interests of the Owners in and to the Iatan Unit 2 Facility from the benefits and burdens of the covenants and obligations herein; provided that the Iatan Unit 2 Facility shall have been released from the liens of all encumbrances contemplated by Section 10.2 and such releases shall have been duly filed of record prior to recording of such termination agreement; or               (b)  an Owner shall acquire by transfer hereunder or by operation of law all Ownership Shares and, as a result of the merger of such undivided percentage interests therein, become the sole beneficial Owner of all rights, titles and interests in the Iatan Unit 2 Facility; or               (c)  there has been an abandonment of the use of the Iatan Unit 2 Facility for the generation of electricity as evidenced by an Affidavit of Abandonment duly executed by the Owners, filed of record as provided in clause (a) above, and thereafter published in a newspaper of general circulation in Platte County, Missouri, with written notice thereof delivered to the other Owners within ten (10) days after the recording of such Affidavit, unless another Owner of any portion thereof denies such abandonment by an Affidavit of Non-abandonment similarly filed of record within sixty (60) days after publication of such Affidavit of Abandonment. Abandonment of the use of the Iatan Unit 2 Facility for the generation, transmission or distribution of electricity shall not be complete and deemed to occur until such time as all reclamation, remediation or disposition of Unit 2 and the improvements, including Common Facilities Upgrades, serving Unit 2 shall have been completed in the reasonable discretion of the Operator under Section 16.3 of this Agreement.         16.3  Disposition Upon Abandonment.  In the event this Agreement is terminated by Affidavit of Abandonment as provided in Section 16.2(c), the Operator shall have the right to dispose of all the facilities and property then included in the Iatan Unit 2 Facility (provided such facilities and property to be disposed of are not then subject to the lien of any encumbrance, or such disposition is otherwise made in accordance with the terms of any related security agreement, contemplated in Section 10.2), shall dispose thereof in a reasonable manner and shall distribute the net proceeds or apportion the costs thereof to the Owners, or to lienholders for the account of the Owners, in proportion to their respective Ownership Shares; provided, however, that if any determinable portion of such proceeds is received from facilities or property the cost of which was borne by the Owners disproportionately to their Ownership Shares, the distribution of such proceeds shall be adjusted accordingly; and provided, further, that termination of this Agreement shall not (i) discharge any Owner of any obligation it then owes to any other Owner as a result of any transaction occurring prior to such termination; or (ii) terminate the obligations of any Owner to pay or be responsible for its allocable share of any disposition, remediation or reclamation of the Unit 2 Site, the Common Facilities, or any portion of the Iatan Station Site on which improvements which served Unit 2 were constructed it being the agreement of the parties that as part of the disposition of all of the personal property and real property then included in or serving the Iatan Unit 2 Facility, each Owner shall bear its proportional cost of demolition or   52   -------------------------------------------------------------------------------- removal of such improvements and any environmental site restoration or remediation in connection with closure or abandonment.   ARTICLE XVII   Confidentiality           17.1  Confidential Information.  Each party hereto agrees that it will keep in strict confidence, and will instruct, and use its reasonable best efforts to cause, its advisors and representatives to keep in strict confidence, all nonpublic information obtained from any other party hereto, including all documentation and cost studies, unless such information is disclosed with the prior written consent of the party to which it relates; provided, however, that this restriction shall not apply to information which (a) has at the time in question entered the public domain other than by reason of breach of this provision by a party hereto; (b) is required to be disclosed by law or by any order, rule, or regulation (whether valid or invalid) of any court, or governmental agency, or authority, but only to the extent such disclosure is so required; provided that the party disclosing the nonpublic information shall promptly give notice of such disclosure to the party from which the information was obtained and shall cooperate with the party from which the information was obtained in an effort to ensure that confidential treatment will be accorded such nonpublic information to the extent feasible; (c) is reasonably required or requested by any utility regulatory agency having relevant jurisdiction over the party so required or requested to furnish the nonpublic information; provided, that the party disclosing the nonpublic information shall promptly give notice of such disclosure to the party from which the information was obtained and shall cooperate with the party from which the information was obtained in an effort to ensure that confidential treatment will be accorded such nonpublic information to the extent feasible; or (d) is reasonably required to be provided to any party’s accountants, attorneys, mortgagees, lenders, rating agencies or financial advisors in connection with this Agreement or the transactions contemplated hereby; provided that the party disclosing the nonpublic information uses its reasonable best efforts to cause such accountants, attorneys, mortgagees or other financial advisors, or rating agencies, to keep such nonpublic information in strict confidence. Upon termination of this Agreement, each party shall continue to maintain the confidentiality of all nonpublic information obtained from any other party or any of its affiliates, advisors, representatives and any copies made of such information, with the same standard of care used in the protection of its own confidential information. Nothing in this Article XVII shall prevent the recording of this Agreement to the extent the Management Committee does not determine as provided in Section 20.1 that a memorandum of this Agreement should be recorded in lieu of the full Iatan Unit 2 and Common Facilities Ownership Agreement.           17.2  Limitation on Disclosure of Documents.  Notwithstanding any provision within this Agreement to the contrary, the Operator and/or any other Owner with responsibility for constructing and/or operating Unit 2 or any related interconnection or transmission facilities, when providing documents to any Owner that qualifies as a public governmental body (“Covered Owner”), as defined in Section 610.010(4) of the Missouri Revised Statutes, shall, in their reasonable and sole discretion, have the right to provide such Covered Owner with redactions, summaries and/or abridgements of such documents, as necessary to protect confidential, proprietary or trade secret information of the other Owners. The purpose of this provision is to ensure confidential and/or proprietary information relating to Unit 1 and/or Unit 2 is not   53   -------------------------------------------------------------------------------- disclosed to the public. Nothing herein shall be interpreted to prevent the Covered Owner or its representatives from viewing any and all documents available to Owners that do not qualify as a public governmental body.   If any Covered Owner proposes to issue debt securities in connection with Unit 2 (“Unit 2 Debt Securities”), it will not include any confidential or proprietary information related to Unit 1 or Unit 2 in any offering memorandum or official statement with respect to Unit 2 Debt Securities. KCPL will enter into an agreement or agreements with such Covered Owner or its rating agencies, bond counsel, bond insurers or underwriters of such Unit 2 Debt Securities in a form satisfactory to KCPL pursuant to which KCPL will release to such Covered Owner or its rating agencies, bond counsel, bond insurers or underwriters updated information from time to time as specified in such agreement in order to permit such Covered Owner to comply with Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934.   In the event a Covered Owner needs unredacted documents to prosecute or defend against a claim in a pending legal proceeding, any Covered Owner agrees that 1) a Covered Owner will notify KCPL of the documents it needs for arbitration or litigation, 2) KCPL will permit a Covered Owner to use the requested documents solely for the purpose of resolving a pending legal dispute subject to the agreement by KCPL and a Covered Owner that all such documents produced in connection with the disposition of specified claims in the legal proceeding and are being produced subject to obtaining a protective order confidentiality from disclosure to any person, firm or entity other than is in support of or to refute a claim in the legal proceeding, and 3) the unredacted documents will at all times remain KCPL documents, and (4) a Covered Owner on behalf of itself and its attorneys agree they shall return all copies of the unredacted documents to KCPL at the conclusion of the proceeding for destruction or other disposition by KCPL.   ARTICLE XVIII   Private Use Covenant           18.1  Private Use Covenant.  If MJMEUC provides written notice to the Management Committee, the Operator and other Owners that any action or inaction under this Agreement results in a Adverse Action with respect to any MJMEUC tax-exempt debt used to finance MJMEUC’s Ownership Share, the Management Committee, the Operator and the other Owners covenant that each shall use its Commercially Reasonable Efforts to avoid such Adverse Action; provided, however, that the Management Committee, the Operator and the other Owners shall not be obligated to avoid such action if to do so would (i) materially impair the generation output of or materially increase the costs of owning and/or operating Unit 2 and/or the Common Facilities, (ii) cause the Management Committee or any of the other Owners to breach or otherwise violate any undertaking, representation, warranty or covenant set forth in this Agreement or (iii) prevent any of the other Owners or Operator from exercising any right provided by this Agreement or the Iatan Unit 1 Ownership Agreement. Contexts in which an Adverse Action may arise include, without limitation, a) sale of MJMEUC’s Ownership Share other than during a default by MJMEUC, and b) the payment of a management fee to the Operator. If MJMEUC obtains an opinion from counsel as to the effect of the Adverse Action,   54   -------------------------------------------------------------------------------- MJMEUC agrees to provide it, at its sole expense, to the other Owners. Further, this Article XVIII does not apply to any actions taken or to be taken with respect to matters involving Unit 1 or the Additional Units.   ARTICLE XIX   Representations and Warranties           19.1  KCPL’s Representations and Warranties.  KCPL hereby represents and warrants to the other Owners as follows:               (a)  KCPL is a corporation duly organized, validly existing and in good standing under the laws of the State of Missouri, and has power and authority to own the undivided ownership interests in the Iatan Unit 2 Facility and Common Facilities to be owned by it hereunder, to execute and deliver this Agreement and to perform its obligations hereunder and to carry on its business as it is now being conducted and as it is contemplated to be conducted pursuant to this Agreement.               (b)  Subject to certain regulatory and lender approvals and indenture releases, the execution, delivery and performance by KCPL of this Agreement have been duly authorized by all necessary corporate action on the part of KCPL, do not contravene the Articles of Incorporation or By-Laws of KCPL, and do not and will not contravene the provisions of, or constitute a material default under, any indenture, mortgage, security agreement, contract or other instrument to which KCPL is a party or by which KCPL is bound. Upon execution of this Agreement, KCPL shall deliver to the other Owners certified copies of the resolutions adopted by KCPL’s board of directors authorizing the execution, delivery and performance of this Agreement.               (c)  KCPL represents and warrants that to the best of its actual knowledge and as of the date of this Agreement, there are no adverse environmental conditions existing on the Iatan Station Site that would materially and adversely affect the operation of Unit 1, or the construction of Unit 2, or the Common Facilities.               (d)  KCPL represents and warrants that to the best of its actual knowledge and as of the date of this Agreement there are no defects in Unit 1 or conditions on the Iatan Station Site that could reasonably be expected to materially delay or adversely affect the construction and operation of Unit 2.               (e)  KCPL represents and warrants that as of the date of this Agreement, except as disclosed in writing to the other Owners, there is no action, suit or proceeding at law or in equity or by or before any Governmental Authority now pending against or affecting it or any of its properties, rights or assets, which could reasonably be expected to have a material adverse effect on its ability to perform its obligations under this Agreement or any Ancillary Agreement. KCPL will give prompt notice to each Owner of all material claims instituted against it or, if KCPL has actual notice thereof, against any other Owner relating to the construction, ownership or operation of the Iatan Unit 2 Facility.   55   --------------------------------------------------------------------------------             (f)  KCPL represents and warrants that to the best of its actual knowledge and as of the date of this Agreement, the Unit 2 Facility design specifications, construction time tables and budgets have been prepared in good faith, consistent with Good Utility Practice on the basis of assumptions believed to be reasonable and that it will use Commercially Reasonable Efforts to maintain true and accurate design specifications, construction time tables, and budgets prepared by qualified experts (which may include employees of KCPL having the relevant expertise).               (g)  KCPL represents and warrants that to the best of its actual knowledge it has executed or will execute and file, with all regulatory agencies having jurisdiction, such applications, amendments, reports and other documents and filings as shall be required in or in connection with the licensing and other regulatory matters with respect to the Iatan Unit 2 Facility and Common Facilities; provided, however, that each Owner shall be responsible for obtaining all required approvals and authorizations relating to its participation in the Iatan Unit 2 Facility and to its performance of this Agreement.        19.2  Aquila’s Representations and Warranties.  Aquila hereby represents and warrants to the other Owners as follows:               (a)  Aquila is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has power and authority to own the undivided ownership interests in the Iatan Unit 2 Facility and Common Facilities to be owned by it hereunder, to execute and deliver this Agreement and to perform its obligations hereunder and to carry on its business as it is now being conducted and as it is contemplated to be conducted pursuant to this Agreement.               (b)  Subject to certain regulatory and lender approvals and indenture releases, the execution, delivery and performance by Aquila of this Agreement have been duly authorized by all necessary corporate action on the part of Aquila, do not contravene the Articles of Incorporation or By-Laws of Aquila, and do not and will not contravene the provisions of, or constitute a material default under any indenture, mortgage, security agreement, contract or other instrument to which Aquila is a party or by which Aquila is bound. Upon execution of this Agreement, Aquila shall deliver to the other Owners certified copies of the resolutions adopted by Aquila’s board of directors authorizing the execution, delivery and performance of this Agreement.               (c)  Aquila represents and warrants that to the best of its actual knowledge and as of the date of this Agreement, there are no adverse environmental conditions existing on the Iatan Station Site that would materially and adversely affect the continued operation of Unit 1, Unit 2, or the Common Facilities.               (d)  Aquila represents and warrants to the best of its actual knowledge and that as of the date of this Agreement there are no defects in Unit 1 or conditions on the Iatan Station Site that could reasonably be expected to materially delay or adversely affect the construction and operation of the Iatan Unit 2 Facility and Common Facilities.   56   --------------------------------------------------------------------------------         19.3  Empire’s Representations and Warranties.  Empire hereby represents and warrants to the other Owners as follows:               (a)  Empire is a corporation duly organized, validly existing and in good standing under the laws of the State of Kansas and has power and authority to own the undivided ownership interests in the Iatan Unit 2 Facility and Common Facilities to be owned by it hereunder, to execute and deliver this Agreement and to perform its obligations hereunder and to carry on its business as it is now being conducted and as it is contemplated to be conducted pursuant to this Agreement.               (b)  Subject to certain regulatory and lender approvals and indenture releases, the execution, delivery and performance by Empire of this Agreement have been duly authorized by all necessary corporate action on the part of Empire, do not contravene the Articles of Incorporation or By-Laws of Empire, and do not and will not contravene the provisions of, or constitute a material default under any indenture, mortgage, security agreement, contract or other instrument to which Empire is a party or by which Empire is bound. Upon execution of this Agreement, Empire shall deliver to the other Owners certified copies of the resolutions adopted by Empire’s board of directors authorizing the execution, delivery and performance of this Agreement.               (c)  Empire represents and warrants that to the best of its actual knowledge and as of the date of this Agreement, there are no adverse environmental conditions existing on the Iatan Station Site that would materially and adversely affect the continued operation of Unit 1, Unit 2, or the Common Facilities.               (d) Empire represents and warrants that to the best of its knowledge and as of the date of this Agreement there are no defects in Unit 1 or conditions on the Iatan Station Site that could reasonably be expected to materially delay or adversely affect the construction and operation of the Iatan Unit 2 Facility and Common Facilities.           19.4  KEPCO’s Representations and Warranties.  KEPCO hereby represents and warrants to the other Owners as follows:               (a)  KEPCO is a cooperative corporation duly organized, validly existing and in good standing under the laws of the State of Kansas and has power and authority to own the undivided ownership interests in the Unit 2 Facility and Common Facilities to be owned by it hereunder, to execute and deliver this Agreement and to perform its obligations hereunder and to carry on its business as it is now being conducted and as it is contemplated to be conducted pursuant to this Agreement.               (b)  Subject to certain regulatory approvals and indenture releases expected to be obtained in due course, the execution, delivery and performance by KEPCO of this Agreement have been duly authorized by all necessary corporate action on the part of KEPCO, do not contravene the Articles of Incorporation or By-Laws of KEPCO, and do not and will not contravene the provisions of, or constitute a material default under any indenture, mortgage, security agreement, contract or other instrument to which KEPCO is a party or by which KEPCO is bound. Upon execution of this Agreement, KEPCO shall deliver to the other Owners certified   57   -------------------------------------------------------------------------------- copies of the resolutions adopted by KEPCO’s board of directors authorizing the execution, delivery and performance of this Agreement.           19.5  MJMEUC’s Representations and Warranties.  MJMEUC hereby represents, warrants and covenants to the other Owners as follows:               (a)  MJMEUC is a body public and corporate of the State of Missouri duly organized, validly existing and in good standing under the laws of the State of Missouri and has power and authority to own the undivided ownership interests in the Iatan Unit 2 Facility and Common Facilities to be owned by it hereunder, to execute and deliver this Agreement and to perform its obligations hereunder and to carry on its business as it is now being conducted and as it is contemplated to be conducted pursuant to this Agreement.               (b)  The execution, delivery and performance by MJMEUC of this Agreement have been duly authorized by all necessary action on the part of MJMEUC, do not contravene the Joint Contract, entered into as of May 1, 1979 and amended as of February 1, 1980 and June 4, 1984, between the Contracting Municipalities, or By-Laws of MJMEUC, and do not and will not contravene the provisions of, or constitute a material default under any indenture, mortgage, security agreement, contract or other instrument to which MJMEUC is a party or by which MJMEUC is bound. Upon execution of this Agreement, MJMEUC shall deliver to the other Owners certified copies of the resolutions adopted by MJMEUC’s board of directors authorizing the execution, delivery and performance of this Agreement.   ARTICLE XX   Memorandum of Agreement           20.1  Memorandum of Agreement.  To the extent permitted by applicable law, the Management Committee may determine to file a memorandum of this Agreement rather than filing the entire Agreement in the relevant real estate records. The Owners will promptly execute and deliver such a memorandum upon request of the Operator.   ARTICLE XXI   Cooperation           21.1  Cooperation.  Subject to the limitations contained in Section 17.2 of this Agreement, each of the Owners shall use Commercially Reasonable Efforts to cooperate with each other Owner in order to assist the other Owner in the performance of its duties, responsibilities and obligations under this Agreement. This duty to cooperate shall include providing information, and executing and delivering customary documents, certificates, opinions and instruments necessary for the other Owner to perform its duties, responsibilities and obligations under this Agreement including obtaining financing for its share of the Cost of Construction.   58   -------------------------------------------------------------------------------- THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED BY THE PARTIES.   IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers the day and year first above written.   KANSAS CITY POWER AND LIGHT ATTEST:         /s/ Mark G. English   Asst. Corporate Secretary By /s/ William H. Downey  Chief Executive Officer Date:  6/12/06             AQUILA, INC. ATTEST:         /s/ Christopher M. Reitz Corporate Secretary By /s/ Keith Stamm   Chief Operating Officer Date:  5/19/2006             THE EMPIRE DISTRICT ELECTRIC COMPANY ATTEST:         /s/ Janet S. Watson  Corporate Secretary By /s/ William L Gipson  Chief Executive Officer Date:  5/19/2006             KANSAS ELECTRIC POWER COOPERATIVE, INC. ATTEST:           /s/ J. Michael Peters  Asst. Corporate Secretary By /s/ Stephen E. Parr  Executive Vice President and Chief Executive Officer Date:  5/24/2006     59   --------------------------------------------------------------------------------     MISSOURI JOINT MUNICIPAL ELECTRIC UTILITY COMMISSION ATTEST:         /s/ Robert E. Williams  Corporate Secretary By /s/ Duncan Kincheloe  General Manager and Chief Executive Officer Date:  6/8/2006  

AMENDMENT TO EMPLOYMENT AGREEMENT This AMENDMENT (the "Amendment") by and between Carrizo Oil & Gas, Inc., a Texas corporation (the "Company"), and J. Bradley Fisher (the "Executive"), effective as of January 23, 2006, is an amendment to that certain Employment Agreement by and between the Company and the Executive dated as of April 15, 1998 (the "Employment Agreement"). RECITALS The Company and the Executive have previously entered into the Employment Agreement to provide for terms and conditions of the Executive's employment by the Company; and The Company has agreed to grant to the Executive an award of restricted stock in exchange for the Executive's agreement to amend the Employment Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Section 3(c)(i) of the Employment Agreement is amended to read hereafter as follows: "(i) the assignment to the Executive of any duties materially inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2 of this Agreement, or any other action by the Company which results in a material diminution, in absolute terms, 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;" 2. Section 3(c) of the Employment Agreement is hereby amended by adding the following to the end thereof: "Notwithstanding any provision to the contrary, in order for any event(s) in subparagraph (i) through (v) above to constitute "Good Reason" for purposes of this Agreement, (A) the Executive must notify the Company via Notice of Termination within 180 days following the occurrence of the event(s) that the Executive intends to terminate his employment with the Company because of the occurrence of Good Reason (which event must be described by the Executive in reasonable detail in the Notice of Termination) and (B) within 60 days after receiving such Notice of Termination from the Executive, the Company must fail to reinstate the Executive to the position he was in, or otherwise cure the circumstances giving rise to Good Reason."   1 --------------------------------------------------------------------------------     3. Section 3(d) of the Employment Agreement is amended to read hereafter as follows: "(d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason or without any reason during a Window Period, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(d) of this Agreement. The failure by the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company hereunder or preclude the Company from asserting such fact or circumstance in enforcing the Company's rights hereunder." 4. Section 4(a)(i)(D) of the Employment Agreement is amended to read hereafter as follows: "D. Effective as of the Date of Termination, (1) immediate vesting and exercisability of, and termination of any restrictions on sale or transfer (other than any such restriction arising by operation of law) with respect to, each and every stock option, restricted stock award, restricted stock unit award and other equity-based award and performance award (each, a "Compensatory Award") that is outstanding as of a time immediately prior to the Date of Termination and (2) unless a longer post-employment term is provided in the applicable award agreement, the extension of the term during which each and every Compensatory Award may be exercised by the Executive until the earlier of (x) the first anniversary of the Date of Termination or (y) the date upon which the right to exercise any Compensatory Award would have expired if the Executive had continued to be employed by the Company under the terms of this Agreement until the Final Expiration Date; and" 5. Section 4(b) of the Employment Agreement is amended to read hereafter as follows: "(b) Death (except during a Window Period). If the Executive's employment is terminated by reason of the Executive's death during the Employment Period and other than during a Window Period in which event the provisions of Section 4(a) shall govern, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than (i) the payment of Accrued Obligations (which 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), (ii) the payment of an amount equal to the Annual Salary that would have been paid to the Executive pursuant to this Agreement during the Remaining Employment Period if the Executive's employment had not terminated by reason of death (which 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) reduced by the amount payable in respect of Executive's death under any life insurance policy (other than accidental death and     2 --------------------------------------------------------------------------------     dismemberment or travel accident policies) but only to the extent such amounts are attributable to premiums paid by the Company, (iii) during the period beginning on the Date of Termination and ending on the first anniversary thereof medical benefits coverage determined as if Executive's employment had not terminated by reason of death, (iv) as soon as practicable following the fiscal year in which death occurs, payment of an amount equal to the product of (x) the Annual Bonus that would have been paid to Executive with respect to the year of termination had the Date of Termination not occurred and (y) a fraction, the numerator of which is the number of days in the fiscal year through the Date of Termination and the denominator of which is 365 and (v) effective as of the Date of Termination, (A) immediate vesting and exercisability of, and termination of any restrictions on sale or transfer (other than any such restriction arising by operation of law) with respect to, each and every Compensatory Award outstanding as of a time immediately prior to the Date of Termination and (B) the extension of the term during which each and every Compensatory Award may be exercised or purchased by the Executive until the earlier of (1) the first anniversary of the Date of Termination or (2) the date upon which the right to exercise or purchase any Compensatory Award would have expired if the Executive had continued to be employed by the Company under the terms of this Agreement until the Final Expiration Date." 6. Section 6 of the Employment Agreement is amended to read hereafter as follows:   "6. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any setoff, counterclaim, recoupment, defense, mitigation or other claim, right or action which the Company may have against the Executive or others. In the event (i) prior to a Change in Control, the Executive's employment is terminated for any reason other than Executive's voluntary termination (with or without Good Reason), or (ii) within two years after a Change in Control, the Executive's employment is terminated by the Company or the Executive for any reason, the Company agrees to pay promptly 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 arbitration pursuant to Section 6(b) (regardless of the outcome thereof) initiated by the Company, the Executive or others regarding 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 such payment pursuant to this Agreement), plus in each case interest on any delayed payment at the annual percentage rate which is three percentage points above the interest rate shown as the Prime Rate in the Money Rates column in the then most recently published edition of The Wall Street Journal (Southwest Edition), or, if such rate is not then so published on at least a weekly basis, the interest rate announced by Chase Manhattan Bank (or its successor), from time to time, as its Base Rate (or prime lending rate), from     3 --------------------------------------------------------------------------------     the date those amounts were required to have been paid or reimbursed to the Employee until those amounts are finally and fully paid or reimbursed; provided, however, that in no event shall the amount of interest contracted for, charged or received hereunder exceed the maximum non-usurious amount of interest allowed by applicable law ; provided, further, that if the Executive is not the prevailing party in any such arbitration, then he shall, upon the conclusion thereof, repay to the Company any amounts that were previously advanced pursuant to this sentence by the Company as payment of legal fees and expenses. (b) Any dispute arising out of or relating to this Agreement, including the breach, termination or validity thereof, shall be finally resolved by arbitration in accordance with the CPR Institute for Dispute Resolution Rules for Non-Administered Arbitration in effect on the date of this Agreement by a single arbitrator selected in accordance with the CPR Rules. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16, and judgment on the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. The place of arbitration shall be in Harris County, Texas. The arbitrator's decision must be based on the provisions of this Agreement and the relevant facts, and the arbitrator's reasoned decision and award shall be binding on both parties. Nothing herein is or shall be deemed to preclude the Company's resort to the injunctive relief prescribed in this Agreement, including any injunctive relief implemented by the arbitrator pursuant to this Section 6(b). The parties will each bear their own attorneys' fees and costs in connection with any dispute, except in the circumstances in which the Company is required to advance the Executive's attorneys' fees in accordance with Section 6(a). (c) If, upon a termination within two years following a Change in Control, there shall be any dispute between the Company and the Executive concerning (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause or Disability, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed or whether such termination occurred during a Window Period, then, unless and until there is a final, determination by an arbitrator declaring that such termination was for Cause or not for Disability or that the determination by the Executive of the existence of Good Reason was not made in good faith or that the termination by the Executive did not occur during a Window Period, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 4(a) hereof as though such termination were by the Company without Cause or by the Executive with Good Reason or during a Window Period; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such arbitrator not to be entitled.   4 --------------------------------------------------------------------------------     (d) Notwithstanding any provision of Section 4, except in the case of a termination of employment within two years following a Change in Control, the Company's obligation to pay the amounts due on any termination of employment under Section 4 (other than the Accrued Obligations) are conditioned on the Executive's execution (without revocation during any applicable statutory revocation period) of a waiver and release of any and all claims against the Company and its affiliates in such form as may be prescribed by the Company." 7. Sections 10(a) and (b) of the Employment Agreement are hereby amended to read hereafter as follows: "10. Non-Compete and Non-Solicitation (a) The Executive recognizes that in each of the highly competitive businesses in which the Company is engaged, personal contact is of primary importance in securing new customers and in retaining the accounts and goodwill of present customers and protecting the business of the Company. The Executive, therefore, agrees that during the Employment Period and, if the Date of Termination occurs by reason of the Executive terminating his employment for reasons other than Disability or Good Reason and other than during a Window Period, for a period of one year after the Date of Termination, he will not either within 20 miles of any geographic location with respect to which he has devoted substantial attention to the material business interests of the Company or any of its affiliated companies or with respect to any immediate geologic trends in which the Company or any of its affiliated companies is active as of the Date of Termination, without regard, in either case, to whether the Executive has worked at such location (the "Relevant Geographic Area"), (i) accept employment or render service to any person that is engaged in a business directly competitive with the business then engaged in by the Company or any of its affiliated companies, (ii) enter into or take part in or lend his name, counsel or assistance to any business, either as proprietor, principal, investor, partner, director, officer, executive, consultant, advisor, agent, independent contractor, or in any other capacity whatsoever, for any purpose that would be competitive with the business of the Company or any of its affiliated companies or (iii) regardless of geographic area, directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor, stockholder, partner or in any other individual or representative capacity whatsoever, either for his own benefit or for the benefit of any other person or entity either (A) hire, contract or solicit, or attempt any of the foregoing, with respect to hiring any employee of the Company or its affiliated companies, or (B) induce or otherwise counsel, advise or encourage any employee of the Company or its affiliated companies to leave the employment of the Company or its affiliated companies (all of the foregoing activities described in (i), (ii) and (iii) are collectively referred to as the "Prohibited Activity"). For the avoidance of doubt, the provisions of this Section 10 will not apply following a termination of the Executive's employment by the Company with or without Cause, by the Executive due to Disability or Good Reason or by the Executive during a Window Period. (b) In addition to all other remedies at law or in equity which the Company may have for breach of a provision of this Section 10 by the Executive, it is agreed that in     5 --------------------------------------------------------------------------------     the event of any breach or attempted or threatened breach of any such provision, the Company shall be entitled, upon application to any court of proper jurisdiction, to a temporary restraining order or preliminary injunction (without the necessity of (i) proving irreparable harm, (ii) establishing that monetary damages are inadequate or (iii) posting any bond with respect thereto) against the Executive prohibiting such breach or attempted or threatened breach by proving only the existence of such breach or attempted or threatened breach. If the provisions of this Section 10 should ever be deemed to exceed the time, geographic or occupational limitations permitted by the applicable law, the Executive and the Company agree that such provisions shall be and are hereby reformed to the maximum time, geographic or occupational limitations permitted by the applicable law. " 8. Section 12(g) of the Employment Agreement is hereby amended to read hereafter as follows: "(g) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement; provided, however, that any claim for "Good Reason" termination must be raised within 180 days following the occurrence of the event giving rise to the right to terminate for "Good Reason" as set forth in Section 3(c) hereof." 9. If any provision provided herein or in the Employment Agreement results in the imposition of an excise tax under the provisions of Section 409A of the Internal Revenue Code and related regulations and Treasury pronouncements ("Section 409A"), the Executive and the Company agree that each will use good faith efforts to reform any such provision to avoid imposition of any such excise tax in the manner that the Executive and the Company mutually determine are appropriate to comply with Section 409A. 10. By execution of this Amendment, Executive acknowledges and agrees that he has no present claim against the Company for a breach of the Employment Agreement or any right to terminate employment for Good Reason, and the Company acknowledges and agrees that it has no present claim against the Executive for breach of the Employment Agreement and no present grounds in which to terminate Executive for Cause.   6 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the Executive has hereunto set his 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. CARRIZO OIL & GAS, INC. By: /s/ Paul F. Boling    Name: Paul F. Boling Title: Chief Financial Officer, Secretary  and Treasurer EXECUTIVE /s/ J. Bradley Fisher    J. Bradley Fisher       7 --------------------------------------------------------------------------------  

  EXHIBIT 10.7       This Mortgage was prepared by,   This document is intended and when recorded should be returned to:   to be recorded in     Cherokee County, South Carolina Leila Rachlin, Esq. White & Case LLP 1155 Avenue of the Americas New York, New York 10036 (212) 819-8720 1107993-0127 FIRST AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES, RENTS AND PROFITS, FINANCING STATEMENT AND FIXTURE FILING made by R. J. REYNOLDS TOBACCO COMPANY, as the Mortgagor, to JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent for the Secured Creditors, as the Mortgagee COLLATERAL IS OR INCLUDES FIXTURES THIS MORTGAGE CONSTITUTES A FIXTURE FINANCING STATEMENT FILING PURSUANT TO SECTION 36-9-402 OF THE SOUTH CAROLINA CODE OF LAWS Amended and Restated Mortgage — Cherokee County, SC   --------------------------------------------------------------------------------   FIRST AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES, RENTS AND PROFITS, FINANCING STATEMENT AND FIXTURE FILING           THIS FIRST AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES, RENTS AND PROFITS, FINANCING STATEMENT AND FIXTURE FILING dated as July 30, 2004, and amended and restated as of May 31, 2006 (as so amended and restated and as the same may be further amended, restated, supplemented and/or otherwise modified from time to time, this “Mortgage”) made by R. J. Reynolds Tobacco Company, a North Carolina Corporation (the “Mortgagor”), having an address at 401 North Main Street, Winston-Salem, North Carolina 27102, as the Mortgagor to JPMorgan Chase Bank, N.A. (together with any successor Mortgagee, the “Mortgagee”), having an address at 270 Park Avenue, New York, NY 10017, as Administrative Agent and Collateral Agent for the benefit of the Secured Creditors (as defined below).           All capitalized terms used but not otherwise defined herein shall have the same meanings ascribed to such terms in the Credit Agreement described below. W I T N E S S E T H :           WHEREAS, Reynolds American Inc. (the “Borrower”), the various lending institutions from time to time party thereto (the “Lenders”), the Mortgagee, as Administrative Agent (the “Administrative Agent”), Lehman Commercial Paper Inc. and Citicorp USA, Inc., as Syndication Agents (the “Syndication Agents”), General Electric Capital Corporation and Mizuho Corporate Bank, Ltd., as Documentation Agents (the “Documentation Agents”), Lehman Brothers Inc., J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and General Electric Capital Corporation, as Joint Lead Arrangers and Lehman Brothers Inc., J.P. Morgan Securities Inc. and Citigroup Global Markets Inc., as Joint Bookrunners (the “Joint Bookrunners”) have entered into a Credit Agreement, dated as of May 7, 1999, as amended and restated as of November 17, 2000, as further amended and restated as of May 10, 2002, as further amended and restated as of July 30, 2004 and as further amended and restated as of the date hereof, providing for the making of Loans to the Borrower and the issuance of, and participation in, Letters of Credit for the account of the Borrower, in the aggregate principal amount of up to $2,350,000,000 all as contemplated therein (with (i) the Lenders, the Swingline Lender, each Letter of Credit Issuer, the Administrative Agent, the Syndication Agents, the Documentation Agents, the other Agents and the Collateral Agent being herein collectively called the “Lender Creditors” and (ii) the term “Credit Agreement” as used herein to mean the Credit Agreement described above in this paragraph, as the same may be further amended, modified, extended, renewed, replaced, restated, supplemented and/or refinanced from time to time, and including any agreement extending the maturity of, or refinancing or restructuring (including, but not limited to, the inclusion of additional borrowers or guarantors thereunder or any increase in the amount borrowed) all or any portion of, the indebtedness under such agreement or any successor agreement, whether or not with the same agent, trustee, representative lenders or holders; provided that, with respect to any agreement providing for the refinancing or replacement of indebtedness under the Credit Agreement, such agreement shall only be treated as, or as part of, the Credit Agreement hereunder if (x) either (A) all obligations under the Credit Agreement Amended and Restated Mortgage — Cherokee County, SC   --------------------------------------------------------------------------------   being refinanced or replaced shall be paid in full at the time of such refinancing or replacement, and all commitments and letters of credit issued pursuant to the refinanced or replaced Credit Agreement shall have terminated in accordance with their terms or (B) the Required Lenders shall have consented in writing to the refinancing or replacement indebtedness being treated as indebtedness pursuant to the Credit Agreement, and (y) a notice to the effect that the refinancing or replacement indebtedness shall be treated as issued under the Credit Agreement shall be delivered by the Borrower to the Collateral Agent);           WHEREAS, the Borrower and/or one or more of its Subsidiaries has from time to time entered into, and/or may in the future from time to time enter into, one or more agreements or arrangements with JPMCB or any of its affiliates (even if JPMCB ceases to be a Lender under the Credit Agreement for any reason (JPMCB and any such affiliate and their respective successors and assigns, each, a “Credit Card Issuer”)) providing for credit card loans to be made available to certain employees of the Borrower and/or one or more of its Subsidiaries (each such agreement or arrangement with a Credit Card Issuer, a “Secured Credit Card Agreement”);           WHEREAS, the Borrower and/or one or more of its Subsidiaries has from time to time entered into, and or may in the future from time to time enter into or guarantee one or more (i) interest rate protection agreements (including, without limitation, interest rate swaps, caps, floors, collars and similar agreements), and/or (ii) foreign exchange contracts, currency swap agreements, commodity agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency or commodity values (each such agreement or arrangement with a Hedging Creditor (as hereinafter defined), together with the Existing Interest Rate Swap Agreement, a “Secured Hedging Agreement”), with any Lender, any affiliate thereof or a syndicate of financial institutions organized by a Lender or an affiliate of a Lender (even if any such Lender ceases to be a Lender under the Credit Agreement for any reason) (any such Lender, affiliate or other such financial institution that participates therein, together with Calyon (as counterparty to the Existing Interest Rate Swap Agreement), and in each case their subsequent successors and assigns, collectively, the “Hedging Creditors”, and together with the Lender Creditors and each Credit Card Issuer, the “Lender Secured Creditors”);           WHEREAS, R.J. Reynolds Tobacco Holdings, Inc., a Wholly-Owned Subsidiary of the Borrower (“RJRTH”) and the Existing Senior Notes Trustee, on behalf of the holders of the Existing Senior Notes, have entered into the Existing Senior Notes Indenture, providing for the issuance of Existing Senior Notes by RJRTH;           WHEREAS, the Borrower and the New Senior Notes Trustee, on behalf of the holders of the New Senior Notes, have entered into the New Senior Notes Indenture, providing for the issuance of New Senior Notes by the Borrower;           WHEREAS, the Borrower and the Refinancing Senior Notes Trustee, on behalf of the holders of the Refinancing Senior Notes, may from time to time enter into the Refinancing Senior Notes Indenture, providing for the issuance from time to time of Refinancing Senior Notes by the Borrower providing for the issuance of Refinancing Senior Notes by the Borrower;           WHEREAS, the Mortgagor is owner of the fee simple title to the Property (as hereinafter defined), subject to Permitted Liens; Amended and Restated Mortgage — Cherokee County, SC -2- --------------------------------------------------------------------------------             WHEREAS, pursuant to the Subsidiary Guaranty, the Mortgagor has (together with the other Subsidiaries of the Borrower party thereto) jointly and severally guaranteed to the Lender Secured Creditors the payment when due of the Guaranteed Obligations (as and to the extent defined in the Subsidiary Guaranty);           WHEREAS, the Mortgagor has guaranteed to the Existing Senior Notes Creditors the payment when due of principal, premium (if any) and interest on the Existing Senior Notes;           WHEREAS, the Mortgagor has guaranteed to the New Senior Notes Creditors the payment when due of principal, premium (if any) and interest on the New Senior Notes;           WHEREAS, the Mortgagor may from time to time guarantee to the Refinancing Senior Notes Creditors the payment when due of principal, premium (if any) and interest on the Refinancing Senior Notes;           WHEREAS, pursuant to the Credit Agreement, the Mortgagor executed and delivered that certain Mortgage, Security Agreement, Assignment of Leases, Rents and Profits, Financing Statement and Fixture Filing dated as of July 30, 2004, for the benefit of JPMorgan Chase Bank, N.A. as Mortgagee, as Collateral Agent for the Secured Creditors as described therein (the “Original Mortgage”), which was recorded in the Records of the Clerk of Court for Cherokee County, South Carolina (the “Records”) on August 3, 2004 in Mortgage Book 1071 at Page 195.           WHEREAS, the Credit Agreement requires this Mortgage be executed and delivered to the Mortgagee by the Mortgagor and the Secured Hedging Agreements, the Secured Credit Card Agreements, the Existing Senior Notes Indenture and the New Senior Notes Indenture, require that this Mortgage secure the respective Obligations as provided herein; and           WHEREAS, the Mortgagor desires to further amend and restate the Original Mortgage to satisfy the condition in the preceding paragraph and to secure (and this Mortgage shall secure) the following:      (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of the Mortgagor, now existing or hereafter incurred under, arising out of or in connection with any Credit Document to which the Mortgagor is a party (including, without limitation, indemnities, fees and interest (including all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or similar proceeding of the Borrower or any other Credit Party at the rate provided for in the respective documentation, whether or not a claim for post-petition interest is allowed in any such proceeding)), as described in Schedule I hereto and the due performance of and compliance by the Mortgagor with the terms of each such Credit Document (all such obligations and liabilities under this clause (i), except to the extent consisting of obligations or liabilities with respect to Secured Hedging Agreements, being herein collectively called the “Credit Document Obligations”); Amended and Restated Mortgage — Cherokee County, SC -3- --------------------------------------------------------------------------------        (ii) in accordance with Section 29-3-50 of the South Carolina Code of Laws (1976), as amended, all future advances and re-advances that may subsequently be made to the Mortgagor under the Credit Agreement and evidenced by the Notes, Loans, commitments or other notes or instruments, and all modifications, renewals, or extensions thereof, the maximum amount of all Credit Document Obligations outstanding at one time secured by this Mortgage not to exceed $7,050,000,000, plus interest thereon attorneys’ fees and court costs:      (iii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of the Mortgagor, now existing or hereafter incurred under, arising out of or in connection with each Secured Credit Card Agreement (including, all obligations, if any, of the Mortgagor under the Subsidiary Guaranty in respect of any Secured Credit Card Agreement), and all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or similar proceeding of the Borrower or any other Credit Party at the rate provided for in the respective documentation, whether or not a claim for post-petition interest is allowed in any such proceeding (all such obligations and liabilities under this clause (iii) being herein collectively called the “Credit Card Obligations”);      (iv) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of the Mortgagor, now existing or hereafter incurred under, arising out of or in connection with each Secured Hedging Agreement (including, all obligations, if any, of the Mortgagor under the Subsidiary Guaranty in respect of any Secured Hedging Agreement), and all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or similar proceeding of the Borrower or any other Credit Party at the rate provided for in the respective documentation, whether or not a claim for post-petition interest is allowed in any such proceeding (all such obligations and liabilities under this clause (iv) being herein collectively called the “Hedging Obligations”);      (v) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of the Mortgagor, now existing or hereinafter incurred under, arising out of or in connection with each Existing Senior Notes Document to which it is a party (including all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or similar proceeding of the Borrower or any other Credit Party at the rate provided for in the respective documentation, whether or not a claim for post-petition interest is allowed in any such proceeding) and the due performance and compliance by the Mortgagor with the terms of each such Existing Senior Notes Document (all such obligations and liabilities under this clause (v) being herein collectively called the “Existing Senior Notes Obligations”); Amended and Restated Mortgage — Cherokee County, SC -4- --------------------------------------------------------------------------------        (vi) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of the Mortgagor, now existing or hereinafter incurred under, arising out of or in connection with each New Senior Notes Document to which it is a party (including all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or similar proceeding of the Borrower or any other Credit Party at the rate provided for in the respective documentation, whether or not a claim for post-petition interest is allowed in any such proceeding) and the due performance and compliance by the Mortgagor with the terms of each such New Senior Notes Document (all such obligations and liabilities under this clause (vi) being herein collectively called the “New Senior Notes Obligations”);      (vii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of the Mortgagor now existing or hereinafter incurred under, arising out of or in connection with each Refinancing Senior Notes Document to which it is a party (including all interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency, reorganization or similar proceeding of the Borrower or any other Credit Party at the rate provided for in the respective documentation, whether or not a claim for post-petition interest is allowed in any such proceeding) and the due performance and compliance by the Mortgagor with the terms of each such Refinancing Senior Notes Document (all such obligations and liabilities under this clause (vii) being herein collectively called the “Refinancing Senior Notes Obligations” and together with the New Senior Notes Obligations, the “RAI Senior Notes Obligations”);      (viii) any and all sums advanced by the Mortgagee in order to preserve the Property or preserve its lien and security interest in the Property;      (ix) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of the Mortgagor and/or the Borrower referred to above after an Event of Default (as hereinafter defined) shall have occurred and be continuing, all expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Property, or of any exercise by the Mortgagee of its rights hereunder, together with reasonable attorneys’ fees and disbursements (as set forth in Section 4.09 hereof) and court costs; (x) all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 4.10 hereof; (xi) any and all other indebtedness now owing or which may hereafter be owing by the Mortgagor to the Mortgagee, however and whenever incurred or evidenced, whether express or implied, direct or indirect, absolute or contingent, or due or to become due; and Amended and Restated Mortgage — Cherokee County, SC -5- --------------------------------------------------------------------------------   (xii) any and all renewals, extensions and modifications of any of the obligations and liabilities referred to in clauses (i) through (xi) above; all such obligations, liabilities, sums and expenses set forth in clauses (i) through (xii) above being herein collectively called the “Obligations”, provided that notwithstanding the foregoing, (i) the Existing Senior Notes Obligations shall be excluded from the Obligations, to the extent the Existing Senior Notes Documents do not require the Existing Senior Notes Obligations to be secured pursuant to this Mortgage, (ii) the New Senior Notes Obligations shall be excluded from the Obligations, to the extent the New Senior Notes Documents do not require the New Senior Notes Obligations to be secured pursuant to this Mortgage and (iii) the Refinancing Senior Notes Obligations shall be excluded from the Obligations, to the extent the Refinancing Senior Notes Documents do not require the Refinancing Senior Notes Obligations to be secured pursuant to this Mortgage.           NOW, THEREFORE, as security for its Applicable Obligations (as defined below) and in consideration of the sum of ten dollars ($10.00) and the other benefits accruing to the Mortgagor, the receipt and sufficiency of which are hereby acknowledged, THE MORTGAGOR HEREBY MORTGAGES, GIVES, GRANTS, BARGAINS, SELLS, ASSIGNS, TRANSFERS, CONVEYS AND CONFIRMS TO THE MORTGAGEE AND ITS SUCCESSORS AND ASSIGNS FOREVER FOR THE BENEFIT OF THE SECURED CREDITORS all of the Mortgagor’s estate, right, title and interest, whether now owned or hereafter acquired, whether as lessor or lessee and whether vested or contingent, in and to all of the following:           A. The land described in Exhibit A hereto, together with all rights, privileges, franchises and powers related thereto which are appurtenant to said land or its ownership, including all minerals, oil and gas and other hydrocarbon substances thereon or therein; waters, water courses, water stock, water rights (whether riparian, appropriative, or otherwise, and whether or not appurtenant), sewer rights, shrubs, crops, trees, timber and other emblements now or hereafter on, under or above the same or any part or parcel thereof (the “Land”);           B. All buildings, structures, tenant improvements and other improvements of every kind and description now or hereafter located in or on the Land, including, but not limited to all machine shops, structures, improvements, rail spurs, dams, reservoirs, water, sanitary and storm sewers, drainage, electricity, steam, gas, telephone and other utility facilities, parking areas, roads, driveways, walks and other site improvements of every kind and description now or hereafter erected or placed on the Land; and all additions and betterments thereto and all renewals, alterations, substitutions and replacements thereof (collectively, the “Improvements”);           C. All fixtures, attachments, appliances, equipment, machinery, building materials and supplies, and other tangible personal property, now or hereafter attached to said Improvements or now or at any time hereafter located on the Land and/or Improvements including, but not limited to, artwork, decorations, draperies, furnaces, boilers, oil burners, piping, plumbing, refrigeration, air conditioning, lighting, ventilation, disposal and sprinkler systems, elevators, motors, dynamos and all other equipment and machinery, appliances, fittings and fixtures of every kind located in or used in the operation of the Improvements, together with any and all replacements or substitutions thereof and additions thereto, including the proceeds of any Amended and Restated Mortgage — Cherokee County, SC -6- --------------------------------------------------------------------------------   sale or transfer of the foregoing (hereinafter sometimes collectively referred to as the “Equipment”);           D. All surface rights, appurtenant rights and easements, rights of way, and other rights appurtenant to the use and enjoyment of or used in connection with the Land and/or the Improvements;           E. All streets, roads and public places (whether open or proposed) now or hereafter adjoining or otherwise providing access to the Land, the land lying in the bed of such streets, roads and public places, and all other sidewalks, alleys, ways, passages, vaults, water courses, strips and gores of land now or hereafter adjoining or used or intended to be used in connection with all or any part of the Land and/or the Improvements;           F. Any leases, lease guaranties and any other agreements, relating to the use and occupancy of the Land and/or the Improvements or any portion thereof, including but not limited to any use or occupancy arrangements created pursuant to Section 365(h) of he Bankruptcy Code or otherwise in connection with the commencement or continuance of any bankruptcy, reorganization, arrangement, insolvency, dissolution, receivership or similar proceedings, or any assignment for the benefit of creditors, in respect of any tenant or occupant of any portion of the Land and/or the Improvements (collectively, “Leases”);           G. All revenues, rents, receipts, income, accounts receivable, issues and profits of the Property (collectively, “Rents”);           H. To the extent assignable, all permits, licenses and rights relating to the use, occupation and operation of the Land and the Improvements, any business conducted thereon or therein and any part thereof;           I. All real estate tax refunds payable to the Mortgagor with respect to the Land and/or the Improvements, and refunds, credits or reimbursements payable with respect to bonds, escrow accounts or other sums payable in connection with the use, development, or ownership of the Land or Improvements;           J. Any claims or demands with respect to any proceeds of insurance in effect with respect to the Land and/or the Improvements, including interest thereon, which the Mortgagor now has or may hereafter acquire and any and all awards made for the taking by eminent domain, condemnation or by any proceedings, transfer or purchase in lieu or in anticipation of the exercise of said rights, or for a change of grade, or for any other injury to or decrease in the value of the whole or any part of the Property;           K. Any zoning lot agreements and air rights and development rights which may be vested in the Mortgagor together with any additional air rights or development rights which have been or may hereafter be conveyed to or become vested in the Mortgagor; and           L. All proceeds and products of the conversion, voluntary or involuntary, including, without limitation, those from sale, exchange, transfer, collection, loss, damage, Amended and Restated Mortgage — Cherokee County, SC -7- --------------------------------------------------------------------------------   disposition, substitution or replacement of any of the foregoing; whether into cash, liquidated claims or otherwise. All of the foregoing estates, right, properties and interests hereby conveyed to the Mortgagee may be referred to herein as the “Property”. Notwithstanding the foregoing, (x) the Property that secures the Existing Senior Notes Obligations shall be limited to Property consisting of any Principal Property (as defined in the Existing Senior Notes Indenture (in each case as in effect on the date hereof)) of the Mortgagor (the “Designated Existing Senior Notes Trust Property”), all of which Property shall also ratably secure all other Applicable Obligations of the Mortgagor, and the Trust Property Proceeds (as defined in Section 4.04(a)) that are to be applied to the Existing Senior Notes Obligations shall be limited to Trust Property Proceeds resulting from the sale of, and Rents and other amounts generated by the holding, leasing, management, operation or other use pursuant to this Mortgage of, the Designated Existing Senior Notes Trust Property, with such Trust Property Proceeds to also be applied ratably to all other Applicable Obligations of the Mortgagor and (y) the Property that secures the RAI Senior Notes Obligations shall be limited to Property consisting of any Principal Property (as defined in the New Senior Notes Indenture Notes Indenture (in each case as in effect on the date hereof) or the Refinancing Senior Notes Indenture) of the Mortgagor (the “Designated RAI Senior Notes Trust Property”, and together with the Designated Existing Senior Notes Trust Property, the “Limited Trust Property”), all of which Property shall also ratably secure all other Applicable Obligations of the Mortgagor, and the Trust Property Proceeds (as defined in Section 4.04(a)) that are to be applied to the RAI Senior Notes Obligations shall be limited to Trust Property Proceeds resulting from the sale of, and Rents and other amounts generated by the holding, leasing, management, operation or other use pursuant to this Mortgage of, the Designated RAI Senior Notes Trust Property, with such Trust Property Proceeds to also be applied ratably to all other Applicable Obligations of the Mortgagor. “Applicable Obligations” shall mean all of the Obligations; provided that (x) the Existing Senior Notes Obligations shall be excluded from the Applicable Obligations of the Mortgagor to the extent the Existing Senior Notes Documents do not require the Existing Senior Notes Obligations to be secured pursuant to this Mortgage, (y) the New Senior Notes Obligations shall be excluded from the Applicable Obligations of the Mortgagor to the extent the New Senior Notes Documents do not require the New Senior Notes Obligations to be secured pursuant to this Mortgage, and (z) the Refinancing Senior Notes Obligations shall be excluded from the Applicable Obligations of the Mortgagor to the extent the Refinancing Senior Notes Documents do not require the Refinancing Senior Notes Obligations to be secured pursuant to this Agreement.           TO HAVE AND TO HOLD the above granted and described Property unto the Mortgagee and to its successors and assigns forever, and the Mortgagor hereby covenants and agrees on behalf of itself and its successors and assigns to warrant and defend the Property unto the Mortgagee, its successors and assigns against the claim or claims of all persons and parties whatsoever.           PROVIDED, HOWEVER, that if Obligations shall have been paid in cash at the time and in the manner stipulated in the Secured Debt Agreements and all other sums payable hereunder and all other indebtedness secured hereby shall have been paid and all other covenants Amended and Restated Mortgage — Cherokee County, SC -8- --------------------------------------------------------------------------------   contained in the Secured Debt Agreements (as defined below) shall have been performed, then, in such case the Mortgagee shall, subject to the provisions of Section 6.19 of this Mortgage, at the request and expense of the Mortgagor, satisfy this Mortgage (without recourse and without any representation or warranty) and the estate, right, title and interest of the Mortgagee in the Property shall cease, and upon payment to the Mortgagee of all reasonable costs and expenses incurred for the preparation of the release hereinafter referenced and all recording costs if allowed by law, the Mortgagee shall cancel and surrender the estate and interest created by this Mortgage. ARTICLE I REPRESENTATIONS, WARRANTIES, COVENANTS           1.01 Title to this Property. The Mortgagor represents and warrants: (a) it has good and marketable fee title to the Property, free and clear of any liens and encumbrances, other than Liens permitted under Section 8.03 of the Credit Agreement (or, after the CA Termination Date (as defined below), the Credit Agreement as in effect immediately prior to the occurrence of the CA Termination Date) and any other easements, rights and claims of record (collectively “Permitted Liens”), and is lawfully seized and possessed of the Property; (b) this Mortgage is a valid first priority security interest and lien upon the Property subject to the Permitted Liens; (c) it has full power and authority to encumber the Property in the manner set forth herein; and (d) there are no defenses or offsets to this Mortgage or to the Obligations which it secures. The Mortgagor shall preserve such title and the validity and priority of this Mortgage and shall forever warrant and defend the same to the Mortgagee and the Mortgagee’s successors and assigns against the claims of all persons and parties whatsoever. The Mortgagor shall take no action nor shall it fail to take any action which could result in an impairment of the lien of this Mortgage or which could form the basis for any Person(s) to claim an interest in the Property (including, without limitation, any claim for adverse use or possession or any implied dedication or easement by prescription other than leases permitted under the Credit Agreement). If any Lien (other than Permitted Liens) is asserted against the Property, the Mortgagor shall promptly, at its expense: (a) provide the Mortgagee with written notice of such Lien, including information relating to the amount of the Lien asserted; and (b) pay the Lien in full or take such other action to cause the Lien to be released, or, so long as the Lien of this Mortgage is not compromised, contest the same pursuant to the provisions of the Credit Agreement. From and after the occurrence of an Event of Default, the Mortgagee may, but shall not be obligated, to pay any such asserted Lien if not timely paid by the Mortgagor.           1.02 Compliance with Law. The Mortgagor represents and warrants that it possesses all material certificates, licenses, authorizations, registrations, permits and/or approvals necessary for the ownership, operation, leasing and management of the Property, including, without limitation, all material environmental permits, all of which are in full force and effect and not the subject of any revocation proceeding, undisclosed amendment, release, suspension, forfeiture or the like. The present and contemplated use and occupancy of the Property does not conflict with or violate any such certificate, license, authorization, registration, permit or approval, including, without limitation, any certificate of occupancy which may have been issued for the Property. The Mortgagor will not take any action, or fail to take any required action, so as to compromise or adversely affect the zoning classification of the Property. Amended and Restated Mortgage — Cherokee County, SC -9- --------------------------------------------------------------------------------             1.03 Payment and Performance of Obligations. Subject to the terms of the Secured Debt Agreements, the Mortgagor shall pay all of the Obligations when due and payable without offset or counterclaim, and shall observe and comply in all material respects with all of the terms, provisions, conditions, covenants and agreements to be observed and performed by it under this Mortgage, the other Credit Documents to which it is a party, the Secured Credit Card Agreements, the Secured Hedging Agreements, the Existing Senior Notes Documents, the New Senior Notes Documents and the Refinancing Senior Notes Documents (collectively, the “Secured Debt Agreements”).           1.04 Maintenance, Repair, Alterations, Etc. The Mortgagor will: (i) keep and maintain the Property, to the extent used in Mortgagor’s day to day business, in good condition and repair (normal wear and tear excepted); (ii) make or cause to be made, as and when necessary, all material repairs, renewals and replacements, structural and nonstructural, exterior and interior, ordinary and extraordinary, foreseen and unforeseen which are necessary to so maintain the Property in Mortgagor’s reasonable business judgment; (iii) restore any Improvement, to the extent used in Mortgagor’s day to day business, which may be damaged or destroyed so that the same shall be at least substantially equal to its value, condition and character immediately prior to the damage or destruction; (iv) not commit or permit any waste or deterioration (normal wear and tear excepted) of the Property, to the extent used in Mortgagor’s day to day business; (v) not permit any material Improvements, to the extent used in Mortgagor’s day to day business, to be demolished or substantially altered in any manner that substantially decreases the value thereof; (vi) promptly pay when due all claims for labor performed and materials furnished therefor or contest such claim and; (vii) comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental authorities having jurisdiction over the Property, as well as comply with the provisions of any lease, easement or other agreement affecting all or any part of the Property.           1.05 Required Insurance; Use of Proceeds. The Mortgagor will, at its expense, at all times provide, maintain and keep in force policies of property, hazard and liability insurance in accordance with Section 7.03 of the Credit Agreement with respect to the Property, together with statutory workers’ compensation insurance with respect to any work to be performed on or about the Property. To the extent required under the Credit Agreement, the Mortgagor shall give prompt written notice to the Mortgagee of the occurrence of any material damage to or material destruction of the Improvements or the Equipment. In the event of any damage to or destruction of the Property or any part thereof, so long as a Noticed Event of Default (as defined in Section 3.03(a) hereof) has not occurred and is not continuing the Mortgagee will release any interest they have in the proceeds of any insurance to the Mortgagor on account of such damage or destruction and Mortgagor may use such proceeds for repair restoration replacement or other business purposes as Mortgagor may reasonably determine. In the event of foreclosure of the lien and interest of this Mortgage or other transfer of title or assignment of the Property in extinguishment, in whole or in part, of the Obligations, all right, title and interest of the Mortgagor in and to all proceeds then payable under any policy of insurance required by this Mortgage shall inure to the benefit of and pass to the successor in interest of the Mortgagor, or the purchaser or mortgagor of the Property. After the occurrence of an Event of Default, the Mortgagee shall be afforded the right to participate in and approve the settlement of any claim made by the Mortgagor against the insurance company. Amended and Restated Mortgage — Cherokee County, SC -10- --------------------------------------------------------------------------------             1.06 Preservation of Property. The Mortgagor agrees to pay for any and all reasonable and actual fees, costs and expenses of whatever kind or nature incurred in connection with the creation, preservation or protection of the Mortgagee’s liens on, and security interest in, the Property, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices (including stamp and mortgage or intangible recording taxes or other taxes imposed on the Mortgagee by virtue of its ownership of this Mortgage), which are imposed upon the recording of this Mortgage or thereafter, all reasonable attorneys’ fees, payment or discharge of any taxes or Liens upon or in respect of the Property, premiums for insurance with respect to the Property and all other reasonable fees, costs and expenses in connection with protecting, maintaining or preserving the Property and the Mortgagee’s interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Property.           1.07 Condemnation. Should the Mortgagor receive any notice that a material portion of the Property or interest therein may be taken or damaged by reason of any public improvements or condemnation proceeding or in any other similar manner (a “Condemnation”), the Mortgagor, to the extent required under the Credit Agreement, shall give prompt written notice thereof to the Mortgagee. In the event of any Condemnation, after the occurrence and during the continuation of any Event of Default, the Mortgagee shall have the right to participate in any negotiations or litigation and shall have the right to approve any settlement. So long as no Noticed Event of Default has occurred and is continuing, the Mortgagee will release any interest they have in any and all compensation, awards, damages and proceeds paid to the Mortgagor or the Borrower on account of such Condemnation and Mortgagor may use such compensation awards, damages and proceeds for repair, restoration, replacement or other business purposes as Mortgagor may reasonably determine.           1.08 Inspections. The Mortgagor hereby authorizes the Mortgagee, its agents, employees and representatives, upon reasonable prior written notice to the Mortgagor (except in an emergency or following the occurrence and during the continuance of any Event of Default, in which case notice shall not be required) to visit and inspect the Property or any portion(s) thereof, all at such reasonable times and as often as the Mortgagee may reasonably request.           1.09 Transfers. Except as otherwise permitted in accordance with the terms of the Credit Agreement, no part of the Property or of any legal or beneficial interest in the Property shall be sold, assigned, conveyed, transferred or otherwise disposed of (whether voluntarily or involuntarily, directly or indirectly, by sale of stock or any interest in the Mortgagor, or by operation of law or otherwise).           1.10 After Acquired Property Interests. Subject to applicable law, all right, title and interest of the Mortgagor in and to all extensions, improvements, betterments, renewals, substitutes and replacements of, and all additions and appurtenances to, the Property, hereafter acquired by, or released to, the Mortgagor or constructed, assembled or placed by the Mortgagor on the Land, and all conversions of the security constituted thereby (collectively, “After Acquired Property Interests”), immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case, without any further mortgage, conveyance, assignment or other act by the Mortgagor, shall become subject to the lien of this Mortgage as fully and completely, and with the same effect, as though now Amended and Restated Mortgage — Cherokee County, SC -11- --------------------------------------------------------------------------------   owned by the Mortgagor and specifically described in the granting clauses hereof. The Mortgagor shall execute and deliver to the Mortgagee all such other assurances, mortgages, conveyances or assignments thereof as the Mortgagee may reasonably require for the purpose of expressly and specifically subjecting such After Acquired Property Interests to the lien of this Mortgage. The Mortgagor hereby irrevocably authorizes and appoints the Mortgagee as the agent and attorney-in-fact of the Mortgagor to execute all such documents and instruments on behalf of the Mortgagor, which appointment shall be irrevocable and coupled with an interest, if the Mortgagor fails or refuses to do so within ten (10) days after a request therefor by the Mortgagee. ARTICLE II SECURITY AGREEMENT           2.01 Grant of Security; Incorporation by Reference. This Mortgage shall, in addition to constituting a mortgage lien on and security interest in those portions of the Property classified as real property (including fixtures to the extent they are real property), constitute a security agreement within the meaning of the Uniform Commercial Code or within the meaning of the common law with respect to those parts of the Property classified as personal property (including fixtures to the extent they are personal property) to the extent a security interest therein can be created by this Mortgage. The Mortgagor hereby grants to the Mortgagee a security interest in and to the following property whether now owned or hereafter acquired (collectively, the “Secured Property”) for the benefit of the Mortgagee to further secure the payment and performance of its Applicable Obligations:      (a) Those parts of the Property classified as personal property (including (i) fixtures to the extent they are personal property and (ii) personal property and fixtures that are leased, but only to the extent the Mortgagor can grant to the Mortgagee a security interest therein without breaching the terms of such lease);      (b) All general intangibles, contract rights, accounts and proceeds arising from all insurance policies required to be maintained by the Mortgagor and related to the Property hereunder;      (c) All proceeds of any judgment, award or settlement in any condemnation or eminent domain proceeding in connection with the Property, together with all general intangibles, contract rights and accounts arising therefrom;      (d) All permits, consents and other governmental approvals in connection with the construction of the Improvements or the operation of the Property, to the extent any of the same may be assigned, transferred, pledged or subjected to a security interest;      (e) All plans and specifications, studies, tests or design materials relating to the design, construction, repair, alteration or leasing of the Property, to the extent any of the same may be assigned, transferred, pledged or subjected to a security interest; and      (f) All cash and non-cash proceeds of the above-mentioned items. Amended and Restated Mortgage — Cherokee County, SC -12- --------------------------------------------------------------------------------   ; provided that notwithstanding the foregoing, Secured Property securing Existing Senior Notes Obligations and RAI Senior Notes Obligations shall be limited to Limited Property, as the case may be.           The provisions contained in the Security Agreement are hereby incorporated by reference into this Mortgage with the same effect as if set forth in full herein. In the event of a conflict between the provisions of this Article II and the Security Agreement, the Security Agreement shall control and govern and the Mortgagor shall comply therewith.           2.02 Fixture Filing and Financing Statements. This Mortgage constitutes a security agreement, fixture filing and financing statement as those terms are used in the Uniform Commercial Code. For purposes of this Section, this Mortgage is to be filed and recorded in, among other places, the real estate records of Cherokee County and the following information is included: (1) the Mortgagor shall be deemed the “Debtor” with the address set forth for the Mortgagor on the first page of this Mortgage which the Mortgagor certifies is accurate; (2) the Mortgagee shall be deemed to be the “Secured Party” with the address set forth for the Mortgagee on the first page of this Mortgage and shall have all of the rights of a secured party under the Uniform Commercial Code; (3) this Mortgage covers goods which are or are to become fixtures on the real property described in Exhibit A attached hereto; (4) the name of the record owner of the land is the Debtor; (5) the organizational identification number of the Debtor is NC0711678; (6) the Debtor is a corporation, organized under the laws of the State of North Carolina; and (7) the legal name of the Debtor is R. J. Reynolds Tobacco Company. The Debtor hereby authorizes the Mortgagee to file any financing statements and terminations thereof or amendments or modifications thereto without the signature of the Debtor where permitted by law. ARTICLE III ASSIGNMENT OF LEASES, RENTS AND PROFITS           3.01 Assignment. The Mortgagor hereby absolutely, irrevocably and unconditionally sells, assigns, transfers and conveys to the Mortgagee all of the Mortgagor’s right, title and interest in and to all current and future Leases and Rents, including those now due, past due, or to become due by virtue of any Lease or other agreement for the occupancy or use of all or any part of the Property regardless of to whom the Rents are payable. The Mortgagor intends that this assignment of Leases and Rents constitutes a present and absolute assignment and not an assignment for additional security only. Such assignment to the Mortgagee shall not be construed to bind the Mortgagee to the performance of any of the covenants, conditions or provisions contained in any such Lease or otherwise impose any obligation upon the Mortgagee. The Mortgagor covenants that the Mortgagor will not hereafter collect or accept payment of any Rents more than one month prior to the due dates of such Rents, and that no payment of any of the Rents to accrue for any portion of the Property (other than a de minimis amount) will be waived, released, reduced, discounted or otherwise discharged or compromised by the Mortgagor, except as may be approved in writing by the Mortgagee. The Mortgagor agrees that it will not assign any of the Leases or Rents to any other Person. The Mortgagee shall have no liability for any loss which may arise from a failure or inability to collect Rents, proceeds or Amended and Restated Mortgage — Cherokee County, SC -13- --------------------------------------------------------------------------------   other payments. The Mortgagor shall maintain all security deposits in accordance with applicable law.           3.02 Revocable License; Agent. Notwithstanding the foregoing, subject to the terms of this Article III, the Mortgagee grants to the Mortgagor a revocable license to operate and manage the Property and to collect the Rents and hereby directs each tenant under a Lease to pay such Rents to, or at the direction of, the Mortgagor, until such time as the Mortgagee provides notice to the contrary to such tenants. The Mortgagor shall hold the Rents, or a portion thereof sufficient to discharge all current sums due in respect of the Obligations, in trust for the benefit of the Mortgagee for use in the payment of such sums.           3.03 Rents. (a) Upon the occurrence and during the continuance of a Noticed Event of Default, without the need for notice or demand, the license granted pursuant to this Article III shall immediately and automatically be revoked and the Mortgagee shall immediately be entitled to possession of all Rents, whether or not the Mortgagee enters upon or takes control of the Property. Upon the revocation of such license, the Mortgagor grants to the Mortgagee the right, at its option, to exercise all the rights granted in Section 4.02(a). Nothing herein contained shall be construed as constituting the Mortgagee a lender in possession in the absence of the taking of actual possession of the Property by the Mortgagee pursuant to Section 4.02(a). As used herein, a “Noticed Event of Default” shall mean (i) an Event of Default with respect to the Borrower under Section 9.05 of the Credit Agreement and (ii) any other Event of Default in respect of which the Mortgagee has given the Borrower notice that such Event of Default constitutes a “Noticed Event of Default”.           (b) From and after the termination of such license, the Mortgagor may, at the Mortgagee’s direction, be the agent for the Mortgagee in collection of the Rents and all of the Rents so collected by the Mortgagor shall be held in trust by the Mortgagor for the sole and exclusive benefit of the Mortgagee and the Mortgagor shall, within one (1) business day after receipt of any Rents, pay the same to the Mortgagee to be applied by the Mortgagee as provided for herein. All Rents collected shall be applied against all expenses of collection, including, without limitation, attorneys’ fees, against costs of operation and management of the Property and against the Obligations, in whatever order or priority as to any of the items so mentioned as the Mortgagee directs in its sole and absolute discretion and without regard to the adequacy of its security. Neither the demand for or collection of Rents by the Mortgagee shall constitute any assumption by the Mortgagee of any obligations under any Lease or agreement relating thereto.           (c) Any reasonable funds expended by the Mortgagee to take control of and manage the Property and collect the Rents shall become part of the Obligations secured hereby. Such amounts shall be payable from the Mortgagor to the Mortgagee upon the Mortgagee’s demand therefor and shall bear interest from the date of disbursement at the interest rate set forth in Section 1.08(c) of the Credit Agreement unless payment of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate which may be collected from the Mortgagor under applicable law.           3.04 Sale of Property. (a) Upon any sale of any portion of the Property by or for the benefit of the Mortgagee pursuant to this Mortgage, the Rents attributable to the part of the Amended and Restated Mortgage — Cherokee County, SC -14- --------------------------------------------------------------------------------   Property so sold shall be included in such sale and shall pass to the purchaser free and clear of any rights granted herein to the Mortgagor.           (b) The Mortgagor acknowledges and agrees that, upon recordation of this Mortgage, the Mortgagee’s interest in the Rents shall be deemed to be fully perfected, “choate” and enforceable against the Mortgagor and all third parties, including, without limitation, any debtor in possession or trustee in any case under title 11 of the United States Code, without the necessity of (i) commencing a foreclosure action with respect to this Mortgage, (ii) furnishing notice to the Mortgagor or tenants under the Leases, (iii) making formal demand for the Rents, (iv) taking possession of the Property as a lender-in-possession, (v) obtaining the appointment of a receiver of the Rents, (vi) sequestering or impounding the Rents or (vii) taking any other affirmative action.           3.05 Bankruptcy Provisions. Without limiting the provisions of Article III hereof or the absolute nature of the assignment of the Rents hereunder, the Mortgagor and the Mortgagee agree that, to the extent that the assignment of the Rents hereunder is deemed to be other than an absolute assignment, (a) this Mortgage shall constitute a “security agreement” for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest created by this Mortgage extends to property of the Mortgagor acquired before the commencement of a bankruptcy case and to all amounts paid as Rents and (c) such security interest shall extend to all Rents acquired by the estate after the commencement of any bankruptcy case. Without limitation of the absolute nature of the assignment of the Rents hereunder, to the extent the Mortgagor (or the Mortgagor’s bankruptcy estate) shall be deemed to hold any interest in the Rents after the commencement of a voluntary or involuntary bankruptcy case, the Mortgagor hereby acknowledges and agrees that such Rents are and shall be deemed to be “cash collateral” under Section 363 of the Bankruptcy Code. ARTICLE IV EVENTS OF DEFAULT AND REMEDIES           4.01 Events of Default. The occurrence of (i) an “Event of Default” under and as defined in the Credit Agreement, (ii) any “event of default” under the Existing Senior Notes Documents, the New Senior Notes Documents or the Refinancing Senior Notes Documents and (iii) any payment default, after any applicable grace period, under any Secured Credit Card Agreement or any Secured Hedging Agreement shall constitute an Event of Default (each, an “Event of Default”) hereunder.      4.02 Remedies Upon Default. Upon the occurrence of a Noticed Event of Default, the Mortgagee may, in the Mortgagee’s sole discretion, either itself or by or through one or more trustees, agents, nominees, assignees or otherwise, to the fullest extent permitted by law, exercise any or all of the following rights and remedies individually, collectively or cumulatively:      (a) either in person or by its agent, with or without bringing any action or proceeding, or by a receiver appointed by a court and without regard to the adequacy of its security, (i) enter upon and take possession of the Property or any part thereof and of Amended and Restated Mortgage — Cherokee County, SC -15- --------------------------------------------------------------------------------   all books, records and accounts relating thereto or located thereon, in its own name or in the name of the Mortgagor, and do or cause to be done any acts which it deems necessary or desirable to preserve the value of the Property or any part thereof or interest therein, collect the income therefrom or protect the security hereof; (ii) with or without taking possession of the Property make such repairs, alterations, additions and improvements as the Mortgagee deems necessary or desirable and do any and all acts and perform any and all work which the Mortgagee deems necessary or desirable to complete any unfinished construction on the Property; (iii) make, cancel or modify Leases and sue for or otherwise collect the Rents thereof, including those past due and unpaid; (iv) make any payment or perform any act which the Mortgagor has failed to make or perform hereunder; (v) appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of the Mortgagee; (vi) pay, purchase, contest or compromise any encumbrance, charge or Lien on the Property; and (vii) take such other actions as the Mortgagee deems necessary or desirable;      (b) commence and maintain one or more actions at law or in equity or by any other appropriate remedy (i) to protect and enforce the rights of the Mortgagee hereunder, including for the specific performance of any covenant or agreement herein contained (which covenants and agreements the Mortgagor agrees shall be specifically enforceable by injunctive or other appropriate equitable remedy), (ii) to collect any sum then due hereunder, (iii) to aid in the execution of any power herein granted, or (iv) to foreclose this Mortgage in accordance with Section 4.03 hereof;      (c) exercise any or all of the remedies available to a secured party under the Uniform Commercial Code;      (d) by notice to the Mortgagor (to the extent such notice is required to be given under the Credit Documents), but without formal demand, presentment, notice of intention to accelerate or of acceleration, protest or notice of protest, all of which are hereby waived by the Mortgagor, declare all of the Obligations (except for the Existing Senior Notes Obligations and the RAI Senior Notes Obligations) secured hereby to be immediately due and payable, and upon such declaration all of such indebtedness shall become and be immediately due and payable, anything in this Mortgage or any other Credit Documents to the contrary notwithstanding; and      (e) exercise any other right or remedy available to the Mortgagee under the Secured Debt Agreements.           4.03 Right of Foreclosure. (a) Upon the occurrence of a Noticed Event of Default, the Mortgagee shall have the right, in its sole discretion, to proceed at law or in equity to foreclose this Mortgage with respect to all or any portion of the Property by judicial sale under the judgment of a Court of competent jurisdiction, in accordance with the applicable laws of jurisdiction in which the Property is located. If the Property consists of several lots, parcels or items of Property, the Mortgagee may, in its sole discretion: (i) designate the order in which such lots, parcels or items shall be offered for sale or sold, or (ii) elect to sell such lots, parcels or items through a single sale, or through two or more successive sales, or in any other manner the Mortgagee deems in its best interest. Should the Mortgagee desire that more than one sale or Amended and Restated Mortgage — Cherokee County, SC -16- --------------------------------------------------------------------------------   other disposition of the Property be conducted, the Mortgagee may, at its option, cause the same to be conducted simultaneously, or successively, on the same day, or at such different days or times and in such order as the Mortgagee may deem to be in its best interests, and no such sale shall terminate or otherwise affect the lien of this Mortgage on any part of the Property not sold until all Obligations have been fully paid and performed. The Mortgagee may elect to sell the Property for cash or credit. The Mortgagee may, to the extent permitted by law, adjourn from time to time any sale by it to be made under or by virtue of this Mortgage by announcement at the time and place appointed for such sale or for such adjourned sale or sales; and, except as otherwise provided by an applicable provision of law, the Mortgagee may make such sale at the time and place to which the same shall be so adjourned. With respect to all components of the Property and to the extent allowed by applicable law, the Mortgagee is hereby irrevocably appointed the true and lawful attorney-in-fact of the Mortgagor (coupled with an interest), in its name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the Property in connection with any foreclosure of this Mortgage, and for that purpose the Mortgagee may execute all necessary instruments of conveyance, assignment, transfer and delivery, and may substitute one or more persons with such power, the Mortgagor hereby ratifying and confirming all that its said attorney-in-fact or such substitute or substitutes shall lawfully do by virtue hereof. Notwithstanding the foregoing, the Mortgagor, if so requested by the Mortgagee, shall ratify and confirm any such sale or sales by executing and delivering to the Mortgagee or to such purchaser or purchasers all such instruments as may be advisable, in the judgment of the Mortgagee, for such purpose, and as may be designated in such request. To the extent permitted by law, any such sale or sales made under or by virtue of this Article IV shall operate to divest all the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of the Mortgagor in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against the Mortgagor and against any and all persons claiming or who may claim the same, or any part thereof, from, through or under the Mortgagor. Upon any sale made under or by virtue of this Article IV, the Mortgagee may, to the extent permitted by law, bid for and acquire the Property or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the Obligations secured hereby the net sales price after deducting therefrom the expenses of the sale and the cost of the action and any other sums which the Mortgagee is authorized to deduct by law or under this Mortgage.           (b) Any foreclosure of this Mortgage and any other transfer of all or any part of the Property in extinguishment of all or any part of the Obligations may, at the Mortgagee’s option, be subject to any or all Leases of all or any part of the Property and the rights of tenants under such Leases. No failure to make any such tenant a defendant in any foreclosure proceedings or to foreclose or otherwise terminate any such Lease and the rights of any such tenant in connection with any such foreclosure or transfer shall be, or be asserted to be, a defense or hindrance to any such foreclosure or transfer or to any proceedings seeking collection of all or any part of the Obligations (including, without limitation, any deficiency remaining unpaid after completion of any such foreclosure or transfer).           (c) If the Mortgagor retains possession of the Property or any part thereof subsequent to a sale, the Mortgagor will be considered a tenant at sufferance of the purchaser, and will, if the Mortgagor remains in possession after demand to remove, be guilty of forcible detainer and will be subject to eviction and removal, forcible or otherwise, with or without Amended and Restated Mortgage — Cherokee County, SC -17- --------------------------------------------------------------------------------   process of law, and all damages to the Mortgagor by reason thereof are hereby expressly waived by the Mortgagor.           (d) It is agreed and understood that (x) this Mortgage may be enforced only by the action of the Mortgagee acting upon the instructions of the Required Lenders or, if the CA Termination Date has occurred, the holders of a majority of the outstanding principal amount of all remaining Obligations, provided that if prior to the CA Termination Date a payment default with respect to at least $300,000,000 principal amount in the aggregate of Existing Senior Notes, New Senior Notes and/or Refinancing Senior Notes has continued for at least 180 days (and such defaulted payment has not been received pursuant to a drawing under any letter of credit), the holders of a majority of the outstanding principal amount of the Indebtedness subject to such payment default or defaults can direct the Mortgagee to commence and continue enforcement of the Liens created hereunder, which the Mortgagee shall comply with subject to receiving any indemnity which it reasonably requests, provided further, that the Mortgagee shall thereafter comply only with the directions of the Required Lenders as to carrying out such enforcement so long as such directions are not adverse to the aforesaid directions of the holders of Indebtedness subject to such payment default or defaults, and (y) no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Mortgage or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies shall be exercised exclusively by the Mortgagee for the benefit of the Secured Creditors as their interest may appear upon the terms of this Mortgage and the other Secured Debt Agreements.           4.04 Application of Proceeds. (a) To the fullest extent permitted by law, the proceeds of any sale of, and the Rents and other amounts generated by the holding, leasing, management, operation or other use of, each item of the Property pursuant to this Mortgage (the “Trust Property Proceeds”) shall be applied by the Mortgagee (or the receiver, if one is appointed) as follows:      (i) first, to the payment of all Obligations owing to the Mortgagee of the type described in clauses (viii), (ix), (x), (xi) and (xii) of the definition of Obligations herein;      (ii) second, to the extent Trust Property Proceeds of Property remain after the application pursuant to preceding clause (i), an amount equal to the outstanding Applicable Obligations secured by such item of Property shall be paid to the Secured Creditors as their interests may appear, with (x) each Secured Creditor receiving an amount equal to its outstanding Applicable Obligations secured by such item of Property or, if the proceeds are insufficient to pay in full all such Applicable Obligations, its Pro Rata Share of the amount so remaining to be distributed and (y) in the case of the Credit Document Obligations, the Existing Senior Notes Obligations, the New Senior Notes Obligations and the Refinancing Senior Notes Obligations included in such Applicable Obligations, any such amount to be applied (1) first to the payment of interest in respect of the unpaid principal amount of Loans, Existing Senior Notes, New Senior Notes or Refinancing Senior Notes, as the case may be, (2) second to the payment of principal of Loans, Existing Senior Notes, New Senior Notes or Refinancing Senior Notes, as the case may be, and (3) third to the other Credit Document Obligations, Existing Senior Notes Amended and Restated Mortgage — Cherokee County, SC -18- --------------------------------------------------------------------------------   Obligations, New Senior Notes Obligations or Refinancing Senior Notes Obligations, as the case may be; and (iii) third, to the extent proceeds remain after the application pursuant to the preceding clauses (i) and (ii) to the Mortgagor or, to the extent directed by the Mortgagor or a court of competent jurisdiction, to whomever may be lawfully entitled to receive such surplus.           (b) For purposes of this Agreement, “Pro Rata Share” shall mean when calculating a Secured Creditor’s portion of any distribution or amount pursuant to clause (a) above, the amount (expressed as a percentage) equal to a fraction the numerator of which is the then outstanding amount of the relevant Applicable Obligations secured by the relevant item of Property owed such Secured Creditor and the denominator of which is the then outstanding amount of all relevant Applicable Obligations secured by the relevant item of Property.           (c) All payments required to be made to the (i) Lender Creditors hereunder shall be made to the Administrative Agent for the account of the respective Lender Creditors, (ii) Credit Card Issuers hereunder shall be made to the Credit Card Issuer(s) under the applicable Secured Credit Card Agreement, (iii) Hedging Creditors hereunder shall be made to the paying agent under the applicable Secured Hedging Agreement or, in the case of Secured Hedging Agreements without a paying agent, directly to the applicable Hedging Creditors, (iv) Existing Senior Notes Creditors hereunder shall be made to the Existing Senior Notes Trustee for the account of the respective Existing Senior Notes Creditors, (v) New Senior Notes Creditors hereunder shall be made to the New Senior Notes Trustee for the account of the respective New Senior Notes Creditors and (vi) Refinancing Senior Notes Creditors hereunder shall be made to the Refinancing Senior Notes Trustee for the account of the respective Refinancing Senior Notes Creditors.           (d) For purposes of applying payments received in accordance with this Section 4.04, the Mortgagee shall be entitled to rely upon (i) the Administrative Agent for a determination of the outstanding Credit Document Obligations, (ii) any Credit Card Issuer for a determination of the outstanding Credit Card Obligations owed to such Credit Card Issuer, (iii) upon any Hedging Creditor for a determination of the outstanding Hedging Obligations owed to such Hedging Creditor, (iv) the Existing Senior Notes Trustee for a determination of the outstanding Existing Senior Notes Obligations, (v) the New Senior Notes Trustee for a determination of the outstanding New Senior Notes Obligations and (vi) the Refinancing Senior Notes Trustee for a determination of the outstanding Refinancing Senior Notes Obligations. Unless it has actual knowledge (including by way of written notice from a Secured Creditor) to the contrary, the Administrative Agent under the Credit Agreement, in furnishing information pursuant to the preceding sentence, and the Mortgagee, in acting hereunder, shall be entitled to assume that no Credit Document Obligations other than principal, interest and regularly accruing fees are owing to any Lender Creditor.           (e) It is understood and agreed that the Mortgagor shall remain liable to the extent of any deficiency between (x) the amount of the Obligations for which it is responsible directly or as a guarantor that are satisfied with proceeds of the Property and (y) the aggregate outstanding amount of such Obligations. Amended and Restated Mortgage — Cherokee County, SC -19- --------------------------------------------------------------------------------             4.05 Appointment of Receiver. Upon the occurrence and during the continuance of a Noticed Event of Default, the Mortgagee as a matter of strict right and without notice to the Mortgagor or anyone claiming under the Mortgagor, and without regard to the adequacy or the then value of the Property or the interest of the Mortgagor therein or the solvency of any party bound for payment of the Obligations, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of the Property, and the Mortgagor hereby irrevocably consents to such appointment and waives notice of any application therefor. Any such receiver or receivers shall have all the usual rights, powers and duties of receivers in like or similar cases and all the rights, powers and duties of the Mortgagee in case of entry as provided in Section 4.02 hereof, including but not limited to the full power to rent, maintain and otherwise operate the Property upon such terms as are approved by the court and shall continue as such and exercise all such powers until the date of confirmation of sale of the Property unless such receivership is sooner terminated.           4.06 Exercise of Rights and Remedies. The entering upon and taking possession of the Property, the collection of any Rents and the exercise of any of the rights contained in this Article IV, shall not, alone, cure or waive any Event of Default or notice of default hereunder or invalidate any act done in response to such Event of Default or pursuant to such notice of default and, notwithstanding the continuance in possession of the Property or the collection, receipt and application of Rents, the Mortgagee shall be entitled to exercise every right provided for herein or in the Secured Debt Agreements, or at law or in equity upon the occurrence of any Event of Default.           4.07 Remedies Not Exclusive. The Mortgagee shall be entitled to enforce payment and performance of the Obligations and to exercise all rights and powers under this Mortgage or other agreement or any laws now or hereafter in force, notwithstanding that some or all of the Obligations may now or hereafter be otherwise secured, whether by mortgage, deed of trust, security deed, pledge, lien, assignment or otherwise. Neither the acceptance of this Mortgage nor its enforcement, whether by court action or pursuant to the powers herein contained, shall prejudice or in any manner affect the Mortgagee’s right to realize upon or enforce any other security now or hereafter held by the Mortgagee, it being agreed that the Mortgagee shall be entitled to enforce this Mortgage and any other security now or hereafter held by the Mortgagee in such order and manner as it may in its absolute and sole discretion and election determine. No remedy herein conferred upon or reserved to the Mortgagee is intended to be exclusive of any other remedy herein or in any of the other Secured Debt Agreements or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy to which the Mortgagee is entitled may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Mortgagee, and the Mortgagee may pursue inconsistent remedies. No delay or omission of the Mortgagee to exercise any right or power accruing upon any Event of Default shall impair any right or power or shall be construed as a waiver of any Event of Default or any acquiescence therein. If the Mortgagee shall have proceeded to invoke any right or remedy hereunder or under any other Secured Debt Agreement, and shall thereafter elect to discontinue or abandon it for any reason, the Mortgagee shall have the unqualified right to do so and, in such an event, the rights and remedies of the Mortgagee shall continue as if such right or remedy had never been invoked, but no such discontinuance or abandonment shall waive any Event of Default which may then exist Amended and Restated Mortgage — Cherokee County, SC -20- --------------------------------------------------------------------------------   or the right of the Mortgagee thereafter to exercise any right or remedy under the Secured Debt Agreements for such Event of Default.           4.08 WAIVER OF REDEMPTION, NOTICE, MARSHALLING, ETC. NOTWITHSTANDING ANYTHING HEREIN CONTAINED TO THE CONTRARY, TO THE EXTENT PERMITTED BY LAW, THE MORTGAGOR ACKNOWLEDGING THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS HEREUNDER; (A) WILL NOT (I) AT ANY TIME INSIST UPON, OR PLEAD, OR IN ANY MANNER WHATSOEVER, CLAIM OR TAKE ANY BENEFIT OR ADVANTAGE OF ANY STAY OR EXTENSION OR MORATORIUM LAW, PRESENT OR FUTURE STATUTE OF LIMITA TIONS, ANY LAW RELATING TO THE ADMINISTRATION OF ESTATES OF DECEDENTS, APPRAISEMENT, VALUATION, REDEMPTION, STATUTORY RIGHT OF REDEMPTION, OR THE MATURING OR DECLARING DUE OF THE WHOLE OR ANY PART OF THE OBLIGATIONS, NOTICE OF INTENTION OF SUCH MATURING OR DECLARING DUE, OTHER NOTICE (WHETHER OF DEFAULTS, ADVANCES, THE CREATION, EXISTENCE, EXTENSION OR RENEWAL OF ANY OF THE OBLIGATIONS OR OTHERWISE, EXCEPT FOR RIGHTS TO NOTICES EXPRESSLY GRANTED HEREIN OR IN THE SECURED DEBT AGREEMENTS), SUBROGATION, ANY SET-OFF RIGHTS, HOMESTEAD OR ANY OTHER EXEMPTIONS FROM EXECUTION OR SALE OF THE PROPERTY OR ANY PART THEREOF, WHEREVER ENACTED, NOW OR AT ANY TIME HEREAFTER IN FORCE, WHICH MAY AFFECT THE COVENANTS AND TERMS OF PERFORMANCE OF THIS MORTGAGE, OR (II) CLAIM, TAKE OR INSIST UPON ANY BENEFIT OR ADVANTAGE OF ANY LAW NOW OR HEREAFTER IN FORCE PROVIDING FOR THE VALUATION OR APPRAISAL OF THE PROPERTY OR ANY PART THEREOF, PRIOR TO ANY SALE OR SALES THEREOF WHICH MAY BE MADE PURSUANT TO ANY PROVISION HEREOF, OR PURSUANT TO THE DECREE, JUDGMENT OR ORDER OF ANY COURT OF COMPETENT JURISDICTION; OR (III) AFTER ANY SUCH SALE OR SALES, CLAIM OR EXERCISE ANY RIGHT UNDER ANY STATUTE HERETOFORE OR HEREAFTER ENACTED TO REDEEM THE PROPERTY SO SOLD OR ANY PART THEREOF; AND (B) COVENANTS NOT TO HINDER, DELAY OR IMPEDE THE EXECUTION OF ANY POWER HEREIN GRANTED OR DELEGATED TO THE MORTGAGEE, BUT TO SUFFER AND PERMIT THE EXECUTION OF EVERY POWER AS THOUGH NO SUCH LAW OR LAWS HAD BEEN MADE OR ENACTED. THE MORTGAGOR, FOR ITSELF AND ALL WHO MAY CLAIM UNDER IT, WAIVES, TO THE EXTENT THAT IT LAWFULLY MAY, ALL RIGHT TO HAVE THE PROPERTY MARSHALLED UPON ANY FORECLOSURE HEREOF.           4.09 Expenses of Enforcement. In connection with any action to enforce any remedy of the Mortgagee under this Mortgage, the Mortgagor agrees to pay all costs and expenses which may be paid or incurred by or on behalf of the Mortgagee, including, without limitation, reasonable attorneys’ fees, receiver’s fees, appraiser’s fees, outlays for documentary and expert evidence, stenographer’s charges, publication costs, and costs (which may be estimated as to items to be expended after entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies and similar data and assurances with respect to title and value as the Mortgagee may deem necessary or desirable, and neither the Mortgagee nor any other Person shall be required to accept tender of any portion of the Amended and Restated Mortgage — Cherokee County, SC -21- --------------------------------------------------------------------------------   Obligations unless the same be accompanied by a tender of all such expenses, costs and commissions. All of the costs and expenses described in this Section 4.09, and such expenses and fees as may be incurred in the protection of the Property and the maintenance of the Lien of this Mortgage, including the reasonable fees of any attorney employed by the Mortgagee or in any litigation or proceeding, including appellate proceedings, affecting this Mortgage or the Property(including, without limitation, the occupancy thereof or any construction work performed thereon), including probate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding whether or not an action is actually commenced, shall be immediately due and payable by the Mortgagor, with interest thereon at the rate of interest set forth in the Secured Debt Agreements and shall be part of the Obligations secured by this Mortgage.           4.10 Indemnity. (a) The Mortgagor agrees to indemnify, reimburse and hold the Mortgagee, each other Secured Creditor and their respective successors, permitted assigns, employees, agents and servants (hereinafter in this Section 4.10 referred to individually, as “Indemnitee,” and collectively as “Indemnitees”) harmless from any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, suits, judgments and any and all reasonable costs and expenses (including reasonable attorneys’ fees and expenses) (for the purposes of this Section 4.10 the foregoing are collectively called “expenses”) of whatsoever kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way relating to or arising out of this Mortgage, or the documents executed in connection herewith or in any other way connected with the enforcement of any of the terms of, or the preservation of any rights hereunder, or in any way relating to or arising out of the ownership, lease, financing, possession, operation, condition, sale or other disposition, or use of the Property, the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or property damage), or contract claim; provided that no Indemnitee shall be indemnified pursuant to this Section 4.10(a) for expenses, losses, damages or liabilities to the extent caused by the gross negligence or wilful misconduct of such Indemnitee. The Mortgagor agrees that upon written notice by any Indemnitee of the assertion of such a liability, obligation, loss, damage, penalty, claim, demand, action, judgment or suit, the Mortgagor shall assume full responsibility for the defense thereof. Each Indemnitee agrees to use its best efforts to promptly notify the Mortgagor of any such assertion of which such Indemnitee has knowledge.           (b) Without limiting the application of Section 4.10(a), the Mortgagor jointly and severally agrees to pay, indemnify and hold each Indemnitee harmless from and against any loss, costs, damages and expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any material misrepresentation by Mortgagor in this Mortgage, or in any statement or writing contemplated by or made or delivered pursuant to or in connection with this Mortgage.           (c) If and to the extent that the obligations of the Mortgagor under this Section 4.10 are unenforceable for any reason, the Mortgagor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. Amended and Restated Mortgage — Cherokee County, SC -22- --------------------------------------------------------------------------------             4.11 Indemnity Obligations Secured by Collateral; Survival. Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Property. The indemnity obligations of the Mortgagor contained in Sections 4.09 and 4.10 shall continue in full force and effect notwithstanding the full payment of all of the Notes issued under the Credit Agreement, the termination of all Secured Hedging Agreements, the full payment of all Existing Senior Notes issued under the Existing Senior Notes Indenture, the full payment of all New Senior Notes issued under the New Senior Notes Indenture, the full payment of all Refinancing Senior Notes issued under the Refinancing Senior Notes Indenture and the payment of all of the other Obligations and notwithstanding the discharge thereof. ARTICLE V ADDITIONAL COLLATERAL           5.01 Additional Collateral. (a) The Mortgagor acknowledges and agrees that its Applicable Obligations are secured by the Property and various other collateral including, without limitation, at the time of execution of this Mortgage certain personal property of the Mortgagor described in the Credit Documents. The Mortgagor specifically acknowledges and agrees that the Property, in and of itself, if foreclosed or realized upon would not be sufficient to satisfy the outstanding amount of the Obligations. Accordingly, the Mortgagor acknowledges that it is in the Mortgagor’s contemplation that the other collateral pledged to secure the Applicable Obligations may be pursued by the Mortgagee in separate proceedings in the various States, counties and other countries where such collateral may be located and additionally that the Mortgagor liable for payment of the Obligations will remain liable for any deficiency judgments in addition to any amounts the Mortgagee may realize on sales of other property or any other collateral given as security for the Obligations. Specifically, and without limitation of the foregoing, it is agreed that it is the intent of the parties hereto that in the event of a foreclosure of this Mortgage, the Indebtedness evidencing the Obligations shall not be deemed merged into any judgment of foreclosure, but rather shall remain outstanding. It is the further intent and understanding of the parties that the Mortgagee, following a Noticed Event of Default, may pursue all of its collateral with the Obligations remaining outstanding and in full force and effect notwithstanding any judgment of foreclosure or any other judgment which the Mortgagee may obtain.           (b) The Mortgagor acknowledges and agrees that the Property and the property which may from time to time be encumbered by the other Secured Debt Agreements may be located in more than one State or country and therefore the Mortgagor waives and relinquishes any and all rights it may have, whether at law or equity, to require the Mortgagee to proceed to enforce or exercise any rights, powers and remedies it may have under the Secured Debt Agreements in any particular manner, in any particular order, or in any particular State or other jurisdiction. Furthermore, the Mortgagor acknowledges and agrees that the Mortgagee shall be allowed to enforce payment and performance of the Obligations and to exercise all rights and powers provided under this Mortgage, or the other Secured Debt Agreements or under any provision of law, by one or more proceedings, whether contemporaneous, consecutive or both in Amended and Restated Mortgage — Cherokee County, SC -23- --------------------------------------------------------------------------------   any one or more States in which the security is located. Neither the acceptance of this Mortgage, or any Credit Document nor its enforcement in one State, whether by court action, power of sale, or otherwise, shall prejudice or in any way limit or preclude enforcement of the Credit Documents through one or more additional proceedings, in that State or in any other State or country.           (c) The Mortgagor further agrees that any particular remedy or proceeding, including, without limitation, foreclosure through court action (in a state or federal court) or power of sale, may be brought and prosecuted in the local or federal courts of any one or more States as to all or any part of the Property or the property encumbered by the Secured Debt Agreements wherever located, without regard to the fact that any one or more prior or contemporaneous proceedings have been situated elsewhere with respect to the same or any other part of the Property and the property encumbered by the Secured Debt Agreements.           (d) The Mortgagee may resort to any other security held by the Mortgagee for the payment of the Obligations in such order and manner as the Mortgagee may elect.           (e) Notwithstanding anything contained herein to the contrary, the Mortgagee shall be under no duty to the Mortgagor or others, including, without limitation, the holder of any junior, senior or subordinate mortgage on the Property or any part thereof or on any other security held by the Mortgagee, to exercise or exhaust all or any of the rights, powers and remedies available to the Mortgagee. ARTICLE VI MISCELLANEOUS           6.01 Governing Law. The provisions of this Mortgage regarding the creation, perfection and enforcement of the liens, security title and security interests herein granted shall be governed by and construed under the laws of the state in which the Property is located. All other provisions of this Mortgage shall be governed by the laws of the State of New York (including, without limitation, Section 5-1401 of the General Obligations Law of the State of New York), without regard to choice of laws provisions.           6.02 Limitation on Interest. It is the intent of the Mortgagor and the Mortgagee in the execution of this Mortgage and all other instruments evidencing or securing the Obligations to contract in strict compliance with applicable usury laws. In furtherance thereof, the Mortgagee and the Mortgagor stipulate and agree that none of the terms and provisions contained in this Mortgage shall ever be construed to create a contract for the use, forbearance or retention of money requiring payment of interest at a rate in excess of the maximum interest rate permitted to be charged by relevant law. If this Mortgage or any other instrument evidencing or securing the Obligations violates any applicable usury law, then the interest rate payable in respect of the Loans shall be the highest rate permissible by law.           6.03 Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communications) and Amended and Restated Mortgage — Cherokee County, SC -24- --------------------------------------------------------------------------------   mailed, telegraphed, telexed, telecopied, cabled or delivered (including by way of overnight courier):               (i)   if to the Mortgagor, at;           R. J. Reynolds Tobacco Company         401 North Main Street,         Winston-Salem, North Carolina 27102               (ii)   if to the Mortgagee, at:           JPMorgan Chase Bank, N.A.         270 Park Avenue         New York, New York 10017         Attn.: Raju Nanoo         Tel. No.: 212-270-2272         Fax. No.: 212-270-5120      (iii) if to any Lender (other than the Mortgagee), at such address as such Lender shall have specified in the Credit Agreement;      (iv) if to any Credit Card Issuer, at such address as such Credit Card Issuer shall have specified in writing to the Mortgagor and the Mortgagee;      (v) if to any Hedging Creditor, at such address as such Hedging Creditor shall have specified in writing to the Mortgagor and the Mortgagee;      (vi) if to any Existing Senior Notes Creditor, at such address of the Existing Senior Notes Trustee as the Existing Senior Notes Trustee shall have specified in writing to the Mortgagor and the Mortgagee;      (vii) if to any New Senior Notes Creditor, at such address of the New Senior Notes Trustee as the New Senior Notes Trustee shall have specified in writing to the Mortgagor and the Mortgagee;      (viii) if to any Refinancing Senior Notes Creditor, at such address of the Refinancing Senior Notes Trustee as the Refinancing Senior Notes Trustee shall have specified in writing to the Mortgagor and the Mortgagee; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. Except as otherwise expressly provided herein, all such notices and communications shall be deemed to have been duly given or made (i) in the case of any Secured Creditor, when received and (ii) in the case of the Mortgagor, when delivered to the Mortgagor in any manner required or permitted hereunder.           6.04 Captions. The captions or headings at the beginning of each Article and Section hereof are for the convenience of the parties and are not a part of this Mortgage. Amended and Restated Mortgage — Cherokee County, SC -25- --------------------------------------------------------------------------------             6.05 Amendment. None of the terms and conditions of this Mortgage may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Mortgagor and the Mortgagee (with the consent of (x) if prior to the CA Termination Date, the Required Lenders or, to the extent required by Section 12.12 of the Credit Agreement, all of the Lenders and (y) if on and after the CA Termination Date, the holders of at least a majority of the outstanding principal amount of the Obligations remaining outstanding), provided that (i) no such change, waiver, modification or variance shall be made to Section 4.04 hereof or this Section 6.05 without the consent of each Secured Creditor adversely affected thereby and (ii) that any change, waiver, modification or variance affecting the rights and benefits of a single Class of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors of such Class of Secured Creditors. For the purpose of this Agreement, the term “Class” shall mean each class of Secured Creditors, i.e., whether (1) the Lender Creditors as holders of the Credit Document Obligations, (2) the Credit Card Issuers as holders of the Credit Card Obligations, (3) the Hedging Creditors as holders of the Hedging Obligations, (4) the Existing Senior Notes Creditors as holders of the Existing Senior Notes Obligations, (5) the New Senior Notes Creditors as holders of the New Senior Notes Obligations and (6) the Refinancing Senior Notes Creditors as holders of the Refinancing Senior Notes Obligations. For the purpose of this Agreement, the term “Requisite Creditors” of any Class shall mean each of (1) with respect to each of the Credit Document Obligations, the Required Lenders, (2) with respect to the Credit Card Obligations, the holders of at least a majority of all Credit Card Obligations outstanding from time to time, (3) with respect to the Hedging Obligations, the holders of at least a majority of all Secured Hedging Obligations outstanding from time to time, (4) with respect to the Existing Senior Notes Obligations, the holders of at least a majority of the outstanding principal amount of the Existing Senior Notes, (5) with respect to the New Senior Notes Obligations, the holders of at least a majority of the outstanding principal amount of the New Senior Notes and (6) with respect to the Refinancing Senior Notes Obligations, the holders of at least a majority of the outstanding principal amount of the Refinancing Senior Notes.           6.06 Obligations Absolute. The Obligations of the Mortgagor hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Mortgagor; (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Mortgage, any other Credit Document or any other Secured Debt Agreement, except as specifically set forth in a waiver granted pursuant to Section 6.05 hereof; or (c) any amendment to or modification of any Credit Document or any other Secured Debt Agreement, except as specifically set forth in a waiver granted pursuant to Section 6.05 hereof, or any security for any of the Obligations; whether or not the Mortgagor shall have notice or knowledge of any of the foregoing.           6.07 Further Assurances. The Mortgagor shall, upon the request of the Mortgagee and at the expense of the Mortgagor: (a) promptly correct any defect, error or omission which may be discovered in the contents of this Mortgage or any UCC financing statements filed in connection herewith; (b) promptly execute, acknowledge, deliver and record or file such further instruments (including, without limitation, further mortgages, deeds of trust, security deeds, security agreements, financing statements, continuation statements and assignments of rents or leases) and promptly do such further acts as may be necessary, desirable Amended and Restated Mortgage — Cherokee County, SC -26- --------------------------------------------------------------------------------   or proper to carry out more effectively the purposes of this Mortgage and to subject to the liens and security interests hereof any property intended by the terms hereof to be covered hereby, including specifically, but without limitation, any renewals, additions, substitutions, replacements or appurtenances to the Property; and (c) promptly execute, acknowledge, deliver, procure and record or file any document or instrument (including specifically any financing statement) deemed advisable by the Mortgagee to protect, continue or perfect the liens or the security interests hereunder against the rights or interests of third persons.           6.08 Partial Invalidity. If any of the provisions of this Mortgage or the application thereof to any person, party or circumstances shall to any extent be invalid or unenforceable, the remainder of this Mortgage, or the application of such provision or provisions to persons, parties or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby, and every provision of this Mortgage shall be valid and enforceable to the fullest extent permitted by law.           6.09 Partial Releases. No release from the Lien of this Mortgage of any part of the Property by the Mortgagee shall in any way alter, vary or diminish the force or effect of this Mortgage on the balance of the Property or the priority of the Lien of this Mortgage on the balance of the Property.           6.10 Priority. This Mortgage is intended to and shall be valid and have priority over all subsequent liens and encumbrances, including statutory liens, excepting solely taxes and assessments levied on the real estate, to the extent of the maximum amount secured hereby.           6.11 Covenants Running with the Land. All Obligations are intended by the Mortgagor and the Mortgagee to be, and shall be construed as, covenants running with the Property. As used herein, the “Mortgagor” shall refer to the party named in the first paragraph of this Mortgage and to any subsequent owner of all or any portion of the Property. All persons who may have or acquire an interest in the Property shall be deemed to have notice of, and be bound by, the terms of the Credit Agreement and the other Secured Debt Agreements; provided, however, that no such party shall be entitled to any rights thereunder without prior written consent of the Mortgagee.           6.12 Successors and Assigns. This Mortgage shall be binding upon and inure to the benefit of the Mortgagee and the Mortgagor and their respective successors and assigns. Except as otherwise permitted by Credit Agreement, the Mortgagor shall not, without the prior written consent of the Mortgagee, assign any rights, duties, or obligations hereunder.           6.13 Purpose of Loans. The Mortgagor hereby represents and agrees that the Loans, Existing Senior Notes, New Senior Notes and Refinancing Senior Notes have or are being obtained or issued for business or commercial purposes, and the proceeds thereof will not be used for personal, family, residential, household or agricultural purposes.           6.14 No Joint Venture or Partnership. The relationship created hereunder and under the other Credit Documents, the Secured Hedging Agreements, the Secured Credit Card Agreements, the Existing Senior Notes Documents, the New Senior Notes Documents and the Refinancing Senior Notes Documents is that of creditor/debtor. The Mortgagee does not owe Amended and Restated Mortgage — Cherokee County, SC -27- --------------------------------------------------------------------------------   any fiduciary or special obligation to the Mortgagor and/or any of the Mortgagor’s, officers, partners, agents, or representatives. Nothing herein or in any other Credit Document, any Secured Hedging Agreement, any Secured Credit Card Document, any Existing Senior Notes Document, any New Senior Notes Document or any Refinancing Senior Notes Document is intended to create a joint venture, partnership, tenancy-in-common or joint tenancy relationship between the Mortgagor and the Mortgagee.           6.15 The Mortgagee as Collateral Agent for Secured Creditors. It is expressly understood and agreed that the rights and obligations of the Mortgagee as holder of this Mortgage and as Collateral Agent for the Secured Creditors and otherwise under this Mortgage are only those expressly set forth in this Mortgage and in the Credit Agreement. The Mortgagee shall act hereunder pursuant to the terms and conditions set forth herein in Section 11 of the Credit Agreement and in Annex M to the Security Agreement, the terms of which shall be deemed incorporated herein by reference as fully as if same were set forth herein in their entirety (for such purpose, treating each reference to the “Security Agreement” as a reference to this Mortgage, each reference to the “Collateral Agent” as a reference to the Mortgagee and each reference to an “Assignor” as a reference to a “Mortgagor”).           6.16 Full Recourse. This Mortgage is made with full recourse to the Mortgagor and pursuant to and upon all the warranties, representations, covenants, agreements on the part of the Mortgagor contained herein, in the other Credit Documents and the other Secured Debt Agreements and otherwise in writing in connection herewith or therewith.           6.17 Reduction of Secured Amount. In the event the amount secured by this Mortgage is less than the aggregate Obligations, then the amount secured hereby shall be reduced only by the last and final sums that the Mortgagor or the Borrower repays with respect to the Obligations and shall not be reduced by any intervening repayments of the Obligations. So long as the balance of the Obligations exceeds the amount secured hereby, any payments of the Obligations shall not be deemed to be applied against, or to reduce, the portion of the Obligations secured by this Mortgage. Such payments shall instead be deemed to reduce only such portions of the Obligations as are secured by other collateral located outside of the state in which the Property is located or are unsecured.           6.18 Acknowledgment of Receipt. The Mortgagor hereby acknowledges receipt of a true copy of this Mortgage.           6.19 Release Payment. (a) After the Termination Date (as defined below), this Mortgage shall terminate (provided that all indemnities set forth herein shall survive any such termination) and the Mortgagee, at the request and expense of the Mortgagor, will execute and deliver to the Mortgagor a proper instrument or instruments (without recourse and without representation or warranty) acknowledging the satisfaction and termination of this Mortgage. As used in this Mortgage, (i) “CA Termination Date” shall mean the date upon which the Total Commitment has been terminated, no Letter of Credit or Note under the Credit Agreement is outstanding and all other Credit Document Obligations have been paid in full in cash (other than arising from indemnities for which no request for payment has been made) and (ii) “Termination Date” shall mean the date upon which (x) the CA Termination Date shall have occurred and (y) if (but only if) a Notified Non-Credit Agreement Event of Default (as defined below) shall have Amended and Restated Mortgage — Cherokee County, SC -28- --------------------------------------------------------------------------------   occurred and be continuing on the CA Termination Date (and after giving effect thereto), either (I) such Notified Non-Credit Agreement Event of Default shall have been cured or waived by the requisite holders of the relevant Obligations subject to such Notified Non-Credit Agreement Event of Default or (II) all Secured Credit Card Agreements and all Secured Hedging Agreements (if any) giving rise to a Notified Non-Credit Agreement Event of Default shall have been terminated and all Obligations subject to such Notified Non-Credit Agreement Event of Default shall have been paid in full (other than arising from indemnities for which no request for payment has been made). As used herein “Notified Non-Credit Agreement Event of Default” means (i) the acceleration of the maturity of any Existing Senior Notes, New Senior Notes or Refinancing Senior Notes or the failure to pay at maturity any Existing Senior Notes, New Senior Notes or Refinancing Senior Notes, or the occurrence of any bankruptcy or insolvency Event of Default under the Existing Senior Notes Indenture, the New Senior Notes Indenture or the Refinancing Senior Notes Indenture, (ii) any Event of Default under a Secured Credit Card Agreement or (iii) any Event of Default under a Secured Hedging Agreement, in the case of any event described in clause (i), (ii) or (iii) to the extent the Existing Senior Notes Trustee, New Senior Notes Trustee, the Refinancing Senior Notes Trustee, the relevant Hedging Creditor or the relevant Credit Card Issuer, as the case may be, has given written notice to the Mortgagee that a “Notified Non-Credit Agreement Event of Default” exists; provided that such written notice may only be given if such Event of Default is continuing and, provided further, that any such Notified Non-Credit Agreement Event of Default shall cease to exist (I) once there is no longer any Event of Default under the Existing Senior Notes Indenture, the New Senior Notes Indenture, the Refinancing Senior Notes Indenture, the respective Secured Credit Card Agreement or the respective Secured Hedging Agreement, as the case may be, in existence, (II) in the case of an Event of Default under the Existing Senior Notes Indenture, the New Senior Notes Indenture, or the Refinancing Senior Notes Indenture, after all Existing Senior Notes Obligations, New Senior Notes Obligations or Refinancing Senior Notes Obligations, as the case may be, have been repaid in full, (III) in the case of an Event of Default under a Secured Credit Card Agreement or a Secured Hedging Agreement, such Secured Hedging Agreement, as the case may be, has been terminated and all Credit Card Obligations or Hedging Obligations, as the case may be, thereunder have been repaid in full, (IV) in the case of an Event of Default under the Existing Senior Notes Indenture, New Senior Notes Indenture or the Refinancing Senior Notes Indenture, if the Existing Senior Notes Creditors, New Senior Notes Creditors or the Refinancing Senior Notes Creditors, as the case may be, holding at least a majority of the aggregate principal amount of the outstanding Existing Senior Notes, New Senior Notes or the Refinancing Senior Notes, as the case may be, at such time have rescinded such written notice and (V) in the case of an Event of Default under a Secured Credit Card Agreement or a Secured Hedging Agreement, the requisite Credit Card Issuers with Credit Card Obligations or Hedging Creditors with Hedging Obligations thereunder at such time have rescinded such written notice.           (b) So long as no Notified Non-Credit Agreement Event of Default has occurred and is continuing, in the event that (x) prior to the CA Termination Date, (i) any part of the Property is sold or otherwise disposed of in connection with a sale or other disposition permitted by Section 8.02 of the Credit Agreement (it being agreed for such purposes that a release will be deemed “permitted by Section 8.02 of the Credit Agreement” if the proposed transaction constitutes an exception to Section 8.02(f) of the Credit Agreement) or (ii) all or any part of the Property is released at the direction of the Required Lenders (or all the Lenders if required by Section 12.12 of the Credit Agreement), and the proceeds of such sale or disposition Amended and Restated Mortgage — Cherokee County, SC -29- --------------------------------------------------------------------------------   or from such release (if any) are applied in accordance with the terms of the Credit Agreement to the extent required to be so applied or (y) on and after the CA Termination Date, any part of the Property is sold or otherwise disposed of without violating the Existing Senior Notes Documents, the New Senior Notes Documents, the Refinancing Senior Notes Documents, the Secured Credit Card Agreements and the Secured Hedging Agreements, the Mortgagee, at the request and expense of the Mortgagor, will release such Property from this Mortgage in the manner provided in clause (a) above (it being understood and agreed that upon the release of all or any portion of the Property by the Mortgagee at the direction of the Lenders as provided above, the Lien on the Property in favor of the Credit Card Issuers, the Hedging Creditors, the Existing Senior Notes Creditors, the New Senior Notes Creditors and the Refinancing Senior Notes Creditors shall automatically be released).           (c) In addition to the foregoing, all Property shall be automatically released (subject to reinstatement upon the occurrence of a new Trigger Event) in accordance with Section 7.10(i) of the Credit Agreement.           (d) At any time that the Mortgagor desires that the Mortgagee take any action to give effect to any release of Property pursuant to the foregoing Section 6.19(a), (b) or (c), it shall deliver to the Mortgagee a certificate signed by an authorized officer describing the Property to be released and certifying its entitlement to a release pursuant to the applicable provisions of Sections 6.19(a), (b) or (c) and in such case the Mortgagee, at the request and expense of the Mortgagor, will execute such documents (without recourse and without any representation or warranty) as required to duly release such Property. The Mortgagee shall have no liability whatsoever to any Secured Creditor as the result of any release of Property by it as permitted by (or which the Mortgagee in good faith believes to be permitted by) this Section 6.19. Upon any release of Property pursuant to Section 6.19(a), (b) or (c), so long as no Noticed Event of Default is then in existence, none of the Secured Creditors shall have any continuing right or interest in such Property, or the proceeds thereof (subject to reinstatement rights upon the occurrence of a new Trigger Event in the case of a release pursuant to Section 6.19(c)(i)).           6.20 Time of the Essence. Time is of the essence of this Mortgage.           6.21 The Mortgagee’s Powers. Without affecting the liability of any other Person liable for the payment and performance of the Obligations and without affecting the Lien of this Mortgage in any way, the Mortgagee (acting at the direction of the requisite holders of the relevant Obligations affected thereby) may, from time to time, regardless of consideration and without notice to or consent by the holder of any subordinate Lien, right, title or interest in or to the Property, (a) release any Persons liable for the Obligations, (b) extend the maturity of, increase or otherwise alter any of the terms of the Obligations, (c) modify the interest rate payable on the principal balance of the Obligations, (d) release or reconvey, or cause to be released or reconveyed, all or any portion of the Property, or (e) take or release any other or additional security for the Obligations.           6.22 Rules of Usage. The following rules of usage shall apply to this Mortgage unless otherwise required by the context: Amended and Restated Mortgage — Cherokee County, SC -30- --------------------------------------------------------------------------------        (a) Singular words shall connote the plural as well as the singular, and vice versa, as may be appropriate.      (b) The words “herein”, “hereof” and “hereunder” and words of similar import appearing in each such document shall be construed to refer to such document as a whole and not to any particular section, paragraph or other subpart thereof unless expressly so stated.      (c) References to any Person shall include such Person and its successors and permitted assigns.      (d) Each of the parties hereto and their counsel have reviewed and revised, or requested revisions to, such documents, and the usual rule of construction that any ambiguities are to be resolved against the drafting party shall be inapplicable in the construction and interpretation of such documents and any amendments or exhibits thereto.      (e) Unless an express provision requires otherwise, each reference to “the Property” shall be deemed a reference to “the Property or any part thereof”, and each reference to “Secured Property” shall be deemed a reference to “the Secured Property or any part thereof”.           6.23 No Off-Set. All sums payable by the Mortgagor shall be paid without counterclaim, other compulsory counterclaims, set-off, or deduction and without abatement, suspension, deferment, diminution or reduction, and the Obligations shall in no way be released, discharged or otherwise affected (except as expressly provided herein or in the Credit Agreement) by reason of: (i) any damage or any condemnation of the Property or any part thereof; (ii) any title defect or encumbrance or any eviction from the Property or any part thereof by title paramount or otherwise; or (iii) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to the Mortgagee or the Mortgagor, or any action taken with respect to this Mortgage by any agent or receiver of the Mortgagee. The Mortgagor waives, to the extent permitted by law, all rights now or hereafter conferred by statute or otherwise to any abatement, suspension, deferment, diminution or reduction of any of the Obligations.      6.24 Consent to Jurisdiction and Service of Process; Waiver of Jury Trial. (a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS MORTGAGE OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE MORTGAGOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE MORTGAGOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS PRENTICE-HALL CORPORATION SYSTEM, INC., WITH OFFICES ON THE DATE HEREOF AT 80 STATE STREET, ALBANY, NEW YORK 12207-2543 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND Amended and Restated Mortgage — Cherokee County, SC -31- --------------------------------------------------------------------------------   ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE MORTGAGOR SHALL DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN THE STATE OF NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THIS MORTGAGE. THE MORTGAGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE MORTGAGOR AT ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 6.03 HEREOF, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE MORTGAGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT UNDER THE CREDIT AGREEMENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION BUT NOT LIMITED TO THE JURISDICTION WHERE THE PROPERTY IS LOCATED WITH RESPECT TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIEN AND SECURITY INTEREST GRANTED BY THIS MORTGAGE.           (b) THE MORTGAGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS MORTGAGE OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.           (c) EACH OF THE PARTIES TO THIS MORTGAGE HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS MORTGAGE, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.      6.25 Future Advances. This Mortgage is given to secure the Mortgagor’s Applicable Obligations under, or in respect of, the Secured Debt Agreements to which the Mortgagor is “party” and shall secure not only Applicable Obligations with respect to presently Amended and Restated Mortgage — Cherokee County, SC -32- --------------------------------------------------------------------------------   existing indebtedness under the foregoing documents and agreements but also any and all other indebtedness now owing or which may hereafter be owing by the Mortgagor or the Borrower, as the case may be, to the Secured Creditors, however incurred, whether interest, discount or otherwise, and whether the same shall be deferred, accrued or capitalized, including future advances and re-advances, whether such advances are obligatory or to be made at the option of the Secured Creditors, or otherwise, to the same extent as if such future advances were made on the date of the execution of this Mortgage. The lien of this Mortgage shall be valid as to all indebtedness secured hereby, including future advances, from the time of its filing for record in the recorder’s office of the county in which the Property is located. This Mortgage is intended to and shall be valid and have priority over all subsequent liens and encumbrances, including statutory liens, excepting solely taxes and assessments levied on the real estate, to the extent of the maximum amount secured hereby, and Permitted Encumbrances. Although this Mortgage is given wholly or partly to secure all future obligations which may be incurred hereunder and under the other Secured Debt Agreements, whether obligatory or optional, the Mortgagor and the Mortgagee hereby acknowledge and agree that the Mortgagee and the other Secured Creditors are obligated by the terms of the Secured Debt Agreements to make certain future advances, including advances of a revolving nature, subject to the fulfillment of the relevant conditions set forth in the Secured Debt Agreements. In accordance with Section 29-3-50 of the South Carolina Code of Laws (1976), as amended, all future advances and re-advances that may subsequently be made to the Mortgagor under the Credit Agreement and evidenced by the Notes, Loans, commitments or other notes or instruments, and all modifications, renewals, or extensions thereof, the maximum amount of all Credit Document Obligations outstanding at one time secured by this Mortgage shall not exceed $7,050,000,000, plus interest thereon attorneys’ fees and court costs.           6.26 Amendment and Restatement . From and after the Fourth Restatement Effective Date, this mortgage amends, restates and supercedes the Original Mortgage. ARTICLE VII DEFINITIONS           “Existing Senior Notes” shall mean, collectively, (i) RJRTH’s 6.50% Notes due June 1, 2007 in an initial aggregate principal amount equal to $300,000,000, (ii) RJRTH’s 7.875% Notes due May 15, 2009 in an initial aggregate principal amount equal to $200,000,000, (iii) RJRTH’s 6.50% Notes due July 15, 2010 in an initial aggregate principal amount equal to $300,000,000, (iv) RJRTH’s 7.25% Notes due June 1, 2012 in an initial aggregate principal amount equal to $450,000,000, and (v) RJRTH’s 7.30% Notes due July 15, 2015 in an initial aggregate principal amount equal to $200,000,000, in each case as the same may be amended, modified and/or supplemented from time to time in accordance with the terms thereof and the Credit Agreement           “Existing Senior Notes Creditors” shall mean the Existing Senior Notes Trustee and the holders of the Existing Senior Notes.           “Existing Senior Notes Documents” shall mean the Existing Senior Notes and the Existing Senior Notes Indenture. Amended and Restated Mortgage — Cherokee County, SC -33- --------------------------------------------------------------------------------             “Existing Senior Notes Indenture” shall mean, collectively, (i) the indenture, dated as of May 20, 2002, as amended among RJRTH, the guarantors of the notes issued pursuant thereto, and The Bank of New York, as trustee and (ii) the indenture, dated as of May 15, 1999, as amended among RJRTH, the guarantors of the notes issued pursuant thereto, and The Bank of New York, as trustee, in each case as the same may be amended, modified and/or supplemented from time to time in accordance with the terms thereof and the Credit Agreement.           “Existing Senior Notes Trustee” shall mean, collectively, the trustee and/or trustees under the under the Existing Senior Notes Indenture.           “Initial New Senior Notes” shall mean, collectively, (i) the Borrower’s 7.25% Senior Secured Notes due 2013 in an initial aggregate principal amount equal to $625,000,000, (ii) the Borrower’s 7.625% Senior Secured Notes due 2016 in an initial aggregate principal amount equal to $775,000,000 and (iii) the Borrower’s 7.75% Senior Secured Notes due 2018 in an initial aggregate principal amount equal to $250,000,000, in each case issued pursuant to the New Senior Notes Indenture, as in effect on the Fourth Restatement Effective Date and as the same may be amended, modified and/or supplemented from time to time in accordance with the terms thereof and the Credit Agreement.           “New Senior Notes” shall mean (i) the Initial New Senior Notes, (ii) the Exchange Senior Notes and (iii) the Additional Senior Notes, in each case as the same may be amended, modified and/or supplemented from time to time in accordance with the terms thereof and the Credit Agreement.           “New Senior Notes Creditors” shall mean the New Senior Notes Trustee and the holders of the New Senior Notes.           “New Senior Notes Documents” shall mean the New Senior Notes and the New Senior Notes Indenture.           “New Senior Notes Indenture” shall mean the Indenture, dated as of May 31, 2006, among the Borrower, the Subsidiary Guarantors and The Bank of New York, as trustee, as in effect on the Fourth Restatement Effective Date and as the same may be amended, modified and/or supplemented from time to time in accordance with the terms thereof and the Credit Agreement.           “New Senior Notes Trustee” shall mean the trustee under the New Senior Notes Indenture.           “Refinancing Senior Notes Creditors” shall mean the Refinancing Senior Notes Trustee and the holders of the Refinancing Senior Notes.           “Refinancing Senior Notes Documents” shall mean, collectively, the Refinancing Senior Notes and the Refinancing Senior Notes Indenture.           “Refinancing Senior Notes Indenture” shall mean one or more indentures entered into from time to time providing for the issuance of Refinancing Senior Notes by the Borrower, Amended and Restated Mortgage — Cherokee County, SC -34- --------------------------------------------------------------------------------   in each case as the same may be amended, modified and/or supplemented from time to time in accordance with the term thereof and the Credit Agreement.           “Refinancing Senior Notes Trustee” shall mean, collectively, the trustee and/or trustees under the Refinancing Senior Notes Indenture.           “Secured Creditors” shall mean, collectively, the Lender Secured Creditors, the Existing Senior Notes Creditors, the New Senior Notes Creditors and the Refinancing Senior Notes Creditors. Amended and Restated Mortgage — Cherokee County, SC -35- --------------------------------------------------------------------------------         The laws of South Carolina provide that in any real estate foreclosure proceeding a defendant against whom a personal judgment may be taken or asked may within thirty days after the sale of the mortgaged property apply to the court for an order of appraisal. The statutory appraisal value as approved by the court would be substituted for the high bid and may decrease the amount of any deficiency owing in connection with the transaction. THE UNDERSIGNED HEREBY WAIVES AND RELINQUISHES THE STATUTORY APPRAISAL RIGHTS WHICH MEANS THE HIGH BID AT THE JUDICIAL FORECLOSURE SALE WILL BE APPLIED TO THE DEBT REGARDLESS OF ANY APPRAISED VALUE OF THE PROPERTY.       IN WITNESS WHEREOF, this First Amended and Restated Mortgage, Security Agreement, Assignment of Leases, Rents and Profits, Financing Statement and Fixture Filing has been duly executed by the Mortgagor as of the date first written above. Amended and Restated Mortgage — Cherokee County, SC -36- --------------------------------------------------------------------------------                                       Signed, sealed, and delivered in       R. J. REYNOLDS TOBACCO COMPANY,     presence of       a North Carolina corporation                               By:                                                     Its:                           Amended and Restated Mortgage — Cherokee County, SC -37- --------------------------------------------------------------------------------                               Mortgagee:                 JPMORGA   N CHASE BANK, N.A.           By:                               Name:                Its:        Signed, sealed, and delivered in presence of:                                                                                   Amended and Restated Mortgage — Cherokee County, SC -38- --------------------------------------------------------------------------------   STATE OF NEW YORK                )                      )                     ACKNOWLEDGMENT COUNTY OF NEW YORK           ) I,                     , a Notary Public in and for the County and State aforesaid, certify that                    , the                                         of R. J. Reynolds Tobacco Company, a North Carolina corporation, the Mortgagor, personally appeared before me this day and acknowledged the execution of the foregoing instrument by her on behalf of the Mortgagor. WITNESS my hand and official stamp or seal this ___day of May, 2006.                                 By:                           Notary Public for New York         My Commission Expires:                         Amended and Restated Mortgage — Cherokee County, SC -39- --------------------------------------------------------------------------------   STATE OF NEW YORK                )                      )                     ACKNOWLEDGMENT COUNTY OF NEW YORK           ) I,                     , a Notary Public in and for the County and State aforesaid, certify that                     , the                     of JP Morgan Chase Bank, N.A, personally appeared before me this day and acknowledged the execution of the foregoing instrument by him/her on behalf of JP Morgan Chase Bank, N.A. WITNESS my hand and official stamp or seal this ___day of May, 2006.                                 By:                           Notary Public for New York         My Commission Expires: ____     Amended and Restated Mortgage — Cherokee County, SC -40- --------------------------------------------------------------------------------   EXHIBIT A DESCRIPTION OF LAND Amended and Restated Mortgage — Cherokee County, SC   --------------------------------------------------------------------------------   Schedule 1 CREDIT AGREEMENT LOANS The Credit Document Obligations secured by this Mortgage are evidenced by the Credit Agreement (including the Grantor’s obligations under the Subsidiary Guaranty), which provides that the Grantor is obligated for the payment and performance of, without limitation, the following: (i) Term Loans in the aggregate principal amount of $1,550,000,000 and having a final maturity date of May 31, 2012; (ii) Revolving Loans in the aggregate principal amount of up to $800,000,000 and having final maturity dates no later than May 31, 2011 (the “Revolving Loan Maturity Date”); (iii) Swingline Loans in the original aggregate principal amount of up to $ 75,000,000, and having a final maturity date no later than five business days prior to the Revolving Loan Maturity Date. The Parent and/or one or more of its Subsidiaries may enter into Interest Rate Protection Agreements and Other Hedging Agreements (together with the Existing Interest Rate Swap Agreement), and the Borrower may also request Letters of Credit in accordance Section 2 of the Credit Agreement.  

EXHIBIT 10.8 NATIONAL INSTRUMENTS CORPORATION RESTRICTED STOCK UNIT AWARD AGREEMENT (NON-EMPLOYEE DIRECTOR) Grant Number: «RSU_Number»         National Instruments Corporation (the “Company”) hereby grants you, «First» «Middle» «Last» (the “Participant”), an award of restricted stock units (“Restricted Stock Units”) under the National Instruments Corporation 2005 Incentive Plan (the “Plan”). Subject to the provisions of Appendix A (attached) and of the Plan, the principal features of this Award are as follows: Date of Grant: Number of Restricted Stock Units:                 «RSU_Shares» Vesting Commencement Date:                        May 1, 200[__] Vesting of Restricted Stock Units:                 The Restricted Stock Units will vest according to the following schedule: Subject to any accelerated vesting provisions in the Plan, the Restricted Stock Units will vest as follows:   One-third (1/3) of the Restricted Stock Units will vest on each anniversary of the Vesting Commencement Date, subject to Participant continuing to be a non-employee Director through such dates. Unless otherwise defined herein or in Appendix A, capitalized terms herein or in Appendix A will have the defined meanings ascribed to them in the Plan. IMPORTANT: The Company’s obligation to deliver Shares pursuant to this Award of Restricted Stock Units is subject to all of the terms and conditions contained in Appendix A and the Plan. Before the Company delivers any Shares pursuant to this Restricted Stock Unit Award Agreement, you must click on the link to each of the documents required for acceptance, including, without limitation, the Restricted Stock Unit Award Agreement and Appendix A thereto, the Plan, and, if applicable, the Restricted Stock Unit Award Tax Obligations (collectively, the “Award Documents”) and review each. PLEASE BE SURE TO READ APPENDIX A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS AWARD.         By clicking the “ACCEPT” button, you agree to the following:         You acknowledge and agree that:     (a)        you have been able to access and view the Award Documents and understand that all rights and obligations with respect to this Award are set forth in such documents;     (b)        you agree to all terms and conditions contained in the Award Documents; and     (c)        the Award Documents set forth the entire understanding between the Company and you regarding this Award and your right to acquire Shares thereunder. -------------------------------------------------------------------------------- APPENDIX A TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT AWARDS     1.        Grant. The Company hereby grants to the Participant under the Plan an Award for a number of Restricted Stock Units set forth in the Restricted Stock Unit Agreement, subject to all of the terms and conditions of the Restricted Stock Unit Agreement, including this Appendix A (collectively, the “Award Agreement”), and the Plan.     2.        Company’s Obligation to Pay. Each Restricted Stock Unit represents the right to receive a Share on the date it becomes vested. Unless and until the Restricted Stock Units will have vested in the manner set forth in Sections 3 and 4, the Participant will have no right to payment of any such Restricted Stock Units. Prior to actual payment of any vested Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.     3.        Vesting Schedule. Except as provided in Sections 4 and 5, and subject to Section 6, the Restricted Stock Units awarded by this Award Agreement will vest in the Participant according to the vesting schedule set forth in the Award Agreement. In the event any Restricted Stock Units have not vested by the fifteenth (15th) anniversary of the Vesting Commencement Date, the then-unvested Restricted Stock Units awarded by this Award Agreement will thereupon be forfeited at no cost to the Company and the Participant will have no further rights thereunder.     4.        Acceleration of Vesting upon Death or Disability. In the event Participant ceases to be an Employee as the result of Participant’s death or “Disability” prior to the fifteenth (15th) anniversary of the Vesting Commencement Date, 100% of the Restricted Stock Units that have not vested as of such date will immediately vest. For these purposes, “Disability” will have the meaning given to such term in the employment agreement between Participant and the Company; provided, however, that if Participant has no employment agreement, “Disability” will mean a total and permanent disability as defined in Section 22(e)(3) of the Code as determined by the Administrator and in accordance with the Plan.     5.        Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Restricted Stock Units at any time. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator.     6.        Forfeiture upon Termination of Continuous Service. If Participant ceases to be a Director for any or no reason other than death or Disability, the then-unvested Restricted Stock Units (after taking into any accelerated vesting that may occur as the result of any such termination) awarded by this Award Agreement will thereupon be forfeited at no cost to the Company and the Participant will have no further rights thereunder.     7.        Payment after Vesting. Any Restricted Stock Units that vest in accordance with Sections 3, 4 or 5 will be paid to the Participant (or in the event of the Participant’s death, to his or her estate) in whole Shares, and no fractional Shares shall be issued. As determined by the Administrator, any fraction of a Share shall be paid in cash based on the Fair Market Value of a Share.     8.        Payments after Death or Disability. Any distribution or delivery to be made to the Participant under this Agreement will, if the Participant is then deceased or Disabled, be made to the Participant’s legal representatives, guardian, heirs, legatees or distributees, as applicable. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.     9.        Withholding of Taxes. Notwithstanding any contrary provision of this Award Agreement, no Shares will be delivered to the Participant, unless and until satisfactory arrangements (as determined by the Administrator) will have been made by the Participant with respect to the payment of income, employment and other taxes which the Company determines must be withheld with respect to such Shares so deliverable.     10.        Rights as Stockholder. Neither the Participant nor any person claiming under or through the Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares will have been issued (including in book entry), recorded on the records of the Company or its transfer agents or registrars, and, if applicable, delivered to the Participant.     11.        No Effect on Employment or Service. The Participant’s employment or other service with the Company and its Subsidiaries is on an at-will basis only. Accordingly, the terms of the Participant’s employment or service with the Company and its Subsidiaries will be determined from time to time by the Company or the Subsidiary employing the Participant (as the case may be), and the Company or the Subsidiary will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment or service of the Participant at any time for any reason whatsoever, with or without good cause.     12.        Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company at 11500 N. Mopac Expressway, Building A, Austin, Texas 78759, Attn: Stock Administrator, or at such other address as the Company may hereafter designate in writing.     13.        Grant is Not Transferable. Except to the limited extent provided in Section 8, this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.     14.        Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Award Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.     15.        Additional Conditions to Issuance of Stock. If at any time the Company will determine, in its discretion, that the listing, registration or qualification of the Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition to the issuance of shares to the Participant (or his or her estate), such issuance will not occur unless and until such listing, registration, qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the Company. The Company will make all reasonable efforts to meet the requirements of any such state or federal law or securities exchange and to obtain any such consent or approval of any such governmental authority.     16.        Plan Governs. This Award Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Award Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.     17.        Administrator Authority. The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. No member of the Board or its Committee administering the Plan will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Award Agreement.     18.        Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.     19.        Agreement Severable. In the event that any provision in this Award Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Award Agreement.

  Exhibit 10.31.2       SMBC DERIVATIVE PRODUCTS LIMITED   (LOGO) [d41958d4195801.gif]   Sumitomo Mitsui Banking Corporation Group CONFIRMATION       Date:   December 6, 2006       To:   ASHFORD PHILLY LP     ASHFORD ANCHORAGE LP     ASHFORD MINNEAPOLIS AIRPORT LP     ASHFORD MV SAN DIEGO LP     ASHFORD WALNUT CREEK LP     ASHFORD TRUMBULL LP     ASHFORD IOWA CITY LP     (individually and collectively known as “Party B“)     c/o Ashford Hospitality Trust     14185 Dallas Parkway, Suite 1100     Dallas, TX 75254     Telephone: 972-778-9207     Telefax:      972-490-9605       Cc:   Sergio Oliveira     Chatham Financial Corporation     1805 Shea Center Drive #160     Highlands Ranch, CO 80129     T: 720-221-3517     F: 720-221-3519       From:   SMBC Capital Markets, Inc. as Agent for SMBC Derivative Products Limited     Derivative Products Group     277 Park Avenue, Fifth Floor     New York, New York 10172       cc:   Documentation Contact: Evan Sandler     Telephone: 212-224-5144     Telefax:      212-224-4959     Email Address: [email protected]       Re:   USD 212,000,000.00 Rate Protection Transaction, dated as of December 6, 2006 between SMBC Derivative Products Limited (“Party A“) and Party B. Our Reference Number: DPA609477 The purpose of this letter agreement is to set forth the terms and conditions of the Rate Protection Transaction entered into between SMBC Derivative Products Limited and Party B on the Trade Date specified below (the “Rate Protection Transaction“). This letter agreement constitutes a “Confirmation“ as referred to in the ISDA Master Agreement specified below. This document supersedes all previous confirmations and amendments with respect to the above referenced transaction. The definitions and provisions contained in the 1992 ISDA Master Agreement subject to the 2000 ISDA Definitions as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of Countrywide Commercial Real Estate Finance Inc. or the current lender, as the case may be.           277 Park Avenue New York, NY 10172   PHONE: 212-224-5144 FAX: 212-224-4959   Email: [email protected]   --------------------------------------------------------------------------------         Page 2   DPA609477 SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.        1. ISDA AGREEMENT: This Confirmation evidences a complete and binding agreement between you and us as to the terms of the Transaction to which Confirmation relates. In addition, you and we agree to use all reasonable efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multicurrency-Cross Border) ( the “ISDA Form“ ), with such modifications as you and we will in good faith agree. Upon the execution by you and us of such an agreement, this Confirmation will supplement, form part of, and be subject to that agreement. All provisions contained in or incorporated by reference in that agreement upon its execution will govern this Confirmation except as expressly modified below. Until we execute and deliver that agreement, this Confirmation, together with all other documents referring to the ISDA Form (each a “Confirmation“) confirming transactions (each a “Transaction“) entered into between us (notwithstanding anything to the contrary in a Confirmation), shall supplement, form a part of, and be subject to, an agreement in the form of the ISDA Form as if we had executed an agreement in such form on the Trade Date of the first such Transaction between us. In the event of any inconsistency between the provisions of that agreement and this Confirmation, this Confirmation will prevail for the purpose of this Transaction.      2. NOTICE TO COUNTERPARTY: SMBC Derivative Products Limited is solely responsible for its contractual obligations and commitments; none of Sumitomo Mitsui Banking Corporation, SMBC Capital Markets, Inc., SMBC Limited nor any other affiliate of SMBC Derivative Products Limited shall be responsible for the contractual obligations or commitments of SMBC Derivative Products Limited. SMBC Derivative Products Limited is not a bank and is separate from any affiliated bank, and the obligations of SMBC Derivative Products Limited are not deposits, are not insured by the United States of America or any agency thereof, are not guaranteed by an affiliated bank, and are not otherwise an obligation of an affiliated bank. SMBC Derivative Products Limited is regulated by Financial Services Authority. The time of execution of the transaction is available on request.      3. TERMS OF RATE PROTECTION TRANSACTION: The terms of the particular Rate Protection Transaction to which this Confirmation relates are as follows:       Type of Rate Protection Transaction:   Rate Cap Transaction       Notional Amount:   USD 212,000,000.00       Trade Date:   December 6, 2006       Effective Date:   December 6, 2006       Termination Date:   December 11, 2009 subject to adjustment in accordance with the Preceding Business Day Convention SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.   --------------------------------------------------------------------------------         Page 3   DPA609477 SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.   FLOATING AMOUNTS:   ( PARTY A )       Floating Rate Payer:   SMBC Derivative Products Limited       Initial Floating Rate Calculation Period:   The initial Floating Rate Calculation Period will be from and including the Effective Date up to but excluding December 11, 2006, subject to adjustment in accordance with the Preceding Business Day       Floating Rate Calculation Periods:   The Floating Rate Calculation Periods will be the initial Floating Rate Calculation Period and thereafter, from and including the eleventh (11th) day of each month to but excluding the eleventh (11th) day of the following month and continuing up to but excluding the Termination Date, subject to adjustment in accordance with the Preceding Business Day       Floating Rate Payer Payment Dates:   Three (3) Business Days prior to the eleventh (11th) calendar day of each month beginning with December 6, 2006, continuing up to and including December 8, 2009, subject to adjustment in accordance with the Preceding Business Day Convention, however, the eleventh (11th) day of each month will first be adjusted in accordance with the Preceding Business Day Convention       Floating Rate for initial Calculation Period:   5.35000 % (percent) per annum       Floating Rate Option:   USD-LIBOR-BBA       Designated Maturity:   1 Month       Spread:   Inapplicable       Floating Rate Day Count Fraction:   Actual/360       Reset Dates:   The fifteenth (15th) calendar day of each month       Compounding:   Inapplicable       Cap Rate:   6.25000 % (percent) per annum       FIXED AMOUNTS:   ( PARTY B )       Fixed Rate Payer:   Party B       Fixed Rate Payer Payment Date:   December 8, 2006 SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.   --------------------------------------------------------------------------------         Page 4   DPA609477 SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.   Fixed Amount:   USD 231,000.00       Business Days for Payments by both parties:   California       Calculation Agent:   SMBC Derivative Products Limited       Governing Law:   New York       Collateral Assignment:   SMBC Derivative Products Limited consents to a collateral assignment of this Confirmation and the Agreement and agrees to execute separate consents as may be reasonably requested by the parties to such agreements       Assignment:   SMBC Derivative Products Limited will not unreasonably withhold or delay its consent to an assignment of this agreement to any other third party. 4. CREDIT SUPPORT DOCUMENTS:                             Inapplicable 5. PAYMENT INSTRUCTIONS: Payments to SMBC Derivative Products Limited of USD amounts:       Depository:   JPMorgan Chase Bank, N.A. New York Branch ABA Routing No.:   021000021 In Favor Of:   SMBC Derivative Products Limited Account No.:   400035413 Please contact Larry Weissblum of our Operations Group if you have any questions concerning SMBC Derivative Products Limited’s payment instructions referenced above (Telephone: 212-224-5061; Telefax: 212-224-5122). Payments to Party B of USD amounts:       Depository:   JPMorgan Chase Bank, Dallas ABA No:   111000614 In Favor Of:   Party B Account No:   711413062 Each party will be deemed to represent to the other party on the date on which it enters into this Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for this Transaction):      (i) Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into this Transaction and as to whether this Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into this Transaction: it being understood that information and explanations relating to the terms and conditions of this Transaction shall not be considered investment advice or a recommendation to enter into this Transaction. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of this Transaction. SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.   --------------------------------------------------------------------------------         Page 5   DPA609477 SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.        (ii) Assessment and Understanding. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Transaction. It is also capable of assuming, and assumes, the risks of this Transaction.      (iii) Status of Parties. The other party is not acting as a fiduciary for or an advisor to it in respect of this Transaction. Please confirm that the foregoing correctly sets forth the terms of the agreement between you and us by executing this Confirmation and returning it to the documentation contact above. Yours Sincerely, SMBC Capital Markets, Inc. as Agent for SMBC Derivative Products Limited           By:   /S/ LARRY WEISSBLUM               Name:   Larry Weissblum     Title:   Senior Vice President               By:   /S/ DANNY BOODRAM               Name:   Danny Boodram     Title:   Assistant Vice President               Confirmed as of the date first written above:           ASHFORD PHILLY LP               By:   Ashford Philly GP LLC, a Delaware limited liability company, its general partner               By:   /S/ DAVID A. BROOKS               Name:   David A. Brooks     Title:   Vice President and Secretary               ASHFORD ANCHORAGE LP               By:   Ashford Anchorage GP LLC, a Delaware limited liability company, its general partner               By:   /S/ DAVID A. BROOKS               Name:   David A. Brooks     Title:   Vice President and Secretary     {signature continues on the following page} SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.   --------------------------------------------------------------------------------         Page 6   DPA609477 SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.   ASHFORD MINNEAPOLIS AIRPORT LP               By:   Ashford Minneapolis Airport GP LLC, a Delaware limited liability company, its general partner               By:   /S/ DAVID A. BROOKS               Name:   David A. Brooks     Title:   Vice President and Secretary               ASHFORD MV SAN DIEGO LP               By:   Ashford MV San Diego GP LLC, a Delaware limited liability company, its general partner               By:   /S/ DAVID A. BROOKS               Name:   David A. Brooks     Title:   Vice President and Secretary               ASHFORD WALNUT CREEK LP               By:   Ashford Walnut Creek GP LLC, a Delaware limited liability company, its general partner               By:   /S/ DAVID A. BROOKS               Name:   David A. Brooks     Title:   Vice President and Secretary               ASHFORD TRUMBULL LP               By:   Ashford Trumbull GP LLC, a Delaware limited liability company, its general partner               By:   /S/ DAVID A. BROOKS               Name:   David A. Brooks     Title:   Vice President and Secretary     {signature continues on the following page} SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.   --------------------------------------------------------------------------------         Page 7   DPA609477 SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.   ASHFORD IOWA CITY LP               By:   Ashford Iowa City GP LLC, a Delaware limited liability company, its general partner               By:   /S/ DAVID A. BROOKS               Name:   David A. Brooks     Title:   Vice President and Secretary     SMBC Derivative Products Limited and Party B have agreed not to amend, modify, assign, or terminate the Rate Protection Transaction without the prior written consent of COUNTRYWIDE COMMERCIAL REAL ESTATE FINANCE, INC. or the current lender, as the case may be.  

Exhibit 10.2 AMENDMENT NO. 4 TO THE CREDIT AGREEMENT Dated as of November 8, 2006 AMENDMENT NO. 4 TO THE CREDIT AGREEMENT (this “Amendment”) among CHIQUITA BRANDS L.L.C., a Delaware limited liability company (the “Borrower”), CHIQUITA BRANDS INTERNATIONAL, INC., a New Jersey corporation (“Holdings”), the banks, financial institutions and other institutional lenders parties to the Credit Agreement referred to below (collectively, the “Lenders”) and WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent (in such capacity, the “Administrative Agent”). PRELIMINARY STATEMENTS: (1) WHEREAS, the Borrower, Holdings, the Lenders and the Administrative Agent have entered into a Credit Agreement dated as of June 28, 2005, as amended by Amendment No. 1 dated as of November 18, 2005, Amendment No. 2 dated as of February 9, 2006 and Amendment No. 3 dated as of June 6, 2006 (such Credit Agreement, as so amended, the “Credit Agreement”; capitalized terms not otherwise defined in this Amendment being used with the same meanings as specified in the Credit Agreement); (2) WHEREAS, the Borrower has requested that the Lenders amend the Credit Agreement as described below; (3) WHEREAS, the Lenders have agreed, subject to the terms and conditions hereinafter set forth, to amend the Credit Agreement as set forth below. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Amendments to the Credit Agreement. The Credit Agreement is, effective as of September 30, 2006 and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (a) The definition of “EBITDA” in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: “EBITDA” shall mean, for any period, Net Income for such period of a Person and its Subsidiaries determined on a consolidated basis in accordance with GAAP plus, without duplication, and (in the case of clauses (a) through (g) only) to the extent deducted in determining such Net Income for such period, the sum of the following for such period: (a) Interest Expense net of interest income for such period, (b) income tax expense for such period, (c) depreciation and amortization expense for such period, (d) extraordinary items of non-cash loss for such period, (e) non-cash writedowns, including any non-cash asset impairment charges under SFAS No. 142, (f) costs incurred subsequent to September 30, 2006 related to restoring consumer confidence in spinach and packaged salad products in an -------------------------------------------------------------------------------- aggregate amount not to exceed $6,000,000, (g) non-cash stock based compensation expense, and (h) the costs and expenses listed on Schedule 1.01-1 for the applicable periods referred to therein, and minus, without duplication, and to the extent added in determining such Net Income for such period, the aggregate amount of extraordinary items of income. Pro forma credit shall be given for any acquired Person’s EBITDA or the identifiable EBITDA of identifiable business units or operations acquired during such period calculated in a similar fashion (so long as such acquisition was permitted by this Agreement) as if owned on the first day of the applicable period; and any Person or identifiable business units or operations sold, transferred or otherwise disposed of during such period will be treated as if not owned during the entire applicable period. When calculating EBITDA for purposes of determining compliance with the terms and covenants of this Agreement, EBITDA shall be calculated without giving effect to (i) the amortization of any expenses incurred by any of the CBII Entities in connection with the Existing Credit Agreement (including the “Credit Documents” referred to therein), the Credit Documents referred to herein, the offering of the Senior Notes (7.5%) and the Senior Notes (8.875%), and in each such case the application of the proceeds therefrom, (ii) any costs or expenses incurred by any of the CBII Entities in connection with the tender and consent solicitation for the Senior Notes (10.56%) and the write-off of any debt issuance costs in connection therewith for any period prior to December 31, 2004, (iii) any after-tax income or loss from discontinued operations to the extent established on or before the Effective Date, (iv) the pre-tax loss from the sale of the Colombian Operations, and (v) any costs and expenses incurred by any of the Borrower Entities in connection with (A) any Permitted Acquisition, in an aggregate amount for all Permitted Acquisitions not to exceed $10,000,000 and (B) the Acquisition. Notwithstanding the foregoing, EBITDA for the Companies and their respective Subsidiaries for the four fiscal quarter period ended March 31, 2005 shall be deemed as set forth on Schedule 1.01 hereto for purposes of this Agreement. (b) The definition of “Fixed Charge Coverage Ratio” in Section 1.01 of the Credit Agreement is hereby amended by inserting the following sentence at the end of such definition: “Anything contained herein to the contrary notwithstanding, the calculation of “net lease expense,” “net rent expense” and “Fixed Charges” shall exclude that portion of any lease or rent expense arising under any timecharter or spot charter of ocean going vessels to the extent reasonably determined by the Borrower to be attributable to expenses related to the operation of such vessel and not to the lease or rental of the vessel itself.” (c) The definition of “Fixed Charges” in Section 1.01 of the Credit Agreement is hereby amended by (i) amending clause (a) to read as follows: “(a) cash Interest Expense net of cash interest income for such period (excluding the amortization of any expenses incurred by any of the CBII Entities in connection with the Existing Credit Agreement (including the “Credit Documents” referred to therein), the Credit Documents referred to herein, the offering of the Senior Notes (7.5%) and the Senior Notes (8.875%), and in each such case the application of the proceeds therefrom),”, and (ii) amending clause (d) thereof to read as follows: “(d) Distributions and dividends, or cash advances or -------------------------------------------------------------------------------- any other funds, however characterized, paid by any Borrower Entity to CBII pursuant to Section 5.02(f)(ii)(y), excluding dividend payments of $4.2 million in each of the first three quarters of 2006”. (d) The definition of “Net Cash Proceeds” in Section 1.01 of the Credit Agreement is hereby amended by inserting “or for the benefit of” before “any of the CBII Entities” in the second line of clause (a) thereof. (e) The definition of “Revolving Loan Pricing Grid” in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: “Revolving Loan Pricing Grid” shall mean: Revolving Loan Pricing Grid (rates are expressed in basis points (bps) per annum)   Tier    Consolidated Leverage Ratio    Applicable Margin for LIBOR Loans under the Revolving Loan Facility (bps)    Applicable Margin for Base Rate Loans under the Revolving Loan Facility (bps)    Commitment Fee Percentage (bps) 1    < 2.25    125    25    25 2    > 2.25 < 2.75    175    75    30 3    > 2.75 < 3.25    200    100    37.5 4    > 3.25 < 3.75    225    125    50 5    > 3.75 < 4.25    250    150    50 6    > 4.25< 5.25    275    175    50 7    > 5.25    300    200    50 Any increase or decrease in the Applicable Margin for Revolving Loans or the Commitment Fee Percentage resulting from a change in the Consolidated Leverage Ratio shall become effective as of the fifth Business Day following the date a Compliance Certificate is required to be delivered pursuant to Sections 5.01(a) or 5.02(d)(ii); provided, however, that if no Compliance Certificate is delivered within three days of when due in accordance with such Sections, then Tier 7 of the Revolving Loan Pricing Grid shall apply as of the date of the failure to deliver such Compliance Certificate until such time as the Borrower delivers a Compliance Certificate in the form of Exhibit G-1 (in respect of Section 5.01(a)) or Exhibit G-2 (in respect of Section 5.02(d)(ii)) hereto and after such delivery the Applicable Margin for Revolving Loans and the Commitment Fee Percentage shall be based on the Consolidated Leverage Ratio indicated on such Compliance Certificate until such time as the Applicable Margin for Revolving Loans and the Commitment Fee Percentage are further adjusted as set forth in this definition. Anything contained herein to the contrary notwithstanding, Tier 7 of the Revolving Loan Pricing Grid shall apply for the -------------------------------------------------------------------------------- period commencing on November 8, 2006 until such time as the Borrower delivers copies of the audited consolidated Financial Statements of the Borrower Entities and unqualified opinions of accountants for the fiscal year 2006 in accordance with Section 5.01(a)(ii) and after such delivery the Applicable Margin for Revolving Loans and the Commitment Fee Percentage shall be based on the Consolidated Leverage Ratio as set forth in this definition.” (f) The definition of “Term Pricing Grid” in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: “Term Pricing Grid” shall mean: Term Pricing Grid (rates are expressed in basis points (bps) per annum)   Tier    Consolidated Leverage Ratio    Applicable Margin for LIBOR Loans under the Term Facilities (bps)    Applicable Margin for Base Rate Loans under the Term Facilities (bps) 1    < 3.50    200    100 2    > 3.50 < 5.25    225    125 3    > 5.25    300    200 Any increase or decrease in the Applicable Margin for Term B Loans and Term C Loans resulting from a change in the Consolidated Leverage Ratio shall become effective as of the fifth Business Day following the date a Compliance Certificate is required to be delivered pursuant to Sections 5.01(a) or 5.02(d)(ii); provided, however, that if no Compliance Certificate is delivered within three days of when due in accordance with such Sections, then Tier 3 of the Term Pricing Grid shall apply as of the date of the failure to deliver such Compliance Certificate until such time as the Borrower delivers a Compliance Certificate in the form of Exhibit G-1 (in respect of Section 5.01(a)) or Exhibit G-2 (in respect of Section 5.02(d)(ii)) hereto and after such delivery the Applicable Margin for Term B Loans and Term C Loans shall be based on the Consolidated Leverage Ratio indicated on such Compliance Certificate until such time as the Applicable Margin for Term B Loans and Term C Loans are further adjusted as set forth in this definition. Anything contained herein to the contrary notwithstanding, Tier 3 of the Term Pricing Grid shall apply for the period commencing on November 8, 2006 until such time as the Borrower delivers copies of the audited consolidated Financial Statements of the Borrower Entities and unqualified opinions of accountants for the fiscal year 2006 in accordance with Section 5.01(a)(ii) and after such delivery the Applicable Margin for the Term B Loans and Term C Loans shall be based on the Consolidated Leverage Ratio as set forth in this definition.” -------------------------------------------------------------------------------- (g) Section 1.01 of the Credit Agreement is hereby amended by adding the following definitions in correct alphabetical order: “Covenant Election” means that (a) the Borrower Leverage Ratio as of the fiscal quarter most recently ended is less than 3.25 to 1.00 and (b) the Borrower has delivered a written notice (an “Election Notice”) to the Administrative Agent, in form and substance satisfactory to the Agent, stating that the Borrower is making a “Covenant Election” for purposes of this Agreement. Any Covenant Election shall be irrevocable once made. The delivery of an Election Notice by the Borrower to the Administrative Agent at a time when the condition set forth in clause (a) above has not been met shall constitute an Event of Default. “Gross Sale Proceeds” means, with respect to any asset sale, the aggregate cash proceeds, Temporary Cash Investments and other cash equivalents received by or for the benefit of any of the CBII entities (including, without limitation, any cash, Temporary Cash Investments and other cash equivalents received upon the sale or other disposition of any non-cash consideration received in any asset sale). “Lender Sale Proceeds” means, with respect to any sale or other disposition of any assets described on Schedule 2.06(c)(ii), an amount equal to (a) 80% of the Gross Sale Proceeds, minus (b) the amount equal to the difference between the Gross Sale Proceeds and the Net Cash Proceeds. (h) Section 2.06(c)(ii) of the Credit Agreement is hereby amended by: (i) inserting the following in the second sentence thereof after the words “Notwithstanding the foregoing”: “, and excluding any Lender Sale Proceeds (up to a maximum of $80,000,000),”; and (ii) inserting the following sentence at the end of such section: “Anything contained herein to the contrary notwithstanding, all Lender Sale Proceeds (up to a maximum of $80,000,000) shall be subject to the prepayment requirements of the first sentence of this Section 2.06(c)(ii) without regard to any exclusions, exceptions or qualifications in such sentence (including, without limitation, any requirement that only the amount of Net Cash Proceeds in excess of $15,000,000 in any fiscal year shall be subject to such prepayment), and such Lender Sale Proceeds (up to a maximum of $80,000,000) shall require such prepayment on a dollar-for-dollar basis which shall be applied as set forth in Section 2.06(e)”. (i) Section 5.02(a)(i) of the Credit Agreement is hereby amended by adding before the period at the end thereof the following: “; provided, however, that from and after September 30, 2006, unless a Covenant Election has been made, in addition to the restrictions set forth in clauses (A) through (C) above, which shall at all times continue to apply, the Borrower shall not, and shall not permit the Borrower Entities to, create, incur, assume or permit to exist any Indebtedness (including, without limitation, Indebtedness from additional Borrowings under the Credit Agreement) except (1) Indebtedness existing on September 30, 2006 (which shall be described in a schedule to be delivered by the Borrower to the Administrative Agent prior to December 31, 2006) and renewals and extensions thereof that do not increase the amount thereof, (2) Indebtedness owing to any Borrower Entity or any Subsidiary of any Borrower Entity incurred in the ordinary course of business -------------------------------------------------------------------------------- consistent with past practices, (3) Revolving Loan Borrowings and Letters of Credit under the Revolving Loan Facility in the ordinary course of business consistent with past practices (including, without limitation, Letters of Credit issued in connection with any judgments, performance bonds, appeal bonds and other similar instruments that may arise or be issued), (4) obligations as lessee under operating leases entered into in the ordinary course of business consistent with past practices, (5) obligations in respect of deferred purchase price of property or services or under conditional sale or other title retention agreements related to Capital Expenditures permitted hereunder in an aggregate principal amount not to exceed $10 million, (6) Indebtedness incurred or assumed in connection with Permitted Acquisitions in an aggregate principal amount not to exceed $20 million for the fiscal year ending December 31, 2006 and each fiscal year thereafter, and (7) other Indebtedness in an aggregate principal amount not to exceed $10 million.” (j) Section 5.02(c)(ix) of the Credit Agreement is hereby amended by (i) changing the reference to “clause (viii)” in the fourth line thereof to “clause (ix)”, and (ii) inserting in the third line thereof before the words “no later” the following: “the Borrower shall be in Pro Forma Compliance with all Financial Covenants after giving effect to such Permitted Asset Disposition and”. (k) Section 5.02(d)(ii)(B) of the Credit Agreement is hereby amended by deleting “$100,000,000” and inserting the following in lieu thereof: “(1) for any acquisition occurring on or before September 30, 2006 or after a Covenant Election has been made, $100,000,000, or (2) otherwise, $50,000,000.” (l) Section 5.02(f)(ii)(z)(ii) is hereby amended by inserting after “Pro Forma Compliance with all Financial Covenants” the following: “and a Covenant Election has been made”. (m) Section 5.03(a) of the Credit Agreement is hereby amended in its entirety to read as follows: “(a) Borrower Leverage Ratio. So long as a Covenant Election has not been made, the Borrower shall not permit the Borrower Leverage Ratio (i) at the end of the fiscal quarter ended on December 31, 2006 to be greater than 4.0 to 1.0, (ii) at the end of the fiscal quarter ended on March 31, 2007 to be greater than 4.75 to 1.0, (iii) at the end of the fiscal quarter ended on June 30, 2007 or September 30, 2007 to be greater than 4.25 to 1.0, (iv) at the end of the fiscal quarter ended on December 31, 2007 to be greater than 3.75 to 1.0, (v) at the end of the fiscal quarter ended on March 31, 2008 or June 30, 2008 to be greater than 3.25 to 1.0, or (vi) at the end of any fiscal quarter ended thereafter to be greater than 3.0 to 1.0, provided that if a Covenant Election has been made, the ratio in clauses (i)-(iv) shall be deemed to be 3.25 to 1.0.” -------------------------------------------------------------------------------- (n) Section 5.03(b) of the Credit Agreement is hereby amended in its entirety to read as follows: “(b) Consolidated Leverage Ratio. The Borrower shall not permit the Consolidated Leverage Ratio (i) at the end of the fiscal quarter ended on December 31, 2006 to be greater than 7.25 to 1.0, (ii) at the end of the fiscal quarter ended on March 31, 2007 to be greater than 8.50 to 1.0, (iii) at the end of the fiscal quarter ended on June 30, 2007 to be greater than 8.0 to 1.0, (iv) at the end of the fiscal quarter ended on September 30, 2007 to be greater than 7.75 to 1.0, (v) at the end of the fiscal quarter ended on December 31, 2007 to be greater than 6.50 to 1.0, (vi) at the end of the fiscal quarter ended on March 31, 2008 or June 30, 2008 to be greater than 6.0 to 1.0, (vii) at the end of the fiscal quarter ended on September 30, 2008 to be greater than 5.50, or (vi) at the end of any fiscal quarter ended thereafter to be greater than 5.25 to 1.0.” (o) Section 5.03(c) of the Credit Agreement is hereby amended in its entirety to read as follows: “(c) Fixed Charge Coverage Ratio. The Borrower shall not permit the Fixed Charge Coverage Ratio (i) at the end of the fiscal quarter ended on December 31, 2006 to be less than 1.30 to 1.0, (ii) at the end of any fiscal quarter ended after December 31, 2006 through and including the fiscal quarter ended on September 30, 2007 to be less than 1.25 to 1.0, or (iii) at the end of any fiscal quarter ended thereafter to be less than 1.30 to 1.0.” (p) Section 5.03(d) of the Credit Agreement is hereby amended by deleting “$150,000,000” and inserting the following in lieu thereof: “(i) for the fiscal year ending December 31, 2006, and each fiscal year thereafter, unless a Covenant Election has been made, $80,000,000 or (ii) for any subsequent fiscal year, if a Covenant Election has been made, $150,000,000.” (q) Schedule 1.01-1 attached hereto is hereby added to the Credit Agreement as Schedule 1.01-1 thereto. (r) Schedule 2.06(c)(ii) attached hereto is hereby added to the Credit Agreement as Schedule 2.06(c)(ii) thereto. (s) Schedule 5.02(f)(ii) of the Credit Agreement is hereby amended by deleting the item for “Advances from Borrower.” SECTION 2. Conditions of Effectiveness. (a) Section 1 of this Amendment shall become effective as of September 30, 2006 when, and only when, each of the following conditions set forth in this Section 2 shall have been satisfied: (i) the Administrative Agent shall have received (A) counterparts of this Amendment executed by the Borrower and the Required Lenders or, as to any of such Lenders, advice satisfactory to the Administrative Agent that such Lender has executed this Amendment, (B) counterparts of the Consent attached hereto executed by each of the Loan Parties (other than the Borrower), (C) evidence of corporate authorization for each Loan Party satisfactory to the Administrative Agent, and (D) an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Loan Parties, in form and substance satisfactory to the Administrative Agent and its counsel; (ii) the Borrower shall have paid to the Administrative -------------------------------------------------------------------------------- Agent (A) for the benefit of the applicable Lenders, a fee equal to an agreed amount based on the aggregate Commitments of each Lender that has executed and delivered this Amendment on or before 5:00 p.m. (New York time) on November 8, 2006, and (B) for the benefit of the Administrative Agent and its affiliates, all fees then payable and all reasonable out-of-pocket costs and expenses (including the reasonable fees, charges and disbursements of counsel to the Administrative Agent) of the Administrative Agent and its affiliates incurred in connection, and in accordance, with the Credit Documents (including this Amendment) to the extent invoiced; and (iii) no Default shall have occurred and be continuing, or would occur as a result of the transactions contemplated by this Amendment (hereinafter, the “Fourth Amendment Effective Date”). SECTION 3. Representations and Warranties of the Borrower. Each of Holdings and the Borrower represents and warrants as follows: (a) The execution, delivery and performance by it of this Amendment, the execution, delivery and performance of the Consent by the Loan Parties signatory thereto and the performance by each Loan Party of each Credit Document (as amended by this Amendment) to which such Person is a party, are within such Loan Party’s corporate or other powers, have been duly authorized by all necessary actions on the part of such Loan Party, and do not and will not (i) violate any Requirement of Law applicable to such Loan Party, (ii) violate any provision of, or result in the breach or the acceleration of, or entitle any other Person to accelerate (whether after the giving of notice or lapse of time or both), any Contractual Obligation of such Loan Party, (iii) result in the creation or imposition of any Lien (or the obligation to create or impose any Lien) upon any property, asset or revenue of such Loan Party (except such Liens as may be created in favor of the Administrative Agent for the benefit of itself and the Lenders pursuant to this Agreement or the other Credit Documents) or (iv) violate any provision of any existing law, rule, regulation, order, writ, injunction or decree of any court or Governmental Authority to which it is subject, except in each case in each of clauses (i), (ii), (iii) and (iv) where such breach or violation could not reasonably be expected to have a Material Adverse Effect. (b) This Amendment and the Consent attached hereto, when delivered hereunder, will have been duly executed and delivered by each Loan Party that is party thereto. This Amendment and the Consent attached hereto, when so delivered, will constitute a legal, valid and binding obligation of each such Loan Party, enforceable against such Loan Party in accordance with its terms, except as limited by Debtor Relief Laws relating to or affecting the enforcement of creditors’ rights generally and general principles of equity. SECTION 4. Reference to and Effect on the Credit Agreement, the Notes and the Credit Documents. (a) On and after each of the Fourth Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Credit Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment. -------------------------------------------------------------------------------- (b) The Credit Agreement, the Notes and each of the other Credit Documents, in each case as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Each of Holdings and the Borrower hereby (i) confirms and agrees that the pledge and security interest in the Collateral granted by it pursuant to the Security Documents to which it is a party shall continue in full force and effect, and (ii) acknowledges and agrees that such pledge and security interest in the Collateral granted by it pursuant to such Security Documents shall continue to secure the Obligations purported to be secured thereby, as amended or otherwise affected hereby. (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 any Lender or the Administrative Agent under any of the Credit Documents, nor constitute a waiver of any provision of any of the Credit Documents. SECTION 5. Costs, Expenses. The Borrower agrees to pay all reasonable out-of-pocket costs and expenses of the Administrative Agent incurred in connection with the preparation, execution, delivery and any modification of this Amendment and the other instruments and documents to be delivered by any Loan Party hereunder (including, without limitation, the reasonable fees and expenses of external counsel for the Administrative Agent) in accordance with the terms of Section 8.02 of the Credit Agreement. SECTION 6. Execution in 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 shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. 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 7. Governing Law; Submission to Jurisdiction. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. Each of the Borrower and Holdings hereby irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York, New York county and the courts of the United States of America located in the Southern District of New York and hereby agrees that any legal action, suit or proceeding arising out of or relating to this Amendment may be brought against them in any such courts. -------------------------------------------------------------------------------- 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 above written.   BORROWER: CHIQUITA BRANDS L.L.C., a Delaware limited liability company By:   /s/Jeffrey M. Zalla Name:   Jeffrey M. Zalla Title:   Senior Vice President and   Chief Financial Officer HOLDINGS: CHIQUITA BRANDS INTERNATIONAL, INC., a New Jersey corporation By:   /s/Jeffrey M. Zalla Name:   Jeffrey M. Zalla Title:   Senior Vice President and   Chief Financial Officer -------------------------------------------------------------------------------- Wachovia Bank, N.A., as Administrative Agent By:   /s/ Mark S. Supple Name:   Mark S. Supple Title:   Vice President -------------------------------------------------------------------------------- CONSENT AND CONFIRMATION Dated as of November 8, 2006 Each of the undersigned hereby consents to the foregoing Amendment and hereby (a) confirms and agrees that notwithstanding the effectiveness of such Amendment, each Credit Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that, on and after effectiveness of such Amendment, each reference in the Credit Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import shall mean and be a reference to the Credit Agreement, as amended by such Amendment, (b) confirms and agrees that the pledge and security interest in the Collateral granted by it pursuant to the Security Documents to which it is a party shall continue in full force and effect, and (c) acknowledges and agrees that such pledge and security interest in the Collateral granted by it pursuant to such Security Documents shall continue to secure the Obligations purported to be secured thereby, as amended or otherwise affected hereby. This Consent and Confirmation shall be governed by, and construed in accordance with, the laws of the State of New York. Each of the undersigned hereby irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York, New York county and the courts of the United States of America located in the Southern District of New York and hereby agrees that any legal action, suit or proceeding arising out of or relating to the foregoing Amendment and this Consent and Confirmation may be brought against them in any such courts. This Consent and Confirmation may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Consent and Confirmation by telecopier shall be effective as delivery of a manually executed counterpart of this Consent and Confirmation. -------------------------------------------------------------------------------- CHIQUITA BRANDS L.L.C. CHIQUITA BRANDS INTERNATIONAL, INC. BOCAS FRUIT CO. L.L.C. CHIQUITA FRESH CUT L.L.C. CHIQUITA FRESH NORTH AMERICA L.L.C. COAST CITRUS DISTRIBUTORS HOLDING COMPANY CHIQUITA INTERNATIONAL TRADING COMPANY CHIQUITA INTERNATIONAL LIMITED   By:   /s/Jeffrey M. Zalla Name:   Jeffrey M. Zalla Title:   Senior Vice President and Chief Financial Officer of Chiquita Brands International, Inc. (Parent Authorized Officer) -------------------------------------------------------------------------------- FRESH INTERNATIONAL CORP. ALAMO LAND COMPANY B C SYSTEMS, INC. FRESH EXPRESS INCORPORATED   By:   /s/Tanios Viviani Name:   Tanios Viviani Title:   President for each of the Fresh Express Obligors listed above   TRANSFRESH CORPORATION By:   /s/Tanios Viviani Name:   Tanios Viviani Title:   Vice President -------------------------------------------------------------------------------- SCHEDULE 1.01-1 ADJUSTMENTS TO EBITDA For purposes of calculating EBITDA for any period covered in the table set forth below, the amounts (in thousands) set forth in such table shall be added to EBITDA for such period:   Description    Q1 2006    Q2 2006    Q3 2006    Q4 2006 Economic impact of Tropical Storm Gamma and Hurricane Stan, including incremental costs and reduced volume    $ 16,100    $ 8,300    $ 700    $ 400 Shutdown of Manteno Facility    $ 1,600    $ 600      —        —   Nonrecurring spinach industry losses, including additional reserves and customer credits but excluding costs related to restoring consumer confidence in spinach and packaged salad products      —        —      $ 9,000      —   -------------------------------------------------------------------------------- SCHEDULE 2.06(c)(ii) SCHEDULE OF VESSELS FOR POSSIBLE SALE REFRIGERATOR SHIPS Bremer Vulcan Class Chiquita Bremen Chiquita Rostock Country Class Chiquita Belgie Chiquita Italia Chiquita Scandinavia Chiquita Schweiz Chiquita Deutschland Chiquita Nederland CONTAINER SHIPS Lady Class Courtney Francis Edyth Puritan

          EXHIBIT 10.s   2000 CITY NATIONAL BANK DIRECTOR DEFERRED COMPENSATION PLAN                       1 -------------------------------------------------------------------------------- 2000 CITY NATIONAL BANK DIRECTOR DEFERRED COMPENSATION PLAN   TABLE OF CONTENTS       Page       ARTICLE I 1       1.1 - Title 1       1.2 - Definitions 1       ARTICLE II 6       2.1 - Participation 6       ARTICLE III 7       3.1 - Elections to Defer Compensation 7       3.2 - Investment Elections 7       ARTICLE IV 10       4.1 - Deferral Account 10       4.2 - Rollovers 10       ARTICLE V 11       5.1 - Deferral Account 11       ARTICLE VI 12       6.1 - Distribution of Deferred Compensation 12       6.2 - Nonscheduled In-Service Withdrawals 13       6.3 - Hardship Withdrawals 14       6.4 - Inability to Locate Participant 14       6.5 - Change in Control 14       6.6 - Death Benefit for Certain Participants 15       ARTICLE VII 16       7.1 - Committee Action 16       7.2 - Powers and Duties of the Committee 16       7.3 - Construction and Interpretation 17       7.4 - Information 17       7.5 - Compensation, Expenses and Indemnity 17       7.6 - Quarterly Statements 18     i --------------------------------------------------------------------------------         7.7 - Claims Procedure 18       ARTICLE VIII 20       8.1 - Unsecured General Creditor 20       8.2 - Restriction Against Assignment 20       8.3 - Withholding 20       8.4 - Amendment, Modification, Suspension or Termination 21       8.5 - Governing Law 21       8.6 - Receipt or Release 21       8.7 - Payments on Behalf of Persons Under Incapacity 21       8.8 - Headings, etc. Not Part of Agreement 21     ii --------------------------------------------------------------------------------     2000 CITY NATIONAL BANK DIRECTOR DEFERRED COMPENSATION PLAN (EFFECTIVE AS OF JANUARY 1, 2000)                   City National Bank (the “Bank”) hereby establishes the 2000 City National Bank Director Deferred Compensation Plan (the “Plan”), effective as of January 1, 2000, to provide a tax-deferred capital accumulation opportunity to its outside directors through deferrals of directors’ fees.   ARTICLE I TITLE AND DEFINITIONS   1.1 -    TITLE.                   This Plan shall be known as the 2000 City National Bank Director Deferred Compensation Plan.   1.2 -    DEFINITIONS.                   Whenever the following words and phrases are used in this Plan, with the first letter capitalized, they shall have the meanings specified below.                   “Account” shall mean a Participant’s Deferral Account.                   “Annual Retainer” shall mean the annual retainer fee to which a Director is entitled for service as a member of the Board of Directors of the Corporation and/or the annual retainer fee to which a Director is entitled for service as a member of the board of directors of the Bank.                   “Bank” shall mean City National Bank and any successor corporation.                   “Beneficiary” or “Beneficiaries” shall mean the person or persons, including a trustee, personal representative or other fiduciary, last designated in writing by a Participant in accordance with procedures established by the Committee to receive the benefits specified hereunder (other than those benefits set forth in Section 6.6) in the event of the Participant’s death. No beneficiary designation shall become effective until it is filed with the Committee, and no beneficiary designation of someone other than the Participant’s spouse shall be effective unless such designation is consented to by the Participant’s spouse on a form provided by and in accordance with procedures established by the Committee. If there is no Beneficiary designation in effect, or if there is no surviving designated Beneficiary, then the Participant’s surviving spouse shall be the Beneficiary. If there is no surviving spouse to receive any benefits payable in       1 --------------------------------------------------------------------------------     accordance with the preceding sentence, the duly appointed and currently acting personal representative of the Participant’s estate (which shall include either the Participant’s probate estate or living trust) shall be the Beneficiary. In any case where there is no such personal representative of the Participant’s estate duly appointed and acting in that capacity within 90 days after the Participant’s death (or such extended period as the Committee determines is reasonably necessary to allow such personal representative to be appointed, but not to exceed 180 days after the Participant’s death), then Beneficiary shall mean the person or persons who can verify by affidavit or court order to the satisfaction of the Committee that they are legally entitled to receive the benefits specified hereunder. In the event any amount is payable under the Plan to a minor, payment shall not be made to the minor, but instead shall be paid (a) to that person’s living parent(s) to act as custodian, (b) if that person’s parents are then divorced, and one parent is the sole custodial parent, to such custodial parent, or (c) if no parent of that person is then living, to a custodian selected by the Committee to hold the funds for the minor under the Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which the minor resides. If no parent is living and the Committee decides not to select another custodian to hold the funds for the minor, then payment shall be made to the duly appointed and currently acting guardian of the estate for the minor or, if no guardian of the estate for the minor is duly appointed and currently acting within 60 days after the date the amount becomes payable, payment shall be deposited with the court having jurisdiction over the estate of the minor.                   “Board of Directors” or “Board” shall mean the Board of Directors of City National Bank.                   “Change in Control Event” shall mean:   (a)                                  The acquisition by an 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 Corporation (the “Outstanding Corporation Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Corporation 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 Corporation, (ii) any acquisition by the Corporation, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation, (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii)     2 --------------------------------------------------------------------------------                                                   and (iii) of subsection (c) below, or (v) any acquisition by the Goldsmith family or any trust or partnership for the benefit of any member of the Goldsmith family; 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 Corporation’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 Corporation (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 Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% 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 Corporation or all or substantially all of the Corporation’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 Corporation Common Stock and Outstanding Corporation 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 Corporation 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     3 --------------------------------------------------------------------------------                                                   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 Corporation of a complete liquidation or dissolution of the Corporation.                   “Code” shall mean the Internal Revenue Code of 1986, as amended.                   “Committee” shall mean the Corporation’s Benefits Committee.                   “Compensation” shall mean the Participant’s Annual Retainer and Meeting Fees.                   “Corporation” shall mean City National Corporation.                   “Deferral Account” shall mean the bookkeeping account on the Bank’s books that is maintained by the Committee for each Participant that is credited with amounts equal to (a) the portion of the Participant’s Annual Retainer and Meeting Fees that he or she elects to defer, (b) the Participant’s Rollover Amount, if any, and (c) earnings or losses pursuant to Section 4.1.                   “Director” shall mean a member of the board of directors of the Bank.                   “Disability” shall mean an incapacity which has rendered the Participant unable to perform all of the material and substantial duties of a Director because of illness or injury.                   “Earnings Rate” shall mean, for each Fund, an amount equal to the net rate of gain or loss on the assets of such Fund during each business day.                   “Effective Date” shall mean January 1, 2000.                   “Eligible Director” shall mean each Director who is not an employee of the Corporation, the Bank, any subsidiary of the Corporation or the Bank or any other entity affiliated with the Corporation or the Bank.                   “Fund” or “Funds” shall mean one or more of the investment funds or portfolios selected by the Committee pursuant to Section 3.2(b).                   “Initial Election Period” for an Eligible Director shall mean the later of: (a) the period beginning upon notification to the Participants of this Plan and ending December 31, 1999; or (b)     4 --------------------------------------------------------------------------------   the thirty-day period following the Eligible Director’s election to the Board or the board of directors of the Bank.                   “Meeting Fees” shall mean the amounts to which a Director is entitled for attending meetings of (a) the Board of Directors of the Corporation, (b) the board of directors of the Bank, (c) a committee of the Board of Directors of the Corporation or (d) a committee of the board of directors of the Bank.                   “Participant” shall mean (a) any Eligible Director who elects to defer Compensation in accordance with Section 3.1 and complies with the requirements of Section 2.1 and (b) any individual who was a participant in the City National Corporation Director Deferred Compensation Plan and had a positive account balance on December 31, 1999.                   “Payment Eligibility Date” shall mean the first day of the month following the end of the calendar quarter in which a Participant ceases to provide service to the Bank as an Eligible Director, incurs a Disability or dies.                   “Plan” shall mean the 2000 City National Bank Director Deferred Compensation Plan set forth herein, now in effect, or as amended from time to time.                   “Plan Year” shall mean the 12 consecutive month period beginning on January 1 and ending the following December 31.                   “Plan Year Subaccounts” shall mean subaccounts of a Participant’s Deferral Account established to separately account for Compensation deferred (and earnings or losses thereon) for each Plan Year in which a Participant participates in the Plan and for any Rollover Amounts.                   “Prior Plan” shall mean the City National Corporation Director Deferred Compensation Plan.                   “Rollover Amount” shall mean the amount determined in accordance with Section 4.2.     5 --------------------------------------------------------------------------------     ARTICLE II PARTICIPATION   2.1 -    PARTICIPATION.                   (a)           GENERALLY. An Eligible Director shall become a Participant in the Plan by (i) electing to defer Compensation in accordance with Section 3.1, (ii) if required by the Committee, filing a life insurance application form along with his or her deferral election form, and (iii) satisfying any medical underwriting requirement established by the Committee.                   (b)           PARTICIPANTS WITH SPLIT-DOLLAR LIFE INSURANCE ARRANGEMENTS. Notwithstanding the foregoing, unless the Committee provides otherwise, an Eligible Director who has entered into a Split-Dollar Life Insurance Agreement with the Corporation must execute an “Agreement for Transfer of Policy and Termination of Split-Dollar Life Insurance Agreement” in order to defer Compensation under this Plan.     6 --------------------------------------------------------------------------------   ARTICLE III DEFERRAL ELECTIONS   3.1 -    ELECTIONS TO DEFER COMPENSATION.                   (a)           INITIAL ELECTION PERIOD. Subject to Section 2.1, each Eligible Director may elect to defer Compensation by filing with the Committee an election that conforms to the requirements of this Section 3.1, on a form provided and in a manner specified by the Committee, no later than the last day of his or her Initial Election Period.                   (b)           GENERAL RULE. Subject to the minimum deferral provisions of Section 3.1(c) below, the amount of Compensation which an Eligible Director may elect to defer is as follows:   (i)                                     Any percentage or dollar amount of Annual Retainer up to 100%; and/or   (ii)                                  Any percentage or dollar amount of Meeting Fees up to 100%.                   (c)           MINIMUM DEFERRALS. For each Plan Year during which an Eligible Director is a Participant, the minimum amount that may be elected under Section 3.1(b) is $5,000. This $5,000 minimum deferral for any Plan Year may be met by a combination of deferrals of Annual Retainer and/or Meeting Fees for the Plan Year.                     (d)           EFFECT OF INITIAL ELECTION. An election to defer Compensation during the Initial Election Period shall be effective with respect to Compensation paid with respect to the Plan Year for which the election is made.                   (e)           ELECTIONS OTHER THAN ELECTIONS DURING THE INITIAL ELECTION PERIOD. Subject to the requirements of Section 2.1, any Eligible Director may participate for any Plan Year by filing an election, on a form provided and in a manner specified by the Committee, to defer Compensation as described in paragraph (b) above. An election to defer Compensation for a Plan Year must be filed on or before December 1 of the preceding Plan Year, or such other date as the Committee establishes, which date shall be no later than December 31 of the preceding Plan Year, and will be effective for Compensation earned on or after January 1 of the Plan Year for which the election applies.                   (f)            DURATION OF DEFERRAL ELECTION. Any election made under this Plan to defer Compensation shall apply only to Compensation payable with respect to the Plan Year for which the election is made. For each subsequent Plan Year, an Eligible Director may make a new election, subject to the limitations set forth in this Section 3.1, to defer a percentage of his or her Compensation.     7 --------------------------------------------------------------------------------                   (g)           IN-SERVICE DISTRIBUTIONS. At the time of making an election to defer Compensation for a Plan Year pursuant to this Section 3.1, a Participant may elect (in the manner specified by the Committee) to receive an in-service distribution of the amount deferred under such election, together with earnings or losses credited with respect to such amounts pursuant to Article IV, in a lump sum payment or in annual installments over 2, 3, 4, or 5 years in any January that occurs after the second anniversary of the last day of the Plan Year in which the amount deferred was earned. In addition, each Participant who has a Rollover Amount credited to his or her Account under Section 4.2 shall be permitted to elect, on or before December 31, 1999, to receive an in-service distribution of such Rollover Amount, together with earnings or losses, in January of 2003 or any later year. A Participant may subsequently elect to defer the year of any such in-service distribution to any subsequent date that is at least two years from the prior scheduled distribution date by filing a written election with the Committee, on a form provided and in a manner specified by the Committee, at least one year prior to the first day of the previously elected in-service distribution year. The election to defer the year of an in-service distribution may be made no more than twice. A Participant may elect to change the form of an in-service distribution, provided that his or her election is made on a form and in a manner specified by the Committee and such election is received by the Committee at least one year prior to the date distribution is to be made (or installment are to commence). If a Participant fails to make a distribution election under this Section 3.1(g) for a Plan Year, the Compensation deferred for that Plan Year shall be distributed as set forth in Section 6.1(b).                   (h)           ELECTIONS FOR ALTERNATIVE FORM OF DISTRIBUTION. At the time of making an election to defer Compensation for a Plan Year pursuant to this Section 3.1, a Participant may elect (in the manner specified by the Committee) an alternative form of benefit for distribution of the Compensation deferred for that Plan Year pursuant to Section 6.1(b). Subject to the provisions of Section 6.1(b), this election will apply to the Compensation deferred for such Plan Year if (i) the Participant does not elect an in-service distribution with respect to such deferred Compensation pursuant to Section 3.1(g), or (ii) the Participant elects an in-service distribution but ceases to be an Eligible Director prior to commencement of such in-service distribution.                   (i)            EFFECT OF ELECTIONS. Each distribution election under Section 3.1(g) and Section 3.1(h) shall apply only to the Compensation deferred for the Plan Year for which the election is made. For each subsequent Plan Year a Participant may make a separate election. Any election filed pursuant to this Section 3.1 shall be irrevocable for any one Plan Year except to the extent provided in subsection (g) hereof, Section 6.1, Section 6.2 and Section 6.3.     8 --------------------------------------------------------------------------------   3.2 -    INVESTMENT ELECTIONS.                   (a)           At the time of making each deferral election described in Section 3.1, the Participant shall designate, on a form provided and in a manner specified by the Committee, which Fund or Funds the Compensation deferred pursuant to such election will be deemed to be invested in for purposes of determining the amount of earnings or losses to be credited or debited to his or her Plan Year Subaccount that the Committee establishes pursuant to Section 4.1 to account for such deferred Compensation.                   (b)           In making the designation pursuant to this Section 3.2, the Participant must specify, in multiples of 10, the percentage of his or her corresponding Plan Year Subaccount that shall be deemed to be invested in one or more Funds. Effective as of the first business day of any month, a Participant may change the designation made under this Section 3.2 with respect to any or all of his or her Plan Year Subaccounts by filing an election, on a form provided and in a manner specified by the Committee. If a Participant fails to make an investment election for Compensation deferred in any Plan Year, the Participant’s most recent investment election shall apply to the Plan Year Subaccount established for such Plan Year and each Plan Year Subaccount established with respect to any subsequent Plan Year Subaccount(s) until the Participant files an election with the Committee in accordance with the provisions of this Section 3.2 with respect to such Plan Year Subaccount(s). Notwithstanding the foregoing, if a Participant has not previously elected a Fund under this Section 3.2, he or she shall be deemed to have elected the money market option, or such other Fund that the Committee designates as the default fund for purposes of this Plan.                   (c)           The Committee shall select from time to time, in its sole discretion, the Funds in which Compensation deferred under this Plan will be deemed to be invested. The Earnings Rate of each Fund shall be used to determine the amount of earnings or losses to be credited or debited to the Participant’s Deferral Account under Article IV. The Bank reserves the right to change the Funds, and to increase or decrease the number of Funds, available as the Funds for purposes of this Plan.                   (d)           Notwithstanding the Participant’s ability to designate the Funds in which the Plan Year Subaccounts of his or her Deferral Account shall be deemed to be invested, the Bank shall have no obligation to invest any funds in accordance with any Participant’s election. A Participant’s Deferral Account shall merely be a bookkeeping entry on the Bank’s books, and no Participant shall obtain any interest in any of the Funds.     9 --------------------------------------------------------------------------------   ARTICLE IV ACCOUNTS   4.1 -    DEFERRAL ACCOUNT.                   The Committee shall establish and maintain a Deferral Account for each Participant under the Plan. The Deferral Account shall be divided into Plan Year Subaccounts to separately account for deferrals made for each Plan Year. A Participant’s Plan Year Subaccounts shall be divided into separate subaccounts (“investment subaccounts”), each of which corresponds to a Fund elected by the Participant pursuant to Section 3.2(a). A Participant’s Plan Year Subaccount for a Plan Year shall be credited as follows:   (a)                                  The Committee shall credit the investment subaccounts of the Plan Year Subaccount of the Participant’s Deferral Account with an amount equal to the Compensation deferred by the Participant for the Plan Year for which the Plan Year Subaccount is established on the fifth business day after the Compensation would have been paid, in accordance with the Participant’s election under Section 3.2(a); that is, the portion of the Participant’s deferred Compensation that the Participant has elected to be deemed to be invested in a certain Fund shall be credited to the investment subaccount corresponding to that Fund;   (b)                                 As of the close of each business day, each investment subaccount of a Participant’s Plan Year Subaccount of the Participant’s Deferral Account shall be credited with earnings or losses in an amount determined by multiplying the balance credited to such investment subaccount as of the beginning of the same business day by the Earnings Rate for the corresponding Fund.   4.2 -    ROLLOVERS.                   If a Participant was a participant in the Prior Plan, and had a positive account balance on December 31, 1999, that positive account balance, determined as of that date, shall be transferred to the Participant’s Account under this Plan, and shall be governed by the terms and conditions of this Plan and shall be referred to as the “Rollover Amount.” The Participant’s Rollover Amount shall be credited to a separate Plan Year Subaccount. The Participant may make separate distribution and investment elections applicable to such Rollover Amount in accordance with Articles III and VI of this Plan.     10 --------------------------------------------------------------------------------   ARTICLE V VESTING   5.1 -    DEFERRAL ACCOUNT.                   A Participant’s Deferral Account shall be 100% vested at all times.     11 --------------------------------------------------------------------------------   ARTICLE VI DISTRIBUTIONS   6.1 -    DISTRIBUTION OF DEFERRED COMPENSATION.                   (a)           Distribution of the amount credited to each Plan Year Subaccount of the Participant’s Deferral Account that is subject to an in-service distribution election made by the Participant pursuant to Section 3.1(g) shall be made beginning in January of the year elected by the Participant in the form elected by the Participant, provided that the Participant continues to serve as an Eligible Director on January 1 of such year. Notwithstanding the foregoing, if the amount credited to a Plan Year Subaccount as of the end of the month immediately preceding the date that distributions are scheduled to commence is $25,000 or less (or, if distributions from two or more Plan Year Subaccounts are scheduled to commence in the same year for the same number of annual installments, if the sum of the amounts credited to such Plan Year Subaccounts is $25,000 or less), payment will be made in the form of a single lump sum rather than annual installments. In the event the Participant’s service as an Eligible Director is terminated for any reason prior to January 1 of a year elected by the Participant for a Plan Year Subaccount pursuant to Section 3.1(g), the Participant’s in-service distribution election for such Plan Year Subaccount shall no longer be effective and all of the amounts credited to such Plan Year Subaccount shall be distributed as set forth in the following subsections of this Section 6.1 in accordance with any applicable election by the Participant. In the event the Participant terminates service as an Eligible Director while receiving an in-service distribution from one or more Plan Year Subaccounts in the form of annual installments, such payments will continue as scheduled.                   (b)           When a Participant terminates service as an Eligible Director for any reason including death, the amounts credited to his or her Plan Year Subaccounts that are not then in pay status pursuant to in-service distribution elections shall be distributed to the Participant (or his or her Beneficiary) in 60 substantially equal quarterly installments beginning as soon as practicable following his or her Payment Eligibility Date. Notwithstanding the foregoing, a Participant may elect to receive distribution of one or more of his or her Plan Year Subaccounts in a lump sum or in 20, 40 or 60 substantially equal quarterly installments beginning as soon as practicable following the Participant’s Payment Eligibility Date, provided that his or her election is filed with the Committee either (i) at the time of making his or her deferral election for the Plan Year for which the Plan Year Subaccount was established (as described in Section 3.1(h)), or (ii) at least one year prior to his or her termination of service as an Eligible Director on a form provided and in a manner specified by the Committee. A Participant may change the form of distribution, provided that his or her change election is made on a form and in a manner specified by the Committee and such election is received by the Committee at least one year prior to the date     12 --------------------------------------------------------------------------------   distribution is to be made (or installments are to commence). Notwithstanding anything contained herein to the contrary, (i) in the event that the amount credited to a Participant’s Deferral Account is less than $50,000 as of the end of the month in which his or her service as an Eligible Director terminates, such amount shall be paid in a cash lump sum payment as soon as practicable following his or her Payment Eligibility Date, or (ii) in the event that the sum of the amounts credited to the Participant’s Plan Year Subaccounts that are subject to the same election as to date of commencement of distribution and number of installments is less than $50,000 at the end of the month in which the Participant’s service as an Eligible Director terminates, such amount shall be paid in a cash lump sum payment as soon as practicable following his or her Payment Eligibility Date.                   (c)           The Participant’s Plan Year Subaccounts shall continue to be credited with earnings pursuant to Sections 4.1 and 4.2 of the Plan until all amounts credited to his or her Plan Year Subaccounts under the Plan have been distributed.                   (d)           In the event that a former Participant dies while receiving installment payments under this Plan, any remaining installments shall be paid to the Participant’s Beneficiary as such installments would have otherwise been due to the Participant.   6.2 -    NONSCHEDULED IN-SERVICE WITHDRAWALS.                   At any time prior to his or her termination of service as an Eligible Director, a Participant may elect to withdraw an amount not in excess of the amounts credited to his or her Deferral Account, reduced by the withdrawal penalty described below. The Participant may make such an election by filing a written notice with the Committee on a form provided and in the manner specified by the Committee. Within 90 days following the Committee’s receipt of such notice, an amount equal to 90% of the amount that the Participant has elected to withdraw from his or her Deferral Account shall be paid to the Participant in a cash lump sum payment. Upon the payment of such withdrawal, (a) an amount equal to 10% of the amount the Participant has elected to withdraw from the Participant’s Deferred Compensation Account shall be forfeited, (b) the Participant shall cease to participate in the Plan for the remainder of the Plan Year in which the withdrawal occurs and shall be ineligible to participate during the Plan Year immediately following the Plan Year in which the withdrawal occurs, and (c) any deferral elections made by the Participant for such periods shall terminate. A Participant may not make more than two withdrawals under this Section 6.2. The amount of any such payments and forfeitures shall be deducted from the amounts credited to the Participant’s Plan Year Subaccounts in such order and in such proportions as the Committee may determine in its sole discretion. The remaining     13 --------------------------------------------------------------------------------   amounts credited to a Participant’s Plan Year Subaccounts shall be distributed in accordance with the Participant’s elections with respect to such Plan Year Subaccounts.   6.3 -    HARDSHIP WITHDRAWALS.                   Upon written request of a Participant, the Committee may, in its sole discretion, make a lump sum payment to a Participant and/or accelerate the payment of installment payments due to the Participant in order to meet a severe financial hardship to the Participant resulting from (a) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (b) loss of the Participant’s property due to casualty or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. However, no payment shall be made under this Section 6.3 to the extent that a hardship is or may be relieved (a) through reimbursement or compensation by insurance or otherwise, (b) by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship or (c) by cessation of deferrals under the Plan effective for the next Plan Year. The amount of any hardship lump sum payment and/or accelerated amount under this Section 6.3 shall not exceed the lesser of (a) the amount required to meet the immediate financial need created by such hardship or (b) the entire amounts credited to the Participant’s Accounts. The amount of any such payments shall be deducted from the amounts credited to the Participant’s Plan Year Subaccounts in such order and in such proportions as the Committee may determine in its sole discretion. The remaining amounts credited to a Participant’s Plan Year Subaccounts shall be distributed in accordance with the Participant’s elections with respect to such Plan Year Subaccounts.   6.4 -    INABILITY TO LOCATE PARTICIPANT.                   In the event that the Committee is unable to locate a Participant or Beneficiary within two years following the Participant’s Payment Eligibility Date, the amounts allocated to the Participant’s Deferral Account shall be forfeited. If, after such forfeiture, the Participant or Beneficiary later claims such benefits, such benefits shall be reinstated without interest or earnings.   6.5 -    CHANGE IN CONTROL.                   In the event of a Change in Control, a Participant shall receive the amounts allocated to his or her Deferral Account in a cash lump sum payment as soon as practicable following the Change in Control.     14 --------------------------------------------------------------------------------   6.6 -    DEATH BENEFIT FOR CERTAIN PARTICIPANTS.                   (a)           For each Participant who is named in the list attached hereto as Schedule 1, the Bank shall provide life insurance coverage in the amount set forth next to his or her name in Schedule 1, beginning on the date such Participant executes an “Agreement for Transfer of Policy and Termination of Split-Dollar Life Insurance Agreement” and ending on December 31, 2009 (the “Coverage Period”). Such life insurance coverage shall remain in effect throughout the Coverage Period even if the Participant ceases to serve as an Eligible Director.                   (b)           The Bank shall provide such life insurance coverage by maintaining a life insurance policy (the “Policy”) on the life of each named Participant. Each such Participant shall be entitled to name a beneficiary (which need not be his or her Beneficiary under this Plan) to receive the portion of the death benefit under the Policy that is equal to the amount set forth as his or her death benefit in Schedule 1 (his or her “Death Benefit”). The Participant may make a beneficiary designation or change a beneficiary designation in writing in accordance with procedures established by the Committee. No beneficiary designation will become effective until it is filed in accordance with the Committee’s procedures. If no beneficiary designation is in effect, the Death Benefit shall be paid to the Participant’s Beneficiary under this Plan. If the actual death benefit under the Policy exceeds the Death Benefit, the excess death benefit under the Policy shall be paid to the Bank.                   (c)           At the end of Coverage Period, the Bank shall cease to provide the life insurance coverage described herein and the provisions of this Section 6.6 shall terminate and have no further effect.     15 --------------------------------------------------------------------------------   ARTICLE VII ADMINISTRATION   7.1 -    COMMITTEE ACTION.                   The Committee shall act at meetings by affirmative vote of a majority of the members of the Committee. Any action permitted to be taken at a meeting may be taken without a meeting if, prior to such action, a written consent to the action is signed by all members of the Committee and such written consent is filed with the minutes of the proceedings of the Committee. A member of the Committee shall not vote or act upon any matter which relates solely to himself or herself as a Participant. The Chairman or any other member or members of the Committee designated by the Chairman may execute any certificate or other written direction on behalf of the Committee.   7.2 -    POWERS AND DUTIES OF THE COMMITTEE.                   (a)           The Committee, on behalf of the Participants and their Beneficiaries, shall enforce the Plan in accordance with its terms, shall be charged with the general administration of the Plan, and shall have all powers necessary to accomplish its purposes, including, but not by way of limitation, the following:   (i)                                     To select the funds or portfolios to be the Funds in accordance with Section 3.2(b) hereof;   (ii)                                  To construe and interpret the terms and provisions of this Plan;   (iii)                               To compute and certify to the amount and kind of benefits payable to Participants and their Beneficiaries;   (iv)                              To maintain all records that may be necessary for the administration of the Plan;   (v)                                 To provide for the disclosure of all information and the filing or provision of all reports and statements to Participants, Beneficiaries or governmental agencies as shall be required by law;     16 --------------------------------------------------------------------------------     (vi)                              To make and publish such rules for the regulation of the Plan and procedures for the administration of the Plan as are not inconsistent with the terms hereof; and   (vii)                           To appoint a plan administrator or any other agent, and to delegate to them such powers and duties in connection with the administration of the Plan as the Committee may from time to time prescribe.   7.3 -    CONSTRUCTION AND INTERPRETATION.                   The Committee shall have full discretion to construe and interpret the terms and provisions of this Plan, which interpretation or construction shall be final and binding on all parties, including but not limited to the Bank and any Participant or Beneficiary. The Committee shall administer such terms and provisions in a uniform and nondiscriminatory manner and in full accordance with any and all laws applicable to the Plan.   7.4 -    INFORMATION.                   To enable the Committee to perform its functions, the Bank shall supply full and timely information to the Committee on all matters relating to the Compensation of all Participants, their death or other cause of termination, and such other pertinent facts as the Committee may require.   7.5 -    COMPENSATION, EXPENSES AND INDEMNITY.                   (a)           The members of the Committee shall serve without compensation for their services hereunder.                   (b)           The Committee is authorized at the expense of the Bank to employ such legal counsel as it may deem advisable to assist in the performance of its duties hereunder. Expenses and fees in connection with the administration of the Plan shall be paid by the Bank.                   (c)           To the extent permitted by applicable state law, the Bank shall indemnify and save harmless the Committee and each member thereof, the Board of Directors and each member thereof, and delegates of the Committee who are employees of the Bank against any and all expenses, liabilities and claims, including legal fees to defend against such liabilities and claims arising out of their discharge in good faith of responsibilities under or incident to the Plan, other than expenses and liabilities arising out of willful misconduct. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Corporation or provided by the Bank under any bylaw, agreement or otherwise, as such indemnities are permitted under state law.     17 --------------------------------------------------------------------------------   7.6 -    QUARTERLY STATEMENTS.                   Under procedures established by the Committee, a Participant shall receive a statement with respect to such Participant’s Account as of the last day of each calendar quarter.   7.7 -    CLAIMS PROCEDURE.                   (a)           CLAIM. A person who believes that he or she is being denied a benefit to which he or she is entitled under this Plan (hereinafter referred to as “Claimant”) may file a written request for such benefit with the Committee, setting forth his or her claim. The request must be addressed to the Committee at the Bank’s principal place of business.                   (b)           CLAIM DECISION. Upon receipt of a claim, the Committee shall advise the Claimant that a reply will be forthcoming within ninety (90) days and shall, in fact, deliver such reply within such period. The Committee may, however, extend the reply period for an additional ninety (90) days for special circumstances. If the claim is denied in whole or in part, the Committee shall inform the Claimant in writing, using language calculated to be understood by the Claimant, setting forth: (i) the specified reason or reasons for such denial; (ii) the specific reference to pertinent provisions of this Plan on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary; (iv) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (v) the time limits for requesting a review under subsection (c).                   (c)           REQUEST FOR REVIEW. Within sixty (60) days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Committee review the determination. Such request must be addressed to the Committee, at the Bank’s principal place of business. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Committee. If the Claimant does not request a review within such sixty (60) day period, he or she shall be barred and estopped from challenging the original determination.                   (d)           REVIEW OF DECISION. Within sixty (60) days after the Committee’s receipt of a request for review, after considering all materials presented by the Claimant, the Committee will inform the Claimant in writing, in a manner calculated to be understood by the Claimant, of its decision setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Plan on which the decision is based. If special circumstances require that the sixty (60) day time period be extended, the Committee will so notify the Claimant     18 --------------------------------------------------------------------------------   and will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review.     19 --------------------------------------------------------------------------------   ARTICLE VIII MISCELLANEOUS   8.1 -    UNSECURED GENERAL CREDITOR.                   Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, claims, or interest in any specific property or assets of the Bank. No assets of the Bank shall be held under any trust, or held in any way as collateral security for the fulfilling of the obligations of the Bank under this Plan, although the Bank may establish one or more grantor trusts subject to Code Section 671 to facilitate the payment of benefits hereunder. Any and all of the Bank’s assets shall be, and remain, the general unpledged, unrestricted assets of the Bank. The Bank’s obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Bank to pay money in the future, and the rights of the Participants and Beneficiaries shall be no greater than those of unsecured general creditors. It is the intention of the Bank that this Plan and any trust established to facilitate the payment of benefits hereunder be unfunded for purposes of the Code and for purposes of Title I of ERISA.   8.2 -    RESTRICTION AGAINST ASSIGNMENT.                   The Bank shall pay all amounts payable hereunder only to the person or persons designated by the Plan and not to any other person or corporation. No part of a Participant’s Account shall be liable for the debts, contracts, or engagements of any Participant, his or her Beneficiary, or successors in interest, nor shall a Participant’s Account be subject to execution by levy, attachment, or garnishment or by any other legal or equitable proceeding, nor shall any such person have any right to alienate, anticipate, sell, transfer, commute, pledge, encumber, or assign any benefits or payments hereunder in any manner whatsoever. If any Participant, Beneficiary or successor in interest is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any distribution or payment from the Plan, voluntarily or involuntarily, the Committee, in its discretion, may cancel such distribution or payment (or any part thereof) to or for the benefit of such Participant, Beneficiary or successor in interest in such manner as the Committee shall direct.   8.3 -    WITHHOLDING.                   There shall be deducted from each payment made under the Plan any taxes which are required to be withheld by the Bank in respect to such payment. The Bank shall have the right to reduce any payment by the amount of cash sufficient to provide the amount of said taxes.     20 --------------------------------------------------------------------------------   8.4 -    AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION.                   The Bank may amend, modify, suspend or terminate the Plan in whole or in part, except that no amendment, modification, suspension or termination shall have any retroactive effect to reduce any amounts allocated to a Participant’s Account. In the event that this Plan is terminated, the distribution of the amounts credited to a Participant’s Deferral Account shall not be accelerated but shall be paid at such time and in such manner determined under the terms of the Plan immediately prior to termination as if the Plan had not been terminated. (Neither the Policies themselves nor the death benefit described in Section 6.6 shall be treated as allocated to Accounts.)   8.5 -    GOVERNING LAW.                   This Plan shall be construed, governed and administered in accordance with the laws of the State of California.   8.6 -    RECEIPT OR RELEASE.                   Any payment to a Participant or the Participant’s Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Committee, the Corporation and the Bank. The Committee may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect.   8.7 -    PAYMENTS ON BEHALF OF PERSONS UNDER INCAPACITY.                   In the event that any amount becomes payable under the Plan to a person who, in the sole judgment of the Committee, is considered by reason of physical or mental condition to be unable to give a valid receipt therefore, the Committee may direct that such payment be made to any person found by the Committee, in its sole judgment, to have assumed the care of such person. Any payment made pursuant to such determination shall constitute a full release and discharge of the Committee, the Corporation and the Bank.   8.8 -    HEADINGS, ETC. NOT PART OF AGREEMENT.                   Headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof.     21 --------------------------------------------------------------------------------                   IN WITNESS WHEREOF, the Bank has executed this document this 28th day of February, 2001.     CITY NATIONAL BANK         By:  /s/ KATE DWYER     Kate Dwyer   Its: Executive Vice President Human Resources Division     22 --------------------------------------------------------------------------------      

  Exhibit 10.46 THIRD AMENDMENT TO SECURED SUBORDINATED PROMISSORY NOTE DATED AS OF APRIL 29, 2004      This Third Amendment is made as of the 7th day of March, 2006, by and among Virbac Corporation, a Delaware corporation, PM Resources, Inc., a Missouri corporation, St. Jon Laboratories, Inc., a California corporation, Francodex Laboratories, Inc., a Kansas corporation, Delmarva Laboratories, Inc., a Virginia corporation and Virbac AH, Inc., Delaware corporation (collectively, the “Borrowers”), and Virbac S.A., a company organized under the laws of the Republic of France (the “Holder”) (capitalized terms used but not defined herein shall have the meanings ascribed to such terms in that certain Secured Subordinated Promissory Note, dated April 29, 2004, in the original principal amount of $3,000,000.00 by and between the Borrowers and the Holder (as amended, modified or restated from time to time, the “Note”)).      WHEREAS, the parties hereto desire to amend the Note as set forth herein; and      NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties hereto hereby agree as follows:      1. The Note is hereby amended in the following respect:      The Maturity Date of the Note is hereby changed to April 9, 2007. All sums owing under the Note shall be due and payable no later than this Maturity Date, and such date shall not be extended, except by written agreement of the Holder and Borrowers.      2. Except as provided for in this Third Amendment, the Note, as amended, shall remain in full force and effect and is hereby reaffirmed.      3. This Amendment shall be interpreted, construed and enforced in accordance with the laws of the State of Delaware. Remainder of Page Intentionally Left Blank. Signature Page Follows.   --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the undersigned have executed this Amendment effective as of the date first written above.                   BORROWERS:                       VIRBAC CORPORATION         a Delaware corporation                       By:   /s/ Jean M. Nelson                       Name:   Jean M. Nelson         Title:   Executive Vice President and Chief             Financial Officer                       PM RESOURCES, INC.         a Missouri corporation                       By:   /s/ Jean M. Nelson                       Name:   Jean M. Nelson         Title:   Executive Vice President and Chief             Financial Officer                       ST. JON LABORATORIES, INC.         a California corporation                       By:   /s/ Jean M. Nelson                       Name:   Jean M. Nelson         Title:   Executive Vice President and Chief             Financial Officer                       FRANCODEX LABORATORIES, INC.         a Kansas corporation                       By:   /s/ Jean M. Nelson                       Name:   Jean M. Nelson         Title:   Executive Vice President and Chief             Financial Officer       --------------------------------------------------------------------------------                     DELMARVA LABORATORIES, INC.         a Virginia corporation                       By:   /s/ Jean M. Nelson                       Name:   Jean M. Nelson         Title:   Executive Vice President and Chief             Financial Officer                       VIRBAC AH, INC.         a Delaware corporation                       By:   /s/ Jean M. Nelson                       Name:   Jean M. Nelson         Title:   Executive Vice President and Chief             Financial Officer                       HOLDER:                       VIRBAC S.A.         a company organized under the laws of the         Republic of France                       By:   /s/ Eric Maree                       Name:   Eric Maree         Title:   President of the Management Board      

-------------------------------------------------------------------------------- Exhibit 10.31 FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT THIS FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT (this "AMENDMENT") dated as of October 31, 2005, is entered into by and among ATLAS PIPELINE PARTNERS, L.P., a Delaware limited partnership ("BORROWER"); ATLAS PIPELINE NEW YORK, LLC, a Pennsylvania limited liability company ("APL NEW YORK"); ATLAS PIPELINE OHIO, LLC, a Pennsylvania limited liability company ("APL OHIO"); ATLAS PIPELINE PENNSYLVANIA, LLC, a Pennsylvania limited liability company ("APL PENNSYLVANIA"); ATLAS PIPELINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership ("APL OPERATING"); ATLAS PIPELINE MID-CONTINENT LLC, a Delaware limited liability company ("APL MID-CONTINENT"); ELK CITY OKLAHOMA PIPELINE, L.P., a Texas limited partnership ("ELK CITY"); ELK CITY OKLAHOMA GP, LLC, a Delaware limited liability company ("ELK CITY GP"); and ATLAS ARKANSAS PIPELINE LLC, an Oklahoma limited liability company ("ATLAS ARKANSAS"; Atlas Arkansas, Elk City GP, Elk City, APL Mid-Continent, APL New York, APL Ohio, APL Pennsylvania and APL Operating are collectively referred to herein as the "GUARANTORS," and Borrower and Guarantors are collectively referred to herein as the "OBLIGORS"); each of the lenders party hereto (individually, together with its successors and assigns, a "LENDER," and collectively, "LENDERS"); and WACHOVIA BANK, NATIONAL ASSOCIATION, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, "ADMINISTRATIVE AGENT"). R E C I T A L S A. Borrower, certain Guarantors, Administrative Agent and the Lenders have entered into that certain Revolving Credit and Term Loan Agreement dated as of April 14, 2005 (as renewed, extended, amended or restated from time to time, the "CREDIT AGREEMENT"). B. Borrower has entered into that certain Stock Purchase Agreement (as amended, supplemented, restated or otherwise modified prior to the date hereof, the "STOCK PURCHASE AGREEMENT") dated of even date herewith, with Enogex Inc., an Oklahoma corporation ("ENOGEX"), whereby Borrower will purchase from Enogex all of the issued and outstanding common stock of Atlas Arkansas (the "SHARES"; the acquisition of the Shares contemplated by the Stock Purchase Agreement is herein called the "ATLAS ARKANSAS ACQUISITION"). C. In order to facilitate the Atlas Arkansas Acquisition, Borrower has requested that Administrative Agent and the Lenders amend certain provisions of the Credit Agreement to, among other things, increase the Aggregate Maximum Revolver Amount. D. Administrative Agent and the Lenders have agreed to amend the Credit Agreement as so requested, subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing, and intending to be legally bound, the parties agree as follows: SECTION 1. TERMS DEFINED IN CREDIT AGREEMENT. As used in this Amendment, except as may otherwise be provided herein, all capitalized terms which are defined in the Credit Agreement shall have the same meaning herein as therein, all of such terms and their definitions being incorporated herein by reference. SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the conditions set forth in SECTION 3 hereof, the Credit Agreement is hereby amended as follows:   -------------------------------------------------------------------------------- (a) Section 1.02 of the Credit Agreement (Definitions) is hereby amended as follows: (i) The definition of "AGGREGATE MAXIMUM REVOLVER AMOUNT" is hereby restated in its entirety to read as follows: "AGGREGATE MAXIMUM REVOLVER AMOUNT at any time shall equal the sum of the Maximum Revolver Amounts of the Revolver Lenders (Four Hundred Million Dollars ($400,000,000)), as the same may be increased pursuant to SECTION 2.11 or reduced pursuant to SECTIONS 2.03(a) or 2.07(b)(i)." (ii) The definition of "CONSOLIDATED EBITDA" is hereby restated in its entirety to read as follows: "CONSOLIDATED EBITDA shall mean, for any trailing twelve-month period, the sum of (i) Consolidated Net Income for such period, plus (ii) the following expenses or charges to the extent deducted from Consolidated Net Income in such period: interest, income taxes, depreciation, depletion, amortization, non-cash compensation on long-term incentive plans, and other non-cash charges to Consolidated Net Income, minus (iii) non-cash credits to Consolidated Net Income, provided, that, the following adjustments shall be made: (a) Consolidated EBITDA for each quarter of 2005 shall be calculated after giving pro forma effect to the Elk City Acquisition and the adjustments described on SCHEDULE 1.01 hereto; and (b) the amount of Consolidated EBITDA attributable to Atlas Arkansas' interest in NOARK shall be (1) for the four fiscal quarters ending September 30, 2005, $13,133,000, and (2) for each of the four fiscal quarters ending December 31, 2005, March 31, 2006, and June 30, 2006, (A) for periods prior to October 31, 2005, Consolidated EBITDA of Atlas Arkansas minus Maintenance Capital Expenditures of Atlas Arkansas, and (B) on or after October 31, 2005, the amount of cash distributions received. For purposes hereof, "MAINTENANCE CAPITAL EXPENDITURES" shall mean without duplication for any period, the aggregate of all capital expenditures related to the Pipeline determined in accordance with GAAP, excluding (a) expenditures in respect of any transaction or any series of related transactions to acquire any asset, the acquisition of which is not made to maintain or improve an existing asset and (b) expenditures of any proceeds of any insurance, condemnation award or other compensation paid or payable in respect of any loss or damage to or any condemnation or taking of, any capital asset less the reasonable fees, taxes and expenses paid to collect such proceeds, to rebuild or repair such Pipeline equipment or such other asset." (iii) The definition of "CONSOLIDATED FUNDED DEBT" is hereby amended by deleting clause (vii) thereof in its entirety, and replacing it with the following: "(vii) until March 31, 2006, Consolidated Funded Debt shall be calculated excluding debt evidenced by the NOARK Notes; thereafter, to the extent that Atlas Arkansas' portion of the NOARK Notes has not been repurchased, such portion shall be included in such calculations; SWPL's portion of the NOARK Notes shall not be included in such calculations at any time." (iv) The definition of "CONSOLIDATED INTEREST EXPENSE" is hereby amended by deleting the word "and" before clause (iii) thereof, and adding the following clause after the word "quarters" at the end of such clause (iii):   2 -------------------------------------------------------------------------------- "; and (iv) until March 31, 2006, Consolidated Interest Expense shall be calculated excluding debt evidenced by the NOARK Notes; thereafter, to the extent that Atlas Arkansas' portion of the NOARK Notes has not been repurchased, such portion shall be included in such calculations; SWPL's portion of the NOARK Notes shall be excluded from such calculations; provided, however, such portion shall be included in such calculations to the extent Atlas Arkansas or any other Obligor makes any interest payment with respect to such portion or assumes, directly or indirectly, any liability for any interest payment with respect to such portion" (v) The definition of "GUARANTOR" is hereby restated in its entirety to read as follows: "GUARANTOR shall mean each Initial Guarantor and each Subsidiary of Borrower hereafter formed or acquired, except for the Unrestricted Entities (if any) and NOARK (unless and until NOARK becomes a Wholly Owned Subsidiary." (vi) The definition of "LC COMMITMENT" is hereby amended by replacing the words "Ten Million Dollars ($10,000,000)" therein with the words "Fifty Million Dollars ($50,000,000)". (vii) The definition of "MASTER NATURAL GAS GATHERING AGREEMENTS" is hereby restated in its entirety as follows: "MASTER NATURAL GAS GATHERING AGREEMENTS shall mean those agreements listed as ITEMS 2, 3, 4, 5 and 6 on SCHEDULE 7.23, as such agreements may be amended, extended, renewed or replaced from time to time." (viii) The definition of "PIPELINES" is hereby restated in its entirety as follows: "PIPELINES shall mean the natural gas transportation systems and gas gathering systems and related processing facilities now owned and operated (or in the case of the NOARK Pipeline, operated) as private use gathering systems by the Obligors located in the states of New York, Ohio, Pennsylvania, Oklahoma, Missouri and Texas, and all additions thereto, and such other natural gas gathering systems and related processing facilities owned and operated (or in the case of the NOARK Pipeline, operated) by the Obligors hereafter." (b) The following definitions are hereby added to Section 1.02 of the Credit Agreement where alphabetically appropriate: (i) "ATLAS ARKANSAS means Atlas Arkansas Pipeline LLC, an Oklahoma limited liability company." (ii) "NOARK means NOARK Pipeline System, Limited Partnership, an Arkansas limited partnership." (iii) "NOARK FINANCE means NOARK Pipeline Finance, L.L.C., an Oklahoma limited liability company, a wholly-owned subsidiary of NOARK." (iv) "NOARK NOTES means (i) the 7.15% Notes due 2018 issued by NOARK Finance pursuant that certain Indenture dated as of June 1, 1998, between NOARK Finance and The Bank of New York, as trustee, and (ii) the related Loan Agreement dated as of June 1, 1998, between NOARK, as borrower, and NOARK Finance, as lender."   3 -------------------------------------------------------------------------------- (v) "NOARK PARTNERSHIP AGREEMENT means that certain Amended and Restated Agreement of Limited Partnership of NOARK dated January 12, 1998 (as the same may be amended, restated, or otherwise modified from time to time). (vi) "NOARK PIPELINE means the natural gas transportation system and gas gathering systems owned by NOARK." (vii) "SWPL means Southwestern Energy Pipeline Company, an Arkansas corporation." (c) Section 2.07 of the Credit Agreement (Prepayments) is hereby amended by replacing subsections (b) and (c) thereof with the following: "(b) MANDATORY PREPAYMENTS. (i) Borrower shall prepay the Revolver Principal Debt in an amount equal to 100% of Net Cash Proceeds up to an aggregate amount of One Hundred Seventy-Five Million Dollars ($175,000,000), not later than the third Business Day following the receipt thereof. The Aggregate Maximum Revolver Amount shall be permanently reduced by the amount of each such prepayment made pursuant to this SECTION 2.07(b)(i). (ii) Thereafter, Borrower shall prepay the Principal Debt in an amount equal to Net Cash Proceeds required to maintain a Senior Secured Leverage Ratio of 4.00 to 1.00 or less, not later than the third Business Day following receipt of such Net Cash Proceeds. (iii) Notwithstanding CLAUSES (i) and (ii) above, following mandatory prepayments under CLAUSE (i) in an aggregate of One Hundred Million Dollars ($100,000,000) of Equity Net Cash Proceeds, the receipt by Borrower of subsequent Equity Net Cash Proceeds of up to $40,000,000 shall not trigger a mandatory prepayment of Principal Debt to the extent such proceeds are used to fund the construction of the Sweetwater gas plant in Beckham County, Oklahoma, and associated gathering and pipeline interconnects. (c) GENERALLY. Prepayments permitted under this SECTION 2.07 shall be without premium or penalty, except as required under SECTION 5.05 for prepayment of LIBOR Loans. Any voluntary prepayment of the Principal Debt shall be applied to the Revolver Principal Debt and the Term Loan Principal Debt at the Borrower's discretion; provided, that upon any Default or Event of Default, any such prepayment shall be allocated pro rata to each Revolver Lender and each Term Loan Lender in accordance with its Percentage Share of the Principal Debt. Any mandatory prepayment of the Principal Debt under CLAUSE (b)(ii) above shall be applied first against the Term Loan Principal Debt, and the balance, if any, shall be applied against the Revolver Principal Debt. With respect to the Revolver Loans, any mandatory prepayments made pursuant to CLAUSE (b)(ii) above and any voluntary prepayments may be reborrowed subject to the then effective Aggregate Maximum Revolver Amount." (d) The following is hereby added to the Credit Agreement as SECTION 2.11: "Section 2.11 INCREASE IN REVOLVER FACILITY.   4 -------------------------------------------------------------------------------- (a) Provided there exists no Default and subject to the conditions set forth under CLAUSE (e) below, upon notice to the Administrative Agent (which shall promptly notify the Lenders), Borrower may from time to time request an increase in the aggregate Revolver Commitments under the Revolver Facility; provided, that (i) the Aggregate Maximum Revolver Amount shall not exceed $475,000,000, and (ii) such increase of the Revolver Facility shall be in a minimum amount of $25,000,000, or integral multiples of $1,000,000 in excess thereof. At the time of sending such notice, Borrower (in consultation with the Administrative Agent) shall specify the time period within which each Revolver Lender is requested to respond. (b) Each Revolver Lender shall notify the Administrative Agent within such time period whether or not it agrees to increase its Revolver Commitment and, if so, whether by an amount equal to, greater than, or less than its Percentage Share of such requested increase. Any Revolver Lender not responding within such time period shall be deemed to have declined to increase its Revolver Commitment. (c) The Administrative Agent shall notify Borrower of the Revolver Lenders' responses to the request made hereunder. To achieve the full amount of a requested increase and subject to the approval of the Administrative Agent and the Issuing Bank (which approvals shall not be unreasonably withheld), Borrower may also invite additional Eligible Assignees to become Revolver Lenders pursuant to a joinder agreement in form and substance satisfactory to the Administrative Agent and its counsel. (d) If the aggregate Revolver Commitments are increased in accordance with this Section, the Administrative Agent and Borrower shall determine the effective date (such date, the "INCREASE EFFECTIVE DATE") and the final allocation of such increase. The Administrative Agent shall promptly (i) notify Borrower of the final allocation of such increase in the Revolver Commitment and the Increase Effective Date, and (ii) notify each Revolver Lender of its Revolver Commitment as of the Increase Effective Date. (e) As a condition precedent to such increase, Borrower shall deliver to the Administrative Agent a certificate of each Obligor dated as of the Increase Effective Date signed by a Responsible Officer of such Obligor (i) certifying and attaching the resolutions adopted by such Obligor approving or consenting to such increase, and (ii) in the case of Borrower, certifying that, before and after giving effect to such increase, (A) the representations and warranties contained in ARTICLE VII and the other Loan Documents are true and correct on and as of the Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this SECTION 2.11, the representations and warranties contained in SECTION 7.02 shall be deemed to refer to the most recent statements furnished pursuant to CLAUSES (a) and (b), respectively, of SECTION 8.01, (B) no Default exists, (C) no Material Adverse Effect shall have occurred, and (D) the Senior Secured Leverage Ratio does not exceed 4.00 to 1.00. To the extent necessary to keep the outstanding Revolver Loans ratable with any revised Percentage Shares of the Revolver Lenders arising from any nonratable increase in the Revolver Commitments under this Section, Borrower shall prepay Revolver Loans outstanding on the Increase Effective Date and/or Lenders shall make assignments pursuant to arrangements satisfactory to the Administrative Agent (provided, that in each case, Borrower shall pay any additional amounts required pursuant to SECTION 5.05). 5 -------------------------------------------------------------------------------- (f) This Section shall supersede any provisions in SECTIONS 4.05 or 12.04 to the contrary." (e) Section 4.05(a) of the Credit Agreement (Set-off) is hereby amended by adding the following after the word "Subsidiary" therein: "(except for NOARK, unless and until NOARK becomes a Wholly Owned Subsidiary)" (f) Section 7.07 of the Credit Agreement (Use of Loans) is hereby amended by replacing clause (iii) therein with the following: "(iii) for the development of the Pipeline Properties and the acquisition of Pipeline Properties and related assets (or equity interests therein) by the Obligors" (g) Section 8.01 of the Credit Agreement (Reporting Requirements) is hereby amended by deleting the phrase "and consolidating" each time it appears in subsections (a) and (b) thereof. (h) Section 8.01 of the Credit Agreement (Reporting Requirements) is hereby amended by replacing subsection (e) thereof with the following: "(e) REGULATORY FILINGS, ETC. Promptly upon its becoming available, (i) each financial statement, report, notice or proxy statement sent by the Borrower to its unitholders generally and each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters) in respect thereof filed by the Borrower with or received by the Borrower in connection therewith from any securities exchange or the SEC or any successor agency; and (ii) each report, notice, request, application, or other filing or material communication that is filed by the Borrower with or received by the Borrower from the Federal Energy Regulatory Commission or any successor agency." (i) Section 8.03(c) of the Credit Agreement is hereby amended by adding the following sentence at the end thereof: "Notwithstanding the foregoing, for so long as NOARK is not a Wholly-Owned Subsidiary, the obligations of Atlas Arkansas under this SECTION 8.03(c) with respect to the NOARK Pipeline shall be limited to actions that Atlas Arkansas is required to take under the NOARK Partnership Agreement." (j) Section 8.07 of the Credit Agreement (Reserve Reports) is hereby restated in its entirety to read as follows: "Section 8.07 [Reserved]" (k) Section 8.09(a) of the Credit Agreement (Lien on Pipeline Properties) is hereby amended by adding the following parenthetical at the end of the first sentence thereof: "(except with respect to Pipeline Properties of NOARK, unless and until NOARK becomes a Wholly Owned Subsidiary)" (l) Section 8.09(d) of the Credit Agreement (Subordination of Obligors' Liens) is hereby amended as follows: 6 -------------------------------------------------------------------------------- (i) Subsection (iii) thereof is hereby amended by adding the following parenthetical after the words "Pipeline Properties": "(except for such Pipeline Properties that are not Mortgaged Properties)" (ii) Subsection (v) thereof is hereby amended by adding the following parenthetical after the word "Pipelines": "(except for the NOARK Pipeline, for so long as such Pipeline is not a Mortgaged Property)" (m) Section 8.13 of the Credit Agreement (Guaranties) is hereby amended by replacing the phrase "(other than the Unrestricted Entities)" therein with the following phrase: "(other than the Unrestricted Entities and other than NOARK, unless and until NOARK becomes a Wholly Owned Subsidiary)" (n) The following is hereby added to the Credit Agreement as Section 8.15: "8.15 NOARK DEBT. Borrower shall not permit Atlas Arkansas to extend, increase, or modify any Debt of NOARK existing as of October 31, 2005, or cause, permit, or approve additional Debt of NOARK after such date, except for Debt of the type permitted in Sections 9.01(a), (c), (d) ,(e), (f), (g), (j), and (k)." (o) Section 9.01 of the Credit Agreement (Debt) is hereby amended by renaming clause (j) thereof as "clause (l)" and replacing clause (i) thereof with the following: "(i) Debt in an amount not to exceed Two Hundred Seventy-Five Million Dollars ($275,000,000) incurred in connection with a senior or subordinated unsecured note offering with a maturity date at least one year beyond the maturity of the Facilities, the documentation for which contains covenants no more restrictive than those set forth in this Agreement; and (j) unsecured guarantees of Subsidiary obligations (other than obligations for borrowed money); and (k) Debt evidenced by the NOARK Notes; and" (p) Section 9.03(i) of the Credit Agreement (Investments, Loans and Advances) is hereby amended by replacing the words "Fifteen Million Dollars ($15,000,000)" therein with the words "Fifty Million Dollars ($50,000,000)". (q) Section 9.13 of the Credit Agreement is hereby restated in its entirety to read as follows: "Section 9.13 CONSOLIDATED EBITDA TO CONSOLIDATED INTEREST EXPENSE. Borrower will not permit the ratio of its Consolidated EBITDA to Consolidated Interest Expense as of the end of any fiscal quarter of Borrower (calculated quarterly based upon the four most recently completed quarters) to be less than: October 1, 2005 through March 30, 2006 2.50 to 1.00 March 31, 2006 and thereafter 3.00 to 1.00"   7 -------------------------------------------------------------------------------- (r) Section 9.14 of the Credit Agreement is hereby restated in its entirety to read as follows: "Section 9.14 CONSOLIDATED FUNDED DEBT TO CONSOLIDATED EBITDA. The Borrower will not permit the ratio of its Consolidated Funded Debt to Consolidated EBITDA (the "LEVERAGE RATIO") as of the end of any fiscal quarter of the Borrower (calculated quarterly based upon the four most recently completed quarters, and including pro forma adjustments acceptable to the Administrative Agent following any material acquisition) set forth below to be more than the ratio corresponding to such periods: October 1, 2005 through March 30, 2006 6.00 to 1.00 March 31, 2006 through June 29, 2006 5.75 to 1.00 June 30, 2006 and thereafter 4.50 to 1.00" (s) Section 9.15 of the Credit Agreement is hereby restated in its entirety to read as follows: "Section 9.15 CONSOLIDATED SENIOR SECURED DEBT TO CONSOLIDATED EBITDA. The Borrower will not permit the ratio of its Consolidated Senior Secured Debt to Consolidated EBITDA (the "SENIOR SECURED LEVERAGE RATIO") as of the end of any fiscal quarter of the Borrower (calculated quarterly based upon the four most recently completed quarters, and including pro forma adjustments acceptable to the Administrative Agent following any material acquisition) set forth below to be more than the ratio corresponding to such periods: October 1, 2005 through March 30, 2006 6.00 to 1.00 March 31, 2006 through June 29, 2006 5.75 to 1.00 June 30, 2006 through September 29, 2006 4.50 to 1.00 September 30, 2006 and thereafter 4.00 to 1.00" (t) Section 10.01 of the Credit Agreement (Events of Default) is hereby amended by adding the following to the end of subsection (b) thereof: "(iii) Any event specified in any note, agreement, indenture or other document evidencing or relating to the NOARK Notes shall occur if the effect of such event is to cause the holder or holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause such Debt in excess of $25,000,000 to become due prior to its stated maturity; or" (u) Subsections (e), (f), and (g) of Section 10.01 of the Credit Agreement are hereby amended by adding the words "or NOARK" after the word "Obligor" each time such word appears in such subsections. (v) Atlas Arkansas is hereby added as a "Guarantor" and an "Obligor" under the Credit Agreement. SECTION 3. AMENDMENT EFFECTIVE DATE. This Amendment shall be binding upon all parties to the Credit Agreement as of the date (the "AMENDMENT EFFECTIVE DATE") that Administrative Agent receives the following (other than (a) Atlas Arkansas' organizational documents under CLAUSE (c) below, and (b) the Opinion of Pray, Walker, Jackman, Williamson & Marlar, Oklahoma counsel to the Borrower, which items are hereby permitted to be delivered after the Amendment Effective Date but no later than one Business Day following the acceptance of such organizational documents by the Oklahoma Secretary of State, or such later date as the Administrative Agent may agree): 8 -------------------------------------------------------------------------------- (a) sufficient counterparts of this Amendment, executed and delivered to Administrative Agent by (i) each Obligor, (ii) Administrative Agent, (iii) Issuing Bank, and (iv) each Lender; (b) replacement Revolver Notes, reflecting the Lenders' revised Revolver Commitments; (c) From each Obligor, such certificates of secretary, assistant secretary, manager, or general partner, as applicable, as the Administrative Agent may require, certifying (i) resolutions authorizing the execution and performance of (A) this Amendment and the other Loan Documents that such Person is executing in connection herewith, and (B) the Stock Purchase Agreement and each other agreement, document and instrument executed and delivered by Borrower or any other Obligor and any counterparty thereto in connection with the Atlas Arkansas Acquisition, as applicable (collectively, the "ATLAS ARKANSAS ACQUISITION DOCUMENTS"), (ii) the incumbency and signature of the officer executing such documents, and (iii) that there has been no change in such Person's organizational documents since April 14, 2005 (or, if there has been a change, and in the case of Atlas Arkansas' organizational documents attaching a copy thereof); (d) A copy of the Atlas Arkansas Acquisition Documents, including without limitation the Escrow Agreement pursuant to which Enogex agrees to deposit into an escrow or similar account an amount sufficient to repurchase the portion guaranteed by Enogex of the 7.15% Notes due 2018 issued pursuant that certain Indenture dated as of June 1, 1998, between NOARK Pipeline Finance, L.L.C., and The Bank of New York, as trustee, and all schedules and exhibits to such Atlas Arkansas Acquisition Documents (as supplemented or amended prior to the Amendment Effective Date), certified by Borrower as true and complete, in form and substance reasonably satisfactory to the Co-Lead Arrangers; (e) A duly completed compliance certificate, dated as of the Amendment Effective Date, substantially in the form of Exhibit C to the Credit Agreement, demonstrating pro forma compliance with Sections 9.13, 9.14, and 9.15 of the Credit Agreement as of the end of the most recent fiscal quarter for which Borrower is required to provide financial statements pursuant to Section 8.01 of the Credit Agreement, after giving effect to the Atlas Arkansas Acquisition and after giving effect to any Indebtedness (including the obligations under the Credit Agreement and the other Loan Documents) incurred in connection therewith; (f) Such financial statements of NOARK Pipeline System, Limited Partnership ("NOARK"), as may be reasonably requested by Co-Lead Arrangers; (g) A certificate signed by a Responsible Officer of Borrower, dated as of the Amendment Effective Date, certifying (a) that the closing of the Atlas Arkansas Acquisition is being consummated on such date; (b) additions as applicable to the Annexes to each Pledge, Assignment, and Security Agreements previously executed by the Obligors to reflect ownership of the Shares; (c) revised Schedules to the Credit Agreement, as applicable; (d) that after giving effect to this Amendment and the revised Schedules to the Credit Agreement and Annexes to the Pledge, Assignment, and Security Agreements, both before and after taking into account the Atlas Arkansas Acquisition and the funding of Loans on such date, the representations and warranties contained in Article VII of the Credit Agreement and in the Security Instruments are true and correct in all material respects on and as of such date except to the extent such representations and warranties relate solely to an earlier date; (e) that after giving effect to this Amendment, both before and after giving effect to the Atlas Arkansas Acquisition, no Default or Event of Default has occurred and is continuing as of such date; (f) that since December 31, 2004, there has occurred no "Material Adverse Effect" (as such term is defined in the Stock Purchase Agreement) with respect to the Borrower; (g) that there is no litigation, investigation or proceeding known to and affecting Borrower or any Affiliate of Borrower for which Borrower is required to give notice pursuant to Section 8.02 of the Credit Agreement; and (h) that there are no actions, suits, investigations or proceedings pending or, to the knowledge of Borrower, threatened in any court or before any arbitrator or governmental authority by or against Borrower, any Guarantor, or any of their respective properties, that (i) if adversely determined, could reasonably be expected to materially and adversely affect Borrower, any Guarantor, or the Mortgaged Property, taken as a whole, or the Shares, or (ii) seek to affect or pertain to any transaction contemplated hereby, the Atlas Arkansas Acquisition, or the ability of Borrower or any Guarantor to perform its obligations under the Loan Documents; 9 -------------------------------------------------------------------------------- (h) The Security Instruments listed on SCHEDULE 1 hereto, duly completed and executed in sufficient number of counterparts for recording, if necessary, including delivery of any requisite mortgage tax affidavit and payment for applicable mortgage tax, if any due; all original certificates of partnership units or members' equity, blank stock powers, and Intercompany Notes duly endorsed as required under such Security Instruments. (i) A Guaranty Agreement executed by Atlas Arkansas in favor of the Administrative Agent, for the benefit of the Lenders; (j) A certificate of a Responsible Officer of Borrower, dated as of the Amendment Effective Date, (a) listing the Material Agreements executed in connection with, or assumed in connection with, the Atlas Arkansas Acquisition, and (b) certifying that Borrower has no knowledge of any material default thereunder by any party thereto; (k) An opinion of counsel to the Obligors (including local counsel) acceptable to the Co-Lead Arrangers, with respect to the existence of the Obligors, due authorization and execution of the Amendment, the Atlas Arkansas Acquisition Documents, and the other Loan Documents executed in connection therewith, enforceability of the Amendment, the Atlas Arkansas Acquisition Documents, and such Loan Documents, including without limitation the Security Instruments, under the laws of the states wherein the Mortgaged Properties are located, and other matters incident to the transactions herein contemplated as the Co-Lead Arrangers may reasonably request, each in form and substance satisfactory to the Co-Lead Arrangers; (l) Title information as the Co-Lead Arrangers may require setting forth the status of title to the Properties (including, without limitation, the Pipeline Properties (including title to the Pipelines owned by NOARK)) acceptable to the Co-Lead Arrangers; (m) Appropriate UCC search certificates and other evidence satisfactory to the Co-Lead Arrangers with respect to the Obligors' Properties reflecting no prior Liens, other than Excepted Liens; (n) Environmental assessments and other reports to the extent maintained by the Atlas Arkansas or NOARK covering NOARK's Properties, reporting on the current environmental condition of such Properties, satisfactory to the Co-Lead Arrangers and the Lenders; (o) A letter from CT Corporation System, Inc., or other agent acceptable to the Administrative Agent, accepting service of process in the State of New York on behalf of Atlas Arkansas; and (p) such other agreements, certificates, documents and evidence of authority as Co-Lead Arrangers, any Lender or counsel to the Co-Lead Arrangers may reasonably request. SECTION 4. REPRESENTATIONS AND WARRANTIES OF OBLIGORS. Each of the Obligors represents and warrants to Administrative Agent, Issuing Bank and Lenders, with full knowledge that Administrative Agent, Issuing Bank, and Lenders are relying on the following representations and warranties in executing this Amendment, as follows: 10 -------------------------------------------------------------------------------- (a) each Obligor has the organizational power and authority to execute, deliver and perform this Amendment and such other Loan Documents executed in connection herewith, and all organizational action on the part of such Person requisite for the due execution, delivery and performance of this Amendment and such other Loan Documents executed in connection herewith has been duly and effectively taken; (b) the Credit Agreement, as amended by this Amendment, the Loan Documents and each and every other document executed and delivered in connection with this Amendment to which any Obligor is a party constitute the legal, valid and binding obligations of each Obligor to the extent it is a party thereto, enforceable against such Person in accordance with their respective terms; (c) this Amendment does not and will not violate any provisions of any of the organizational documents of any Obligor, or any contract, agreement, instrument or requirement of any Governmental Authority to which any Obligor is subject. Obligors' execution of this Amendment will not result in the creation or imposition of any lien upon any properties of any Obligor, other than those permitted by the Credit Agreement and this Amendment; (d) the execution, delivery and performance of this Amendment by Obligors does not require the consent or approval of any other Person, including, without limitation, any regulatory authority or governmental body of the United States of America or any state thereof or any political subdivision of the United States of America or any state thereof; and (e) no Default exists, and all of the representations and warranties contained in the Credit Agreement and all instruments and documents executed pursuant thereto or contemplated thereby are true and correct in all material respects on and as of this date, other than those which have been disclosed to Administrative Agent, Issuing Bank and Lenders in writing. SECTION 5. REFERENCE TO AND EFFECT ON THE AGREEMENT. (a) On and after the Amendment Effective Date, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby. (b) Except as otherwise expressly provided herein, the Credit Agreement and the other Loan Documents are not amended, modified or affected by this Amendment. Obligors ratify and confirm that (a) except as expressly amended hereby, all of the terms, conditions, covenants, representations, warranties and all other provisions of the Credit Agreement remain in full force and effect, (b) each of the other Loan Documents are and remain in full force and effect in accordance with their respective terms, and (c) the collateral under the Security Instruments is unimpaired by this Amendment. SECTION 6. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all reasonable costs and expenses of Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment, and the other instruments and documents to be delivered hereunder, including reasonable attorneys' fees and out-of-pocket expenses of Administrative Agent. In addition, Borrower shall pay any and all recording and filing fees payable or determined to be payable in connection with the execution and delivery, filing or recording of this Amendment and the other instruments and documents to be delivered hereunder, and agrees to save Administrative Agent harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes or fees. 11 -------------------------------------------------------------------------------- SECTION 7. DISCLOSURE OF CLAIMS. As additional consideration to the execution, delivery, and performance of this Amendment by the parties hereto and in order to induce Administrative Agent, Issuing Bank and Lenders to enter into this Amendment, each Obligor represents and warrants that it knows of no defenses, counterclaims or rights of setoff to the payment of any Indebtedness. SECTION 8. AFFIRMATION OF GUARANTY AGREEMENTS, SECURITY INTEREST. (a) Each of the undersigned Guarantors hereby consents to and accepts the terms and conditions of this Amendment, and the transactions contemplated hereby, agrees to be bound by the terms and conditions hereof, and ratifies and confirms that each Guaranty Agreement and each of the other Loan Documents to which it is a party is, and shall remain, in full force and effect after giving effect to this Amendment. (b) Obligors hereby confirm and agree that any and all liens, security interest and other security or collateral now or hereafter held by Administrative Agent for the benefit of Lenders as security for payment and performance of the Obligations hereby under such Security Instruments to which such Obligor is a party are renewed and carried forth to secure payment and performance of all of the Obligations. The Security Instruments are and remain legal, valid and binding obligations of the parties thereto, enforceable in accordance with their respective terms. SECTION 9. EXISTING REVOLVER LOANS AND LETTERS OF CREDIT The Register located at the Principal Office of the Administrative Agent is hereby updated to reflect the revised Revolver Commitments of the Revolver Lenders. In connection therewith, Borrower, the Administrative Agent, and the Lenders shall make adjustments to (i) the outstanding principal amount of the Revolver Loans (but not any interest accrued thereon prior to the Amendment Effective Date or any accrued commitment fees under the Credit Agreement prior to the Amendment Effective Date), including the borrowing of additional Revolver Loans (which may include LIBOR Loans) and the repayment of Revolver Loans (which may include the prepayment or conversion of LIBOR Loans) plus all applicable accrued interest, fees and expenses as shall be necessary to provide for Revolver Loans by each Revolver Lender in the amount of its new Percentage Share of all Revolver Loans as of the Amendment Effective Date, and (ii) participations in outstanding Letters of Credit as of the Amendment Effective Date to provide for each Revolver Lender's participation in each outstanding Letter of Credit as of the Amendment Effective Date equal to such Revolver Lender's new Percentage Share of the aggregate amount available to be drawn under each such Letter of Credit as of the Amendment Effective Date. In connection with the foregoing, each Revolver Lender shall be deemed to have made an assignment of its outstanding Revolver Loans and Revolver Commitments under the Credit Agreement, and assumed outstanding Revolver Loans and Revolver Commitments of other Revolver Lenders under the Credit Agreement, all at the request of the Borrower, as may be necessary to effect the foregoing, and each such Lender shall be entitled to any reimbursement under Section 5.05 of the Credit Agreement in respect thereof. SECTION 10. EXECUTION AND 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 to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile and other Loan Documents shall be equally as effective as delivery of a manually executed counterpart of this Amendment and such other Loan Documents. 12 -------------------------------------------------------------------------------- SECTION 11. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 12. HEADINGS. Section headings in this Amendment are included herein for convenience and reference only and shall not constitute a part of this Amendment for any other purpose. SECTION 13. NO ORAL AGREEMENTS. THE CREDIT AGREEMENT (AS AMENDED BY THIS AMENDMENT) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [THE REMAINDER OF THIS PAGE INTENTIONALLY BLANK. SIGNATURE PAGES TO FOLLOW.] 13 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have executed this First Amendment to Credit Agreement as of the day and year first above written.   BORROWER:             ATLAS PIPELINE PARTNERS, L.P.,   a Delaware limited partnership             By: Atlas Pipeline Partners GP, LLC, its general partner               By:         Michael L. Staines       President and Chief Operating Officer             GUARANTORS:               ATLAS PIPELINE NEW YORK, LLC,   a Pennsylvania limited liability company             By: Atlas Pipeline Operating Partnership, L.P., a Delaware limited partnership and its sole member               By: Atlas Pipeline Partners GP, LLC, a Delaware limited liability company and its sole general partner                 By:           Michael L. Staines         President and Chief Operating Officer             ATLAS PIPELINE OHIO, LLC,   a Pennsylvania limited liability company               By: Atlas Pipeline Operating Partnership, L.P., a Delaware limited partnership and its sole member                 By: Atlas Pipeline Partners GP, LLC, a Delaware limited liability company and its sole general partner                   By:             Michael L. Staines           President and Chief Operating Officer           SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT --------------------------------------------------------------------------------   ATLAS PIPELINE PENNSYLVANIA, LLC,   a Pennsylvania limited liability company             By: Atlas Pipeline Operating Partnership, L.P., a Delaware limited partnership and its sole member               By: Atlas Pipeline Partners GP, LLC, a Delaware limited liability company and its sole general partner                 By:           Michael L. Staines         President and Chief Operating Officer             ATLAS PIPELINE OPERATING PARTNERSHIP, L.P.,   a Delaware limited partnership             By: Atlas Pipeline Partners GP, LLC, a Delaware limited liability company and its sole general partner                 By:         Michael L. Staines       President and Chief Operating Officer             ATLAS PIPELINE MID-CONTINENT LLC,   a Delaware limited liability company             By: Atlas Pipeline Operating Partnership, L.P., a Delaware limited partnership and its sole member               By: Atlas Pipeline Partners GP, LLC, a Delaware limited liability company and its sole general partner                 By:              Michael L. Staines         President and Chief Operating Officer SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT --------------------------------------------------------------------------------   ELK CITY OKLAHOMA PIPELINE, L.P.,   a Texas limited partnership                 By: Elk City Oklahoma GP, LLC, a Delaware limited liability companyand its sole general partner                   By: Atlas Pipeline Mid-Continent LLC, a Delaware limited liability company and its sole member                     By: Atlas Pipeline Operating Partnership, L.P., a Delaware limited partnership and its sole member                       By: Atlas Pipeline Partners GP, LLC, a Delaware limited liability company and its sole general partner                         By:               Michael L. Staines             President and Chief Operating Officer                 ELK CITY OKLAHOMA GP, LLC,   a Delaware limited liability company                 By: Atlas Pipeline Mid-Continent LLC, a Delaware limited liability company and its sole member                   By: Atlas Pipeline Operating Partnership, L.P., a Delaware limited partnership and its sole member                     By: Atlas Pipeline Partners GP, LLC, a Delaware limited liability company and its sole general partner                       By:             Michael L. Staines           President and Chief Operating Officer SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT --------------------------------------------------------------------------------   ATLAS ARKANSAS PIPELINE LLC,   an Oklahoma limited liability company               By: Atlas Pipeline Mid-Continent LLC, a Delaware limited liability company and its sole member                 By: Atlas Pipeline Operating Partnership, L.P., a Delaware limited partnership and its sole member                   By: Atlas Pipeline Partners GP, LLC, a Delaware limited liability company and its sole general partner                     By:             Michael L. Staines           President and Chief Operating Officer SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT --------------------------------------------------------------------------------   ADMINISTRATIVE AGENT, ISSUING BANK AND A LENDER:         WACHOVIA BANK, NATIONAL ASSOCIATION         By:       Name: Jay Buckman     Title: Vice President SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT --------------------------------------------------------------------------------   LENDERS:               BANK OF AMERICA, N.A.               By:           Name:         Title:               BANK OF OKLAHOMA N.A.               By:           Name:         Title:               KEYBANK NATIONAL ASSOCIATION               By:           Name:         Title:               WELLS FARGO BANK, N.A.               By:           Name:         Title:               BNP PARIBAS               By:           Name:         Title:               NEWCOURT CAPITAL USA INC.               By:           Name:         Title:   SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT --------------------------------------------------------------------------------   COMERICA BANK               By:           Name:         Title:               COMPASS BANK               By:           Name:         Title:               CITIBANK TEXAS, N.A.               By:           Name:         Title:               FORTIS CAPITAL CORP.               By:           Name:         Title:               GUARANTY BANK               By:           Name:         Title:               NATIONAL CITY BANK               By:           Name:         Title:               NATEXIS BANQUES POPULAIRES               By:           Name:         Title:   SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT --------------------------------------------------------------------------------     UFJ BANK LIMITED, NEW YORK BRANCH               By:           Name:         Title:               WESTLB AG, NEW YORK BRANCH               By:           Name:         Title:               By:           Name:         Title:   SIGNATURE PAGE TO FIRST AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT -------------------------------------------------------------------------------- SCHEDULE 1 Security Instruments 1. First Amendment to Deed of Trust, Mortgage, Security Agreement and Financing Statement, dated October 31, 2005, from Atlas Pipeline Mid-Continent LLC to Wachovia Bank, National Association, Administrative Agent. 2. First Amendment to Open-End Mortgage, Security Agreement and Financing Statement, dated October 31, 2005, from Atlas Pipeline New York, LLC to Wachovia Bank, National Association, Administrative Agent. 3. First Amendment to Open-End Mortgage, Security Agreement and Financing Statement, dated October 31, 2005, from Atlas Pipeline Ohio, LLC to Wachovia Bank, National Association, Administrative Agent. 4. First Amendment to Open-End Mortgage, Security Agreement and Financing Statement, dated October 31, 2005, from Atlas Pipeline Pennsylvania, LLC to Wachovia Bank, National Association, Administrative Agent. 5. Pledge, Assignment and Security Agreement dated October 31, 2005, from Atlas Arkansas to Wachovia Bank, National Association, as Administrative Agent.       --------------------------------------------------------------------------------

EXHIBIT 10.1 MEMORANDUM OF AGREEMENT AND COOPERATION CONCLUDED BETWEEN MECHEM, A DIVISION OF DENEL (PTY) LTD A company incorporated in South Africa and with its registered address at Admin. B Building, 368 Selborne Avenue, Lytellton, Centurion, 0157, South Africa (Hereinafter referred to as MECHEM) Herein represented by ABRAHAM JACOBUS ROSSOUW In his capacity as General Manager And FORCE PROTECTION INDUSTRIES, INC. A corporation incorporated and registered in the State of Nevada, United States and with its address at 9801 Highway 78, Ladson, South Carolina, United States (previously named Technical Solutions Group, Inc.) (Hereinafter referred to as FPI) Herein represented by GORDON McGILTON In his capacity as Chief Executive Officer PREAMBLE     WHEREAS   FPI and MECHEM desire to further develop their business and contractual relationship initiated under Memoranda of Agreement dated March 26, 1998 and October 15, 2001 respectively (FPI being previously named Technical Solutions Group Inc, the party named in such former Agreements);       AND WHEREAS   Pursuant to such prior agreements, MECHEM irrevocably transferred to FPI certain proprietary information and technology relating to the Systems in support of the development of FPI’s BUFFALO and TEMPEST armored vehicles in exchange for FPI’s agreement to pay MECHEM a “royalty” in the event that FPI sold and delivered any of these vehicles based on such technology during the term of such agreement;       AND WHEREAS   In the prior agreements, MECHEM agreed to continually transfer information and technology relating to the Systems exclusively to FPI for a period of five years (during which period MECHEM agreed not to transfer the same information or technology to any third party) and the parties now wish to extend the period of such exclusivity during the term hereof;   --------------------------------------------------------------------------------   AND WHEREAS   During the term of such prior agreements, FPI designed and developed its own armored vehicles using its own proprietary know-how, expertise and Confidential Information, including by way of illustration and not limitation its COUGAR (including JERRV and other variants) and its MUV-R vehicles;       AND WHEREAS   MECHEM represents that it has certain unique knowledge and expertise relating to the Systems, and wishes to continue working with FPI on an exclusive basis for the parties’ mutual benefit;       AND WHEREAS   FPI and MECHEM are desirous to formulate the terms and conditions pursuant to which the aforementioned will be done.   NOW THEREFORE IT IS HEREBY AGREED AS FOLLOWS: 1.                          DEFINITIONS 1.1.           “BUFFALO,” “TEMPEST” “COUGAR” and “MUV-R” mean the blast and ballistic protected armored vehicles having such trade names which are designed, manufactured and sold by FPI having substantially the configuration and specifications set forth in FPI’s marketing materials relating to such vehicles. 1.2.           EFFECTIVE DATE shall mean the date when this Agreement is signed by both parties, and it is hereby mutually agreed that upon the Effective Date, all prior agreements between the parties shall be deemed terminated and superseded by this Agreement (provided however that any payment obligations accruing to MECHEM as a result of vehicles delivered prior to the Effective Date under prior agreements shall remain in force until final payment thereof). 1.3.           INTELLECTUAL PROPERY RIGHTS (“IPR”) means all legally recognized intellectual property rights including patent rights, copyrights, trade secrets, trademarks and other proprietary rights which may be --------------------------------------------------------------------------------   protected at law, including, without limitation “Confidential Information” which shall mean all samples, formulae, methods, know-how, technology, software, material, engineering data, specifications, sketches, drawings, schematics, designs, processes, test results, compilations, and any other material, information, ideas, concepts or knowledge which a party (the “Disclosing Party”) furnishes to another party (the “Receiving Party”) in written or other tangible form that is marked with a proprietary legend. Each of FPI and MECHEM hereby undertake and agree not to disclose any Confidential Information received from the other party and not to use such information for any purpose except as provided herein. 1.4.             SYSTEMS means blast and ballistic protected armored vehicles designed and produced solely by MECHEM incorporating “South African” design features, for example a monocoque crew capsule, a “V-shaped” hull and the use of metals having various physical characteristics, and also includes additional vehicle components and other devices designed and produced solely by MECHEM and intended to protect against, detect and defeat mines, roadside bombs and IED’s. 1.5.             VEHICLE FEE shall have the meaning set forth in Paragraph 4 hereof, and represents payment to MECHEM as consideration for the exclusive relationship set forth herein, and as recognition for the previous significant contributions made by MECHEM in conjunction with FPI to FPI’s design, development of proprietary information and data as well as intellectual property rights acquired by FPI as a result of the manufacture of the BUFFALO pursuant to the prior transfer of technology. 2.                          OBJECTIVE OF THE AGREEMENT 2.1.           The Parties confirm their intent to enter into this Agreement pursuant to which MECHEM shall extend for the duration of this Agreement (and any extensions hereof) the exclusive relationship with FPI, and FPI in consideration of such exclusive relationship shall continue payment of the Vehicle Fees. The parties acknowledge and agree that such extension of exclusivity benefits FPI in its commercial operations, and in consideration thereof and the additional undertakings set forth herein, FPI agrees to pay to MECHEM the Vehicle Fees identified in Paragraph 4 hereof. --------------------------------------------------------------------------------   3.                          OBLIGATIONS OF THE PARTIES 3.1.           MECHEM hereby commits and agrees during the term of this Agreement not to cede, dispose or transfer any technology, IPR or other proprietary information relating to the Systems to any third party including, but not limited to, designs, drawings, full technical specifications, test data, hardware and software designs and technologies, supplier’s list, know-how and all and every piece of information and data relevant to the Systems. After this Agreement expires, MECHEM has the right to dispose, transfer or cede its right to its own propriety information of the Systems to whoever it so desires without the consent or otherwise of FPI, provided however that MECHEM shall not deprive FPI of the right to use any such information with FPI’s vehicles, shall not transfer or cede to any third party any such information relating to FPI’s vehicles, and  upon such expiration MECHEM shall return all of FPI’s Confidential Information in its possession. 3.2.                              MECHEM shall, at the request of FPI, provide expertise and know-how on a “work for hire” basis to advise, assist and support FPI’s marketing activities, including by way of illustration and not limitation providing market intelligence, developing market forecasts and supporting FPI’s marketing efforts to the United States Government. FPI shall pay all travel and out-of-pocket expenses incurred by MECHEM as a result of such activities, provided all such costs are mutually agreed between the parties in advance. 3.3.                              MECHEM and FPI agree to abide by the requirements of United States export and import laws and regulations during performance of this Agreement, including the International Traffic in Arms Regulations and other applicable laws. More specifically, FPI shall not export, disclose, furnish or otherwise provide to MECHEM any defense article, technical data, technology, defense service, or technical assistance relating to its vehicles (“Technical Data and Services”) without obtaining an appropriate U.S. government export authorization, and MECHEM agrees not to disclose or furnish any FPI Technical Data or Services to any third party except as expressly authorized by FPI and the U.S. Government. If required under U.S. regulations, MECHEM shall register as a “Broker” with the U.S. State Department, Directorate of Defense Trade Controls, and shall --------------------------------------------------------------------------------   keep such registration in effect while this Agreement is in effect.  Promptly upon execution of this Agreement, if it determines that a license is necessary FPI shall apply for an appropriate export license covering the proposed services contemplated hereunder. During the pendency of such license application (or in the event the license is not approved) the parties shall limit their activities and discussions to marketing and general industry matters. 4.                          VEHICLE FEE 4.1.                        For and in consideration of the representations, undertaking and obligations set forth herein, FPI agrees to pay MECHEM a per vehicle fee (the “Vehicle Fee”) as described below for each of the vehicles delivered by FPI during the term of this Agreement: 4.1.1.                                                                     TEMPEST: US$3,000. 4.1.2.                                                                     COUGAR (4X4 AND 6X6) AND ANY VARIANTS INCLUDING THE HARDENED ENGINEER VEHICLE (HEV), THE JOINT EXPLOSIVE ORDNANCE DISPOSAL RAPID RESPONSE VEHICLE (JERRV) AND THE IRAQI LIGHT ARMORED VEHICLE (ILAV): US$1,500. 4.1.3.                                                                     BUFFALO: US$5,000. 4.2.           For the purposes hereof, “variant” shall mean a vehicle with substantially the same design, including size, weight, profile, attachments and overall configuration and with substantially similar performance specifications in respect of survivability and automotive performance.  FPI’s determination whether any of its products are “variants” of the TEMPEST, COUGAR or BUFFALO shall be conveyed to MECHEM in writing. 4.3.           The Vehicle Fee will only accrue on vehicles actually manufactured by FPI (or manufactured on its behalf by any third party) and delivered to customers for which FPI actually receives payment.  Each month, FPI will prepare and forward to MECHEM a statement identifying all vehicles so delivered and paid for during such month, and shall pay the Vehicle Fees associated therewith to MECHEM. 4.4.           In the event of total or partial non-fulfillment of the contract, in the case of force majeure, MECHEM will only be entitled to a Vehicle Fee on --------------------------------------------------------------------------------   the part of the contract that has actually been executed and in proportion to the payments actually received by FPI. 4.5.           A certificate, signed by an Officer of FPI, shall be supplied to MECHEM on a quarterly basis (or upon request of MECHEM) setting forth the quantities of vehicles by category delivered and paid for by customers for which Vehicle Fees are payable. 4.6.           After the validity of this Agreement has expired or after it has been terminated in terms of Article 10, MECHEM shall still be entitled, on the basis stipulated in 4.1.1 to 4.1.3. above to all Vehicle Fees due in respect of Vehicles delivered under any contracts executed prior to the termination of this Agreement, but only after FPI received payment under such contracts. 5.                          INTELLECTUAL PROPERTY RIGHTS & CONFIDENTIAL INFORMATION 5.1.           Any new IPR relating to the Systems, as a result of a modification, development, enhancement or improvement by FPI will be the exclusive property of FPI. Similarly any new IPR relating to the Systems, as a result of a modification, development, enhancement or improvement by MECHEM will be the exclusive property of MECHEM provided that FPI will have the continuing right to use any such new IPR relating to the Systems with respect to FPI products. Except as expressly provided in this Agreement, neither party shall use the other party’s modifications, developments, enhancements or improvements without the express prior written consent of the other. 5.2.           MECHEM does not warrant the novelty of any of its technology, designs, know-how, trade secrets, nor any possible patent to be valid and likewise does not warrant that the exploitation thereof will not constitute an infringement of a claim of some prior patent in any of the areas of the Systems. MECHEM however declares that as far as it is aware no such prior claims exist. 5.3.           Notwithstanding any indication to the contrary in any document or agreement, MECHEM acknowledges and agrees that nothing contained herein or in any other prior agreement between the parties shall be construed as --------------------------------------------------------------------------------   a limitation on FPI’s sole and exclusive right to design, develop, manufacture, market, test, sell, service and repair the BUFFALO, TEMPEST, COUGAR, MUV-R or any of FPI’s current or future products of whatever kind. MECHEM confirms that it has no claim of right, title or interest in or to FPI’s past, present or future vehicles or other products, and acknowledges that FPI exclusively owns all right, title and interest in and to the BUFFALO, TEMPEST, COUGAR, MUV-R, the variants thereof and FPI’s other products and all IPR embodied in the BUFFALO, TEMPEST, COUGAR, MUV-R, and variants thereof. MECHEM acknowledges that FPI has the sole and exclusive right to license, use, transfer, cede, dispose of, or take any action it so desires with respect to its technology, IPR and Confidential Information, and/or with respect to the design, data and technical information relating to any of its vehicles, and MECHEM shall not seek to limit or restrict such right. The only obligations between the parties are set forth in this Agreement and there is no other right, claim, interest, entitlement, license, commitment or ownership between the parties. MECHEM agrees that it shall not grant or purport to grant to any third party any rights of whatever kind in or to the BUFFALO, TEMPEST, COUGAR or any of FPI’s other products, and shall not disclose or use for any purpose other than as provided in this Agreement any FPI Confidential Information in its possession. The obligations of this paragraph regarding the protection of FPI’s Confidential Information shall remain in effect during the term of this Agreement and for a period of 10 years following its expiration or termination for any reason. 6.                          PRODUCT LIABILITY 6.1.           The Parties acknowledge that the operation and use of the vehicles manufactured by FPI may potentially involve and/or result in damage to property and injury to or death of persons. FPI expressly acknowledges and accepts full liability for the any such claims and MECHEM shall not be held responsible for any guarantees given by FPI including operating, design or material guarantees. FPI also undertakes not to associate Mechem in any litigation regarding any Systems product liability/claim. 7.                          INDEMNITY --------------------------------------------------------------------------------   7.1.           By FPI acquiring all of the MECHEM’s proprietary information and technology relating to the Systems, MECHEM shall not be held responsible for any damage, loss caused by any actions, omissions, death or injury sustained by FPI or any third party caused by any faulty designs, material used, actions, omissions, negligence or misconduct by FPI. 7.2.           MECHEM, in terms of this Agreement, is exempted from all liability towards any persons due to damage, loss, and suffering or otherwise, resulting from any cause ascribable to the negligence or willful misconduct of FPI, its employees, agents or representatives. 8.                          APPLICABLE LAW 8.1.           This Agreement shall be governed by and construed in all respects, in accordance with the Law of the State of New York. 9.                          DURATION 9.1.           This Agreement shall endure for a period of five years from the effective date, unless terminated by mutual consent of the Parties, or in terms of articles 11 and 12 below. 10.                   TERMINATION 10.1.     Either MECHEM or FPI shall be entitled to terminate this Agreement forthwith: 10.2.     Upon the mutual consent of the parties. 10.3.     Upon the commencement or happening of any occurrence connected with the insolvency, dissolution, administration, receivership or liquidation of the other Party. 10.4.     In the case of termination as is envisaged above the Parties will have no claims of liability against, or towards the other, other than with respect to existing Agreements or liabilities incurred at the date of termination. 11.                     BREACH --------------------------------------------------------------------------------   11.1.     In the event of either Party committing a material breach of the terms and conditions of this Agreement, the aggrieved Party shall, without prejudice to any other rights which it might have been entitled as its election, give written notice to the breaching Party, to rectify the breach within fourteen days and after failing to correct the breach according to corrective action plan, give further written notice to rectify the breach within thirty days and failing to do so cancel this Agreement and claim damages. 12.                   ARBITRATION 12.1.     The Parties undertake to cooperate in spirit of good faith and to resolve all disputes in a friendly manner. If any dispute cannot be resolved the Parties agree to refer the dispute to a mutually acceptable arbitrator, who is trusted and respected by both Parties to try and resolve the dispute. 12.2.     Should there be no solution to the dispute then arbitration shall be held in New York in accordance with the rules for Conciliation and Arbitration of the International Chambers of Commerce, in the English language. The decision of the arbitrator shall be final and binding on the Parties hereto. 13.                   ASSIGNMENT/CESSION 13.1.     The Parties agree that should there be a change of ownership, control and management of MECHEM or FPI, this Agreement will not be effected and all the rights and obligations mutatis mutandis shall be transferred to the new or successor owner or management. 13.2.     Should there be no change in ownership, control or management the Parties rights and obligations under this Agreement may not be transferred either in whole or part to any third party, without the written consent of the other Party, which will not be withheld, unless the circumstances are directly detrimental to the other Party.  This restriction shall not apply to assignments made to either party’s corporate parent, corporate sister or corporate subsidiary. 14.                   AMENDMENTS --------------------------------------------------------------------------------   14.1.     This Agreement may only be amended if such an amendment is put in writing, signed by authorized representatives of both Parties and annexed to this Agreement. 15.                   SEVERABILITY 15.1.     If any provision of this Agreement is or becomes illegal, void or invalid, it shall not affect the legality and validity of the other provisions. 16.                   GENERAL 16.1.     The foregoing constitutes the entire Agreement between the Parties with respect to the subject matter hereof and supercedes and cancels all prior representations, understandings and commitments (whether verbal or written) made between the Parties. 16.2.     The Parties hereby agree that two copies of this Agreement will be signed by each of the Parties and that each Party will be entitled to an original signed copy of this Agreement. Facsimile copies of the signatures pages may be exchanged between the parties and such facsimile signature shall have the same force and effect as original signatures. 16.3.     Notices hereunder shall be deemed validly given, if delivered by hand or sent by telex, telefax or by recorded delivery post to the duly authorized representatives signing this Agreement. Such notices shall be deemed effective on the date of receipt at the following address: Force Protection   MECHEM 9801 Highway 78, Building # 1   Admin B Building Ladson, South Carolina 29456   368 Selborne Avenue United States   Lytellton, Centurion 0157     South Africa   This Agreement is signed on this 13th day of September, 2006 for and on behalf of: MECHEM /s/ Abraham Rossouw   --------------------------------------------------------------------------------   ABRAHAM ROSSOUW Witness:__________________________   Witness: __________________   This Agreement is signed on this 28th day of August, 2006 for and on behalf of: Force Protection, Inc. /s/ Gordon McGilton Gordon McGilton Witness:__________________________   Witness: __________________   --------------------------------------------------------------------------------

  Exhibit 10.2     ENDOCARE, INC. NON-EMPLOYEE DIRECTOR DEFERRED STOCK UNIT PROGRAM     Effective as of May 18, 2006   --------------------------------------------------------------------------------   ENDOCARE, INC. NON-EMPLOYEE DIRECTOR DEFERRED STOCK UNIT PROGRAM      Endocare, Inc., a Delaware corporation, hereby adopts this Non-Employee Director Deferred Stock Unit Program (the “Program”), effective as of May 18, 2006. RECITALS      WHEREAS, the Company (as defined below) wishes to adopt the Program to: (i) enable Directors (as defined below) to obtain additional equity in the form of Deferred Stock Units (as defined below) and defer taxes that otherwise would be payable on retainers and meeting fees; and (ii) enable the Company to conserve cash that otherwise would be used to pay retainers and meeting fees; and      WHEREAS, the Program constitutes a deferred compensation program that is unfunded for tax purposes to permit Directors (as defined below) to postpone receipt and taxation of certain specific amounts of compensation in accordance with the terms hereof;      NOW THEREFORE, the Company hereby establishes the Program, upon the terms and conditions set forth below. ARTICLE 1 DEFINITIONS      1.1 “Award Date” shall mean the fifth (5th) trading day of each calendar quarter.      1.2 “Beneficiary” shall mean the beneficiary or beneficiaries designated by a Director to receive his or her deferred compensation benefits in the event of the Director’s death.      1.3 “Board of Directors” shall mean the board of directors of the Company.      1.4 “Change in Control” shall mean the occurrence of any change in ownership of the Company, change in effective control of the Company, or change in the ownership of a substantial portion of the assets of the Company, as defined in Code Section 409A(a)(2)(A)(v), the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.      1.5 “Code” shall mean the U.S. Internal Revenue Code of 1986, as amended from time to time.      1.6 “Committee” shall mean the Compensation Committee of the Board of Directors unless an alternate committee is designated by the Board of Directors to administer this Program in accordance with Article 8 below. If the Board of Directors has not appointed such a committee, then each reference to the “Committee” shall be construed to refer to the Board of Directors. 1 --------------------------------------------------------------------------------        1.7 “Common Stock” shall mean the common stock of the Company.      1.8 “Company” shall mean Endocare, Inc., a Delaware corporation, and any successor organization thereto.      1.9 “Deferral” shall mean a Participant’s deferral of his retainers and meeting fees in accordance with the terms and conditions of the Program.      1.10 “Deferral Amount” shall mean a dollar amount equal to (i) the aggregate amount of a Participant’s retainers and meeting fees earned during the applicable calendar quarter, multiplied by (ii) the percentage of such retainers and meeting fees that such Participant has elected to defer in accordance with Section 3.1 below. In addition, any notional dividends credited pursuant to Section 3.3 below shall be added to the Deferral Amount.      1.11 “Deferral Election Form” shall mean the form attached hereto as Exhibit B on which a Participant specifies the amount of his or her Deferral and the applicable Payout Date.      1.12 “Deferral Election Period” shall mean the thirty (30) day period commencing on December 1 and ending on December 30 of the calendar year that is prior to the calendar year in which the amounts subject to the Participant’s Deferral election will be earned; provided, however, that: (a) for retainers and meeting fees earned during the final two calendar quarters in the year ending December 31, 2006, the Deferral Election Period shall be the thirty (30) day period commencing on the date on which the Program is established; and (b) to the extent permitted by Code Section 409A, the Deferral Election Period for the calendar year in which a Participant first becomes eligible to participate in the Program shall be the thirty (30) day period commencing on the Participant’s initial eligibility date.      1.13 “Deferred Stock Unit” shall mean the right to receive one share of the Company’s Common Stock (subject to adjustment as provided below in Section 3.4) upon the terms and conditions set forth herein, which shall be represented by a bookkeeping entry made by the Company.      1.14 “Director” shall mean (a) a member of the Board of Directors who is not an employee of the Company or (b) a member of the board of directors of any subsidiary of the Company who is not an employee of the Company or such subsidiary of the Company.      1.15 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.      1.16 “Fair Market Value” shall mean, as of any date, the value of Common Stock determined as follows:           (a) If the Common Stock is listed on one or more established stock exchanges or national market systems, including without limitation The Nasdaq Global Select 2 --------------------------------------------------------------------------------   Market, The Nasdaq Global Market or The Nasdaq Capital Market of The Nasdaq Stock Market, Inc., its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Common Stock is listed (as determined by the Committee) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable;           (b) If the Common Stock is regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such stock as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable; or           (c) In the absence of an established market for the Common Stock of the type described in (i) and (ii), above, the Fair Market Value thereof shall be determined by the Committee in good faith and in a manner consistent with Code Section 409A and Prop. Reg. § 1.409A-1(b)(5)(iv) and any successor thereto.      1.17 “Participant” shall mean a Director who elects to participate in the Program in accordance with Section 3.1 below; references to a Participant herein shall refer also to his or her designated Beneficiary where the context so requires.      1.18 “Payout Date” shall mean, with respect to each award of Deferred Stock Units, the payout date specified by the respective Participant in his or her Deferral Election Form; provided, however, that if the Participant’s Separation from Service occurs earlier than two years after the last day of the applicable Deferral Election Period, then any “Payout Date” that would otherwise be triggered by such Separation from Service shall be deferred until the date that is two years after the last day of the applicable Deferral Election Period.      1.19 “Program” shall mean this Endocare, Inc. Non-Employee Director Deferred Stock Unit Program.      1.20 “Separation from Service” shall mean the date the Participant no longer serves as a Director of the Company or any subsidiary of the Company.      1.21 “Trust” or “Trust Agreement” shall mean the trust agreement intended to conform to terms of the model trust described in Revenue Procedure 92-64, 1992-2 C.B. 422, including any amendments thereto, which may be entered into between the Company and the Trustee to carry out the provisions of the Program.      1.22 “Trust Fund” shall mean the cash and other property held and administered by the Trustee pursuant to the Trust to carry out the provisions of the Program. 3 --------------------------------------------------------------------------------        1.23 “Trustee” shall mean the designated trustee acting at any time under the Trust.      1.24 “Unforeseeable Emergency” shall mean an unforeseeable emergency as defined in Code Section 409(a)(2)(B)(ii)(I) (as limited by Code Section 409A(a)(2)(B)(ii)(II)), the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.1 ARTICLE 2 PARTICIPATION      2.1 Eligible Participants. All Directors (which is defined above to include only non-employee directors) shall be eligible to participate in the Program. ARTICLE 3 ELECTIONS AND AWARDS      3.1 Contributions to the Program. Participants may make Deferrals by electing to defer payment of all or a specified portion of his or her retainers and meeting fees for the applicable calendar year; provided, however, that the minimum annual Deferral that may be made by an electing Participant is twenty-five percent (25%) of the Participant’s retainers and meeting fees for the applicable calendar year. For the year ending December 31, 2006, elections shall apply only to retainers and meeting fees earned during the final two calendar quarters of the year. Elections shall be made in the form attached hereto as Exhibit B. Elections must be made no later than the last day of the applicable Deferral Election Period. No direct contributions by Participants are required or permitted. An election shall be effective on the date a Participant delivers a completed Deferral Election Form to the Committee or its delegate; provided, however, that, if the Participant delivers another properly completed election prior to the close of the applicable Deferral Election Period, the deferral election on the form bearing the latest date shall control. On the last day of the applicable Deferral Election Period, the controlling election then on file with the Company shall be irrevocable.   1   Code Section 409A(a)(2)(B)(ii) provides the following definition of “unforeseeable emergency”:       Unforeseeable emergency. For purposes of subparagraph (A)(vi) —       (I) In general. The term “unforeseeable emergency” means a severe financial hardship to 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 participant, loss of the participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.       (II) Limitation on distributions. The requirement of subparagraph (A)(vi) is met only if, as determined under regulations of the Secretary, the amounts distributed with respect to an emergency do not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). 4 --------------------------------------------------------------------------------        3.2 Award of Deferred Stock Units. As of each Award Date, a Participant will receive the number of Deferred Stock Units equal to a fraction: (a) the numerator of which is such Participant’s Deferral Amount for the immediately preceding quarter; and (b) the denominator of which is the Fair Market Value of one share of Common Stock on such Award Date.      3.3 Contribution of Notional Distributions. Deferred Stock Units shall be credited with notional dividends and other distributions at the same time, in the same form, and in equivalent amounts as dividends and other distributions that are payable from time to time with respect to Common Stock.      3.4 Recapitalizations, etc. In the event of any change in the outstanding shares of the Company’s Common Stock by reason of a recapitalization, reclassification, reorganization, stock split, reverse stock split, combination of shares, stock dividend or similar transaction, the Committee or the Board of Directors shall adjust, in an equitable manner, the number of Deferred Stock Units held by each Participant and/or the number of shares of Common Stock issuable upon pay out of Deferred Stock Units hereunder. ARTICLE 4 VESTING OF DEFERRED STOCK UNITS AND ISSUANCE OF UNDERLYING SHARES      4.1 Vesting of Deferred Stock Units. A Participant’s Deferred Stock Units awarded under the Program shall be fully vested at all times.      4.2 Issuance of Shares of Common Stock Underlying Deferred Stock Units. Subject to Sections 4.4, 4.5 and 4.6, the issuance of shares of Common Stock underlying a Participant’s Deferred Stock Units shall be made on the earlier of: (i) the Payout Date; (ii) the date on which a Change in Control occurs; or (iii) the first day of the month next following the Participant’s death.      4.3 Form of Payment.           (a) Except as otherwise provided in Sections 4.3(b) and 4.3(c) below, distributions under the Program shall be paid solely in shares of Common Stock.           (b) At a Participant’s election, the Company will pay out up to fifty percent (50%) of the Participant’s Deferred Stock Units in cash rather than Common Stock to facilitate the Participant’s payment of applicable taxes relating to the issuance of shares of Common Stock underlying such Deferred Stock Units. Any such election must be made prior to the issuance date specified by the Participant in his or her Deferral Election Form.           (c) No fractional shares of Common Stock shall be issued hereunder. Any fractional portion of Deferred Stock Units shall be paid to the Participant in cash, based on the then-current Fair Market Value of the Common Stock. 5 --------------------------------------------------------------------------------        4.4 Accelerated Full or Partial Issuances. Notwithstanding Section 4.2 above, the shares of Common Stock underlying all or a portion of a Participant’s Deferred Stock Units may be issued to such Participant in the circumstances described below.           (a) Unforeseeable Emergency. In the event of an Unforeseeable Emergency, the Committee may, in its sole discretion, permit the issuance to a Participant of shares of Common Stock underlying Deferred Stock Units with a cash value no greater than the amount necessary to satisfy the emergency plus any taxes reasonably anticipated as a result of the issuance.           (b) Domestic Relations Order. In its sole discretion, the Committee may permit acceleration of the time or schedule of an issuance of shares of Common Stock under the Program to an individual other than the Participant as may be necessary to fulfill a domestic relations order (as defined in Code Section 414(p)(1)(B)).           (c) Conflict of Interest. In its sole discretion, the Committee may permit acceleration of the time or schedule of an issuance of shares of Common Stock under the Program as may be necessary to comply with a certificate of divestiture (as defined in Code Section 1043(b)(2)).           (d) De Minimus Issuance. In its sole discretion, the Committee may issue the shares of Common Stock underlying a Participant’s Deferred Stock Units in their entirety, provided that (i) the aggregate value of such shares as of the issuance date is $10,000 or less, (ii) the issuance accompanies the termination of the entirety of the Participant’s interest in the Program; and (iii) the issuance is made on or before the later of (A) December 31 of the calendar year in which the Participant’s Separation from Service occurs or (B) the date two and one-half (21/2) months after the Participant’s Separation from Service.           (e) Employment Taxes. In its sole discretion, the Committee may permit acceleration of the time or schedule of an issuance of shares of Common Stock under the Program as may be necessary to pay the Federal Insurance Contributions Act (“FICA”) tax imposed under Section 3101, 3121(a) and 3121(v)(2) of the Code (as applicable) on compensation deferred under the Program. In addition, the Committee may permit acceleration of the time or schedule of an issuance of shares of Common Stock under the Program as may be necessary to pay the income tax at source on wages imposed under Section 3401 of the Code or the corresponding withholding provisions of applicable state, local, or non-U.S. tax laws as a result of the payment of the FICA tax, and to pay the additional income tax at source on wages attributable to the pyramiding Section 3401 wages and taxes. Notwithstanding the foregoing, the total accelerated issuance of shares of Common Stock to a Participant under this Section 4.4(e) shall not exceed the aggregate amount of FICA taxes and the income tax withholding related to such amount of FICA taxes.           (f) Income Inclusion under Section 409A of the Code. In its sole discretion, the Committee may permit acceleration of the time or schedule of an issuance of shares of Common Stock at any time the Program fails to meet the requirements of Section 409A of the Code and the corresponding regulations. Notwithstanding the foregoing, the total accelerated issuance of shares of Common Stock to a Participant under this Section 4.4(f) shall not exceed the amount required to be included as income by the Participant as a result of the failure to meet the requirements of Section 409A of the Code and the corresponding regulations. 6 --------------------------------------------------------------------------------             (g) Dissolution or Bankruptcy. To the extent permitted under Code Section 409A, the Committee shall have the authority, in its sole discretion, to terminate the Program and issue to each Participant (or, if applicable, his or her Beneficiary) the shares of Common Stock underlying his or her Deferred Stock Units within twelve (12) months of a corporate dissolution taxed under Section 331 of the Code or with the approval of a bankruptcy court pursuant to 11 U.S.C. § 503(b)(1)(a). The total accelerated issuance of shares of Common Stock under this Section 4.4(g) must be included in a Participant’s gross income in the latest of: (i) The calendar year in which the Program is terminated; (ii) The calendar year in which the amount of the Participant’s Deferred Stock Units are no longer subject to a substantial risk of forfeiture; or (iii) The calendar year in which the issuance of all of the shares of Common Stock underlying the Participant’s Deferred Stock Units is administratively practicable.           (h) Change in Control. To the extent permitted under Code Section 409A, the Committee shall have the authority, in its sole discretion, to terminate the Program and issue to each Participant (or, if applicable, his or her Beneficiary) the shares of Common Stock underlying his or her Deferred Stock Units within thirty (30) days prior to or within twelve (12) months after a Change in Control. Each Participant’s participation in the Program will be treated as terminated under this Section 4.4(h) only if all substantially similar arrangements sponsored by the Company are terminated so that all Participants in the Program and all participants under substantially similar arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the date of termination of the arrangements.           (i) Termination of the Program by the Company. To the extent permitted under Code Section 409A, the Committee shall have the authority, in its sole discretion, to terminate the Program and issue to each Participant (or, if applicable, his or her Beneficiary) the shares of Common Stock underlying his or her Deferred Stock Units provided that: (i) All arrangements sponsored by the Company that would be aggregated with this Program under Proposed Regulation Section 1.409A-1(c) if the Participants participated in all of the arrangements are terminated; (ii) No payments other than payments that would be payable under the terms of this Program and the other aggregated arrangements if the termination had not occurred are made within twelve (12) months of the termination of this Program and the other aggregated arrangements; 7 --------------------------------------------------------------------------------   (iii) All payments under this Program and the other aggregated arrangements are made within twenty four (24) months of the termination of this Program and the other aggregated arrangements; and (iv) The Company does not adopt a new arrangement that would be aggregated with this Program and any other terminated arrangements under Proposed Regulation Section 1.409A-1(c) if the Participants had participated in both arrangements, at any time within five (5) years following the date of termination of this Program and the other terminated arrangements.           (j) Other Events and Conditions. The Committee shall have the authority to terminate the Program and issue to each Participant (or, if applicable, his or her Beneficiary) the shares of Common Stock underlying his or her Deferred Stock Units upon the occurrence of such other events and conditions as may be prescribed in generally applicable guidance published in the Internal Revenue Bulletin.      4.5 Death Benefit. Upon the death of a Participant prior to complete issuance to him or her of the shares of Common Stock underlying his or her Deferred Stock Units, the shares of Common Stock underlying the remaining Deferred Stock Units on the date of death shall be issued to the Participant’s Beneficiary designated on Exhibit A as of the first day of the month next following the Participant’s death.      4.6 Delay of Issuances. To the extent permitted under Code Section 409A, a scheduled issuance of shares of Common Stock underlying a Participant’s Deferred Stock Units shall be delayed to a date after the scheduled issuance date under any of the following circumstances:           (a) Violation of a Loan Agreement or Similar Contract. A scheduled issuance of shares of Common Stock underlying a Participant’s Deferred Stock Units shall be delayed to a date after the scheduled issuance date in the event the Company reasonably anticipates that making the issuance will violate a loan agreement or other similar contract to which the Company is a party, and such violation will cause material harm to the Company. The delayed issuance must be made at the earliest date at which the Company reasonably anticipates that making the issuance will not cause such violation, or such violation will not cause material harm to the Company. In addition, the facts and circumstances must indicate that the Company entered into such loan agreement or other similar contract for legitimate business reasons, and not to avoid the restrictions on deferral elections under Code Section 409A.           (b) Issuances that would Violate Federal Securities Laws or other Applicable Law. A scheduled issuance of shares of Common Stock underlying a Participant’s Deferred Stock Units shall be delayed to a date after the scheduled issuance date in the event the Company reasonably anticipates that making the issuance will violate federal securities laws or other applicable law. The delayed issuance must be made at the earliest date at which the Company reasonably anticipates that making the issuance will not cause such violation. For purposes of this Section 4.6(b), making an issuance that would cause inclusion in gross income or the application of any penalty provision or other provision of the Code is not considered a violation of applicable law. 8 --------------------------------------------------------------------------------             (c) Issuances to Key Employees. In the event the Company’s securities are publicly-traded on an established securities market or otherwise, the Company shall have the authority to delay the issuance of shares of Common Stock underlying Deferred Stock Units 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) and in such event, any such issuance to which a Participant would otherwise be entitled during the six (6) month period immediately following his or her Separation from Service shall be made instead on the first business day following the expiration of such six (6) month period.           (d) Other Events and Conditions. The Company may delay a scheduled issuance of shares of Common Stock underlying a Participant’s Deferred Stock Units upon such other events and conditions as may be prescribed in generally applicable guidance published in the Internal Revenue Bulletin.      4.7 Participant’s Rights Unsecured. The right of Participants and their Beneficiaries hereunder shall be an unsecured claim against the general assets of the Company, and neither the Participants nor their Beneficiaries shall have any rights in or against any specific assets of the Company, except as may otherwise be provided in the Trust Agreement (if any). ARTICLE 5 DESIGNATION OF BENEFICIARY      5.1 Designation of Beneficiary. A Participant may designate a Beneficiary to receive any amount due hereunder to the Participant via written notice thereof to the Committee at any time prior to his or her death and may revoke or change the Beneficiary designated therein without the Beneficiary’s consent by written notice delivered to the Committee at any time and from time to time prior to the Participant’s death, provided that any such designation or change of designation naming a primary Beneficiary other than the Participant’s spouse shall be effective only if written spousal consent is provided to the Committee. If a Participant’s spouse is incapacitated, then the person who holds a power of attorney for the incapacitated spouse or other person authorized to act on behalf of the incapacitated spouse may provide the required spousal consent. If a Participant fails to designate a Beneficiary, or if no such designated Beneficiary shall survive him or her, then such amount shall be paid to his or her estate. The designations of Beneficiaries shall be made in the form attached hereto as Exhibit A. ARTICLE 6 TRUST PROVISIONS      6.1 Trust Agreement. The Company may (but shall not be required to) establish the Trust for the purpose of retaining assets set aside by the Company pursuant to the Trust Agreement for payment of all or a portion of the amounts payable pursuant to the Program. Any benefits not paid from the Trust shall be paid from the Company’s general funds, and any benefits paid from the Trust shall be credited against and reduce by a corresponding amount the Company’s liability under the Program. All Trust Funds shall be subject to the claims of general 9 --------------------------------------------------------------------------------   creditors of the Company in the event the Company is insolvent as defined in the Trust Agreement. The obligations of the Company to pay benefits under the Program and the obligation of the Trustee to pay benefits under the Trust constitute an unfunded, unsecured promise to pay benefits in the future and the Participant and his or her Beneficiaries shall have no greater rights than general creditors of the Company. No Trust may hold assets located outside of the United States nor provide that assets will become restricted to the provision of benefits under the Program in connection with a change in the Company’s financial health. ARTICLE 7 AMENDMENT AND TERMINATION      7.1 Amendment. The Committee shall have the general authority, in its sole discretion, to amend or suspend the Program at any time and for any reason it deems appropriate; provided however, that no amendment of the Program may adversely affect a Participant’s rights thereunder without such Participant’s prior written consent. Any amendment or suspension of the Program must be pursuant to a written document that is executed by a duly-authorized officer of the Company. Except as required under Code Section 409A, no Deferrals shall be made during any suspension of the Program or after termination of the Program.      7.2 Termination of Program. The Committee may terminate the Program at any time after the date when no Participant (or Beneficiary) has any right to or expectation of payment of further benefits under the Program. ARTICLE 8 ADMINISTRATION      8.1 Administration. The Committee shall administer and interpret this Program in accordance with the provisions of the Program and the Trust Agreement (if any) and shall have the authority in its discretion to adopt, amend or rescind such rules and regulations as it deems advisable in the administration of the Program. Any determination or decision by the Committee shall be made in its sole discretion and shall be conclusive and binding on all persons who at any time have or claim to have any interest under this Program. Notwithstanding anything in the Program to the contrary, it is the intention of the Company that the Program be administered and construed in accordance with Code Section 409A, the regulations thereunder, and any other published interpretive authority, as issued or amended from time to time.      8.2 Liability of Committee, Indemnification. The Committee shall not be liable for any determination, decision, or action made in good faith with respect to the Program. The Company will indemnify, defend and hold harmless the members of the Committee from and against any and all liabilities, costs, and expenses incurred by such person(s) as a result of any act, or omission, in connection with the performance of such persons’ duties, responsibilities, and obligations under the Program, other than such liabilities, costs, and expenses as may result from the bad faith, gross misconduct, breach of fiduciary duty, willful failure to follow the lawful instructions of the Board or criminal acts of such persons. All members of the Board or the 10 --------------------------------------------------------------------------------   Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. The Company’s obligations under this Section 8.2 shall be in addition to, and not in lieu of, any indemnification obligations or other obligations to which the Company may be subject under law, under the Company’s charter documents, by contract or otherwise.      8.3 Expenses. The cost of the establishment and the adoption of the Program by the Company, including but not limited to legal and accounting fees, shall be borne by the Company. The expenses of administering the Program shall be borne by the Company, and the Company shall bear, and shall not be reimbursed by the Trust, for any tax liability of the Company associated with the investment of assets held by the Trust. ARTICLE 9 GENERAL AND MISCELLANEOUS      9.1 Rights Against Company. Except as expressly provided by the Program, the establishment of this Program shall not be construed as giving to any Participant, employee or any person, any legal, equitable or other rights against the Company, or against its officers, directors, agents or members, or as giving to any Participant or Beneficiary any equity or other interest in the assets or business of the Company or giving any Participant the right to be retained in the employ of the Company. In no event shall the terms of service of a Participant, expressed or implied, be modified or in any way affected by the adoption of the Program or Trust or any election under the Program made by a Participant. The rights of a Participant or his or her Beneficiaries hereunder shall be solely those of an unsecured general creditor of the Company.      9.2 Claims Procedures. Claims for benefits under the Program by a Participant (or his or her beneficiary or duly appointed representative) shall be filed in writing with the Committee. The Committee shall follow the procedures set forth in this Section 9.2 in processing a claim for benefits.           (a) Within 90 days following receipt by the Committee of a claim for benefits and all necessary documents and information, the Committee shall furnish the person claiming benefits under the Program (the “Claimant”) with written notice of the decision rendered with respect to such claim. Should special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the expiration of the initial 90 day period. The notice shall indicate the special circumstances requiring an extension of time and the date by which a final decision is expected to be rendered. In no event shall the period of the extension exceed 90 days from the end of the initial 90 day period.           (b) In the case of a denial of the Claimant’s claim, the written notice of such denial shall set forth (1) the specific reason(s) for the denial, (2) references to the Program provisions upon which the denial is based, (3) a description of any additional information or material necessary for perfection of the application (together with an explanation why such material 11 --------------------------------------------------------------------------------   or information is necessary), and (4) an explanation of the Program’s appeals procedures and the time limits applicable to these procedures, including a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse determination on review. If no notice of denial is provided as herein described, the Claimant may appeal the claim as though his or her claim had been denied.      9.3 Appeals Procedures. A Claimant who wishes to appeal the denial of his or her claim for benefits or to contest the amount of benefits payable shall follow the administrative procedures for an appeal as set forth in this Section 9.3 and shall exhaust such administrative procedures prior to seeking any other form of relief.           (a) In order to appeal a decision rendered with respect to his or her claim for benefits or with respect to the amount of his or her benefits, the Claimant must file an appeal with the Committee in writing within 60 days after the date of notice of the decision with respect to the claim.           (b) The Committee shall provide a full and fair review of all appeals filed under the Program and shall take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. In connection with the filing of an appeal, the Claimant may submit written comments, documents, records, and other information relevant to his or her appeal. The Committee will provide, upon the Claimant’s request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits. The decision of the Committee shall be made not later than 60 days after the Claimant has completed his or her submission to the Committee of his or her appeal and any documentation or other information to be submitted in support of such appeal. Should special circumstances require an extension of time for processing, written notice of the extension shall be furnished to the Claimant prior to the expiration of the initial 60 day period. The notice shall indicate the special circumstances requiring an extension of time and the date by which a final decision is expected to be rendered. In no event shall the period of the extension exceed 60 days from the end of the initial 60 day period.           (c) The decision on the Claimant’s appeal shall be in writing and shall include specific reason(s) for the decision, written in a manner calculated to be understood by the Claimant and shall, in the case of a adverse determination, include: (1) the specific reason or reasons for the adverse determination; (2) reference to the specific Program provisions on which the benefit determination is based; (3) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to his or her claim for benefits; and (4) a statement describing any voluntary appeal procedures offered by the Program and the Claimant’s right to obtain the information about such procedures and a statement of the Claimant’s right to bring an action under Section 502(a) of ERISA. 12 --------------------------------------------------------------------------------             (d) If the Committee does not respond within 120 days, the Claimant may consider his or her appeal denied.           (e) In the event of any dispute over benefits under this Program, all remedies available to the disputing individual under this Section 9.3 must be exhausted before legal recourse of any type is sought.      9.4 Assignment or Transfer. No right, title or interest of any kind in the Program shall be transferable or assignable by any Participant or Beneficiary or be subject to alienation, anticipation, encumbrance, garnishment, attachment, execution or levy of any kind, whether voluntary or involuntary, nor subject to the debts, contracts, liabilities, engagements, or torts of a Participant or his or her Beneficiary. Any attempt to alienate, anticipate, encumber, sell, transfer, assign, pledge, garnish, attach or otherwise subject to legal or equitable process or to dispose of any interest in the Program shall be void.      9.5 Severability. If any provision of this Program shall be declared illegal or invalid for any reason, said illegal or invalid provision shall not affect the remaining provisions of this Program but shall be fully severable, and this Program shall be construed and enforced as if said illegal or invalid provision was not part of this Program.      9.6 Construction. The article and section headings and numbers are included only for convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of this Program. Whenever appropriate, words used in the singular shall include the plural or the plural may be read as the singular. When used herein, the masculine gender includes the feminine and neuter genders, the feminine gender includes the masculine and neuter genders and the neuter gender includes the masculine and feminine genders.      9.7 Governing Law. The validity and effect of this Program and the rights and obligations of all persons affected hereby shall be construed, administered and enforced in accordance with ERISA and, to the extent applicable, the internal laws of the State of California, without giving effect to any choice of law rule.      9.8 Payment Due to Incompetence. If the Committee receives evidence that a Participant or Beneficiary entitled to receive any payment under the Program is physically or mentally incompetent to receive such payment, the Committee may, in its sole and absolute discretion, direct the payment to any other person who or trust which has been legally appointed or established for the benefit of such person.      9.9 Taxes. All amounts hereunder may be reduced by any and all federal, state, and local taxes imposed upon the Participant or his or her Beneficiary which are required to be paid or withheld by the Company. The determination of the Company regarding applicable income and employment tax withholding requirements shall be final and binding on the Participant. 13 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the undersigned Secretary of the Company hereby certifies that this Program was duly adopted by the Company’s Board of Directors on May 18, 2006.             ENDOCARE, INC., a Delaware corporation       By:   /s/ Clint B. Davis         Clint B. Davis        Secretary    14 --------------------------------------------------------------------------------             EXHIBIT A ENDOCARE, INC. NON-EMPLOYEE DIRECTOR DEFERRED STOCK UNIT PROGRAM BENEFICIARY DESIGNATION In the event that I should die prior to the issuance of shares of Common Stock underlying my Deferred Stock Units awarded under the Endocare, Inc. Non-Employee Director Deferred Stock Unit Program (the “Program”), and in lieu of disposing of my interest2 in my Deferred Stock Units (and the underlying shares of Common Stock) by my will or the laws of intestate succession, I hereby designate the following person(s) as primary Beneficiary(ies) and contingent Beneficiary(ies) of my interest in my Deferred Stock Units and the underlying shares of Common Stock (please attach additional sheets if necessary):      Primary Beneficiary(ies) (Select only one of the three alternatives)           o (a) Individuals and/or Charities   % Share           Name                             Address                         Name                             Address                         Name                             Address                         Name                   2   A married Participant whose Deferred Stock Units are community property may dispose only of his or her own interest in the Deferred Stock Units and the underlying shares of Common Stock. In such cases, the Participant’s spouse may (a) consent to the Participant’s designation by signing the Spousal Consent or (b) designate the Participant or any other person(s) as the beneficiary(ies) of his or her interest in the Deferred Stock Units and the underlying shares of Common Stock on a separate Beneficiary Designation. Exhibit A   --------------------------------------------------------------------------------        Primary Beneficiary(ies) (Select only one of the three alternatives)           o (a) Individuals and/or Charities   % Share           Address                     o (b) Residuary Testamentary Trust           In trust, to the trustee of the trust named as the beneficiary of the residue of my probate estate.               o (c) Living Trust                       The       Trust, dated                       (print name of trust)       (fill in date trust was established)      Contingent Beneficiary(ies) (Select only one of the three alternatives)           o (a) Individuals and/or Charities   % Share           Name                             Address                         Name                             Address                         Name                             Address               Exhibit A   --------------------------------------------------------------------------------         o (b) Residuary Testamentary Trust           In trust, to the trustee of the trust named as the beneficiary of the residue of my probate estate.               o (c) Living Trust                       The       Trust, dated                       (print name of trust)       (fill in date trust was established)      Should all the individual primary Beneficiary(ies) fail to survive me or if the trust named as the primary Beneficiary does not exist at my death (or no will of mine containing a residuary trust is admitted to probate within six months of my death), the contingent Beneficiary(ies) shall be entitled to my interest in the Deferred Stock Units (and the underlying shares of Common Stock) in the shares indicated. Should any individual beneficiary fail to survive me or a charity named as a beneficiary no longer exists at my death, such beneficiary’s share shall be divided among the remaining named primary or contingent Beneficiaries, as appropriate, in proportion to the percentage shares I have allocated to them. In the event that no individual primary Beneficiary(ies) or contingent Beneficiary(ies) survives me, no trust (excluding a residuary testamentary trust) or charity named as a primary Beneficiary or contingent Beneficiary exists at my death, and no will of mine containing a residuary trust is admitted to probate within six (6) months of my death, then my interest in the Deferred Stock Units (and the underlying shares of Common Stock) shall be disposed of by my will or the laws of intestate succession, as applicable. [SIGNATURE PAGE FOLLOWS] Exhibit A   --------------------------------------------------------------------------------        Capitalized terms used but not otherwise defined herein shall have the same meanings as set forth in the Program. This Beneficiary Designation is effective until I file another such Beneficiary Designation with the Company. Any previous Beneficiary Designations are hereby revoked.               Submitted by:   Filing Acknowledgement:               o Participant o Participant’s Spouse   Endocare, Inc.                       By:                             Name:       Its:                                 Date:       Filed with the records of the Company this                       _____ day of _________________, 20___ Exhibit A   --------------------------------------------------------------------------------   Spousal Consent for any interest in Deferred Stock Units that is Community Property (necessary if separate Beneficiary Designation is not filed by spouse): I hereby consent to this Beneficiary Designation and agree that this designation of beneficiaries provided herein shall apply to my community property interest in any Deferred Stock Units held by (and the underlying shares of Common Stock issuable to) my spouse in connection with his or her service to the Company or any subsidiary of the Company. This consent does not apply to any subsequent Beneficiary Designation which may be filed by my spouse unless consented to by me while I am still married to the Participant. This Spousal Consent may be revoked by me at any time, whether by filing a Beneficiary Designation disposing of my interest in the Deferred Stock Units (and the underlying shares of Common Stock) or by filing a written notice of revocation with the Company.                           (Signature of Spouse)               Date:                   Spousal Consent for any interest in Deferred Stock Units (and the underlying shares of Common Stock) that is not Community Property (necessary if beneficiary is other than spouse): I hereby consent to this Beneficiary Designation. This Spousal Consent does not apply to any subsequent Beneficiary Designation which may be filed by my spouse unless consented to by me while I am still married to the Participant.                           (Signature of Spouse)               Date:                   Exhibit A   --------------------------------------------------------------------------------   EXHIBIT B ENDOCARE, INC. NON-EMPLOYEE DIRECTOR DEFERRED STOCK UNIT PROGRAM DEFERRAL ELECTION FORM Name: _____________________________ I hereby elect to defer the following amounts in accordance with the terms of the Endocare, Inc. Non-Employee Director Deferred Stock Unit Program (the “Program”). This election shall be effective with respect to any retainers or meeting fees I become eligible to receive for the calendar year specified below (for 2006, the election applies only to retainers and meetings fees earned during the final two calendar quarters): ___% of my retainers and meeting fees (specify percentage between 25% and 100%) for ___ (specify calendar year). Note: This election must be submitted to the Company no later than the last day of the applicable Deferral Election Period. I understand that this election will become irrevocable upon the last day of the Deferral Election Period. Contact the Human Resources Department with any questions regarding the applicable Deferral Election Period. Payout Date: Subject to the terms and conditions of the Program, the shares of Common Stock underlying my Deferred Stock Units shall be issued to me on one of the following payout dates (select one): o   _____________________________ (specify a date certain no less than two years after the last day of the applicable Deferral Election Period) o   As soon as administratively practicable following my Separation from Service. o   The earlier of (i) _____________________________ (specify a date certain no less than two years after the last day of the applicable Deferral Election Period) or (ii) as soon as administratively practicable following my Separation from Service Important Note: If the Participant’s Separation from Service occurs earlier than two years after the last day of the applicable Deferral Election Period, then any “Payout Date” that would otherwise be triggered by such Separation from Service shall be deferred until the date that is two years after the last day of the applicable Deferral Election Period.               Submitted by:   Filing Acknowledgement:               Participant   Endocare, Inc.                       By:                             Name:       Its:                                 Date:       Filed with the records of the Company this                       _____ day of _________________, 20___ Exhibit B  

  Exhibit 10.A VIAD CORP 1997 OMNIBUS INCENTIVE PLAN AS AMENDED THROUGH FEBRUARY 23, 2006 SECTION 1. PURPOSE; DEFINITIONS.      The purpose of the Plan is to give the Company a significant advantage in attracting, retaining and motivating officers, employees and directors and to provide the Company and its subsidiaries with the ability to provide incentives more directly linked to the profitability of the Company’s businesses and increases in stockholder value. It is the current intent of the Committee that the Plan shall replace the 1992 Stock Incentive Plan for purposes of new Awards and that the Viad Corp Management Incentive Plan, the Viad Corp Performance Unit Incentive Plan, and the Viad Corp Performance-Based Stock Plan continue under the auspices of Sections 7 and 8 hereof subject to the discretion of the Committee under the terms and conditions of this Plan.      For purposes of the Plan, the following terms are defined as set forth below:      (a) “AFFILIATE” means a corporation or other entity controlled by the Company and designated by the Committee as such.      (b) “AWARD” means an award of Stock Appreciation Rights, Stock Options, Restricted Stock or Performance-Based Awards.      (c) “AWARD CYCLE” will mean a period of consecutive fiscal years or portions thereof designated by the Committee over which Awards of Restricted Stock or Performance-Based Awards are to be earned.      (d) “BOARD” means the Board of Directors of the Company.      (e) “CAUSE” means (1) the conviction of a participant for committing a felony under federal law or the law of the state in which such action occurred, (2) dishonesty in the course of fulfilling a participant’s employment duties or (3) willful and deliberate failure on the part of a participant to perform his employment duties in any material respect, or such other events as will be determined by the Committee. The Committee will have the sole discretion to determine whether “Cause” exists, and its determination will be final.      (f) “CHANGE IN CONTROL” and “CHANGE IN CONTROL PRICE” have the meanings set forth in Sections 9(b) and (c), respectively.      (g) “CODE” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.      (h) “COMMISSION” means the Securities and Exchange Commission or any successor agency.      (i) “COMMITTEE” means the Committee referred to in Section 2.      (j) “COMMON STOCK” means common stock, par value $1.50 per share, of the Company.      (k) “COMPANY” means Viad Corp, a Delaware corporation.      (l) “COMPANY UNIT” means any subsidiary, group of subsidiaries, line of business or division of the Company, as designated by the Committee.      (m) “DISABILITY” means permanent and total disability as determined under procedures established by the Committee for purposes of the Plan.      (n) “EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.      (o) “FAIR MARKET VALUE” means, as of any given date, the mean between the highest and lowest reported sales prices of the Stock on the New York Stock Exchange Composite Tape or, if not listed on such exchange, on any other   --------------------------------------------------------------------------------   2 national exchange on which the Stock is listed or on the Nasdaq Stock Market. If there is no regular public trading market for such Stock, the Fair Market Value of the Stock will be determined by the Committee in good faith. In connection with the administration of specific sections of the Plan, and in connection with the grant of particular Awards, the Committee may adopt alternative definitions of “Fair Market Value” as appropriate.      (p) “INCENTIVE STOCK OPTION” means any Stock Option intended to be and designated as an “incentive stock option” within the meaning of Section 422 of the Code.      (q) “MIP” means the Company’s Management Incentive Plan providing annual cash bonus awards to participating employees based upon predetermined goals and objectives.      (r) “NET INCOME” means the consolidated net income of the Company determined in accordance with GAAP before extraordinary, unusual and other non-recurring items.      (s) “NON-EMPLOYEE DIRECTOR” means a member of the Board who qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3), as promulgated by the Commission under the Exchange Act, or any successor definition adopted by the Commission.      (t) “NON-QUALIFIED STOCK OPTION” means any Stock Option that is not an Incentive Stock Option.      (u) “PERFORMANCE GOALS” means the performance goals established by the Committee in connection with the grant of Restricted Stock or Performance-Based Awards. In the case of Qualified Performance-Based Awards, such goals (1) will be based on the attainment of specified levels of one or more of the following measures with respect to the Company or any Company Unit, as applicable: economic value added, sales or revenues, costs or expenses, net profit after tax, gross profit, operating profit, base earnings, return on actual or pro forma equity or net assets or capital, net capital employed, earnings per share, earnings per share from continuing operations, operating income, pre-tax income, operating income margin, net income, stockholder return including performance (total stockholder return) relative to the S&P 500, MidCap 400 or similar index or performance (total stockholder return) relative to the proxy comparator group, in both cases as determined pursuant to Rule 402(l) of Regulation S-K promulgated under the Exchange Act, cash generation, cash flow, unit volume and change in working capital and (2) will be set by the Committee within the time period prescribed by Section 162(m) of the Code and related regulations.      (v) “PERFORMANCE-BASED AWARD” means an Award made pursuant to Section 8.      (w) “PERFORMANCE-BASED RESTRICTED STOCK AWARD” has the meaning set forth in Section 7(c)(1) hereof.      (x) “PLAN” means the 1997 Viad Corp Omnibus Incentive Plan, As Amended, as set forth herein and as hereafter amended from time to time.      (y) “PREFERRED STOCK” means preferred stock, par value $0.01, of the Company.      (z) “QUALIFIED PERFORMANCE-BASED AWARDS” means an Award of Restricted Stock or a Performance-Based Award designated as such by the Committee at the time of grant, based upon a determination that (1) the recipient is or may be a “covered employee” within the meaning of Section 162(m)(3) of the Code in the year in which the Company would expect to be able to claim a tax deduction with respect to such Restricted Stock or Performance-Based Award and (2) the Committee wishes such Award to qualify for the exemption from the limitation on deductibility imposed by Section 162(m) of the Code that is set forth in Section 162(m)(4)(C).      (aa) “RESTRICTED STOCK” means an award granted under Section 7.      (bb) “RETIREMENT,” except as otherwise determined by the Committee, means voluntary separation of employment, voluntary termination of employment or voluntary resignation from employment (a) at or after attaining age 55 on pension or vested to receive pension under a pension plan of the Corporation upon election, or (b) upon or after attaining age 55 and not less than five years’ continuous service with the Corporation or an affiliate of the Corporation, whether or not vested for pension. Retirement shall be deemed to occur at the close of business on the last day of the employee’s participation on the payroll of the Corporation whether receiving compensation for active employment, accrued vacation, salary continuation (regular way or lump sum) or like employment programs.   --------------------------------------------------------------------------------   3      (cc) “RULE 16b-3” means Rule 16b-3, as promulgated by the Commission under Section 16(b) of the Exchange Act, as amended from time to time.      (dd) “STOCK” means the Common Stock or Preferred Stock.      (ee) “STOCK APPRECIATION RIGHT” means a right granted under Section 6.      (ff) “STOCK OPTION” means an option granted under Section 5.      (gg) “TERMINATION OF EMPLOYMENT” means the termination of the participant’s employment with the Company and any subsidiary or Affiliate. A participant employed by a subsidiary or an Affiliate will also be deemed to incur a Termination of Employment if the subsidiary or Affiliate ceases to be such a subsidiary or Affiliate, as the case may be, and the participant does not immediately thereafter become an employee of the Company or another subsidiary or Affiliate. Transfers among the Company and its subsidiaries and Affiliates, as well as temporary absences from employment because of illness, vacation or leave of absence, will not be considered a Termination of Employment.      In addition, certain other terms used herein have definitions given to them in the first place in which they are used. SECTION 2. ADMINISTRATION.      The Plan will be administered by the Human Resources Committee of the Board pursuant to authority delegated by the Board in accordance with the Company’s By-Laws. If at any time there is no such Human Resources Committee or such Human Resources Committee shall fail to be composed of at least two directors each of whom is a Non-Employee Director and is an “outside director” under Section 162(m)(4) of the Code, the Plan will be administered by a Committee selected by the Board and composed of not less than two individuals, each of whom is such a Non-Employee Director and such an “outside director.”      The Committee will have plenary authority to grant Awards pursuant to the terms of the Plan to officers, employees and directors of the Company and its subsidiaries and Affiliates, but the Committee may not grant MIP Awards larger than the limits provided in Section 3.      Among other things, the Committee will have the authority, subject to the terms of the Plan:      (a) to select the officers, employees and directors to whom Awards may from time to time be granted;      (b) to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock and Performance-Based Awards or any combination thereof are to be granted hereunder;      (c) to determine the number of shares of Stock or the amount of cash to be covered by each Award granted hereunder;      (d) to determine the terms and conditions of any Award granted hereunder (including, but not limited to, the option price (subject to Section 5(a)), any vesting condition, restriction or limitation (which may be related to the performance of the participant, the Company or any subsidiary, Affiliate or Company Unit) and any rule concerning vesting acceleration or waiver of forfeiture regarding any Award and any shares of Stock relating thereto, based on such factors as the Committee will determine) provided, however, that the Committee will have no power to accelerate the vesting, or waive the forfeiture, regarding any Award and any shares of Stock relating thereto, except in connection with a “change of control” of the Company, the sale of a subsidiary or majority-owned affiliate of the Company (and then only with respect to participants employed by each such subsidiary or affiliate), the death or disability of a participant or termination of employment of a participant, and, further provided, however, that the Committee will have no power to accelerate the vesting, or waive the forfeiture, of any Qualified Performance-Based Awards;      (e) to modify, amend or adjust the terms and conditions, at any time or from time to time, of any Award, including but not limited to Performance Goals; provided, however, that the Committee may not adjust upwards the amount payable with respect to any Qualified Performance-Based Award or waive or alter the Performance Goals associated therewith and provided, further, however, that the Committee may not reprice Stock Options except for an amount of Stock Options representing not more than 10% of then outstanding Stock Options;   --------------------------------------------------------------------------------   4      (f) to determine to what extent and under what circumstances Stock and other amounts payable with respect to an Award will be deferred; and      (g) to determine under what circumstances a Stock Option may be settled in cash or Stock under Section 5(j).      The Committee will have the authority to adopt, alter or repeal such administrative rules, guidelines and practices governing the Plan as it from time to time deems advisable, to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreement relating thereto) and to otherwise supervise the administration of the Plan.      The Committee may act only by a majority of its members then in office, except that the members thereof may (1) delegate to designated officers or employees of the Company such of its powers and authorities under the Plan as it deems appropriate (provided that no such delegation may be made that would cause Awards or other transactions under the Plan to fail to be exempt from Section 16(b) of the Exchange Act or that would cause Qualified Performance-Based Awards to cease to so qualify) and (2) authorize any one or more members or any designated officer or employee of the Company to execute and deliver documents on behalf of the Committee.      Any determination made by the Committee or pursuant to delegated authority pursuant to the provisions of the Plan with respect to any Award will be made in the sole discretion of the Committee or such delegates at the time of the grant of the Award or, unless in contravention of any express term of the Plan, at any time thereafter. All decisions made by the Committee or any appropriately delegated officer(s) or employee(s) pursuant to the provision of the Plan will be final and binding on all persons, including the Company and Plan participants.      Notwithstanding anything to the contrary in the Plan, the Committee will have the authority to modify, amend or adjust the terms and conditions of any Award as appropriate in the event of or in connection with any reorganization, recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation or any change in the capital structure of the Company. SECTION 3. STOCK SUBJECT TO PLAN AND LIMITS ON AWARDS.      (a) Subject to adjustment as provided herein, the number of shares of Common Stock of the Company available for grant under the Plan in each calendar year (including partial calendar years) during which the Plan is in effect shall be equal to two percent (2.0%) of the total number of shares of Common Stock of the Company outstanding as of the first day of each such year for which the Plan is in effect; provided that any shares available for grant in a particular calendar year (or partial calendar year) which are not, in fact, granted in such year shall be added to the shares available for grant in any subsequent calendar year.      (b) Subject to adjustment as provided herein, the number of shares of Stock covered by Awards granted to any one participant will not exceed 500,000 shares for any consecutive twelve-month period and the aggregate dollar amount for Awards denominated solely in cash will not exceed $5.0 million for any such period.      (c) In addition, and subject to adjustment as provided herein, no more than 7.5 million shares of Common Stock will be cumulatively available for the grant of Incentive Stock Options over the life of the Plan.      (d) Shares subject to an option or award under the Plan may be authorized and unissued shares or may be “treasury shares.” In the event of any merger, reorganization, consolidation, recapitalization, spin-off, stock dividend, stock split, extraordinary distribution with respect to the Stock or other change in corporate structure affecting the Stock, such substitution or adjustments will be made in the aggregate number and kind of shares reserved for issuance under the Plan, in the aggregate limit on grants to individuals, in the number, kind, and option price of shares subject to outstanding Stock Options and Stock Appreciation Rights, in the number and kind of shares subject to other outstanding Awards granted under the Plan and/or such other equitable substitutions or adjustments as may be determined to be appropriate by the Committee or the Board, in its sole discretion; provided, however, that the number of shares subject to any Award will always be a whole number.      (e) Awards under the MIP may not exceed in the case of (i) the Company’s Chief Executive Officer, $1.5 million; (ii) a president of any of the Company’s operating companies, whether or not incorporated, $750,000; and (iii) all other executive officers of the Company individually, $500,000.   --------------------------------------------------------------------------------   5 SECTION 4. ELIGIBILITY.      Officers, employees and directors of the Company, its subsidiaries and Affiliates who are responsible for or contribute to the management, growth and profitability of the business of the Company, its subsidiaries and Affiliates are eligible to be granted Awards under the Plan. SECTION 5. STOCK OPTIONS.      Stock Options may be granted alone or in addition to other Awards granted under the Plan and may be of two types: Incentive Stock Options and Non-Qualified Stock Options. Any Stock Option granted under the Plan will be in such form as the Committee may from time to time approve.      The Committee will have the authority to grant any optionee Incentive Stock Options, Non-Qualified Stock Options or both types of Stock Options (in each case with or without Stock Appreciation Rights). Incentive Stock Options may be granted only to employees of the Company and its subsidiaries (within the meaning of Section 424(f) of the Code). To the extent that any Stock Option is not designated as an Incentive Stock Option or even if so designated does not qualify as an Incentive Stock Option, it will be deemed to be a Non-Qualified Stock Option.      Stock Options will be evidenced by option agreements, the terms and provisions of which may differ. An option agreement will indicate on its face whether it is an agreement for an Incentive Stock Option or a Non-Qualified Stock Option. The grant of a Stock Option will occur on the date the Committee by resolution selects an individual to be a participant in any grant of a Stock Option, determines the number of shares of Stock to be subject to such Stock Option to be granted to such individual and specifies the terms and provisions of the Stock Option. The Company will notify a participant of any grant of a Stock Option, and a written option agreement or agreements will be duly executed and delivered by the Company to the participant.      Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options will be interpreted, amended or altered nor will any discretion or authority granted under the Plan be exercised so as to disqualify the Plan under Section 422 of the Code or, without the consent of the optionee affected, to disqualify any Incentive Stock Option under such Section 422.      Stock Options granted under the Plan will be subject to the following terms and conditions and will contain such additional terms and conditions as the Committee will deem desirable:      (a) OPTION PRICE. The option price per share of Stock purchasable under a Stock Option will be determined by the Committee and set forth in the option agreement, and will not be less than the Fair Market Value of the Stock subject to the Stock Option on the date of grant.      (b) OPTION TERM. The term of each Stock Option will be fixed by the Committee, but no Incentive Stock Option may be exercisable more than 10 years after the date the Incentive Stock Option is granted.      (c) EXERCISABILITY. Except as otherwise provided herein, Stock Options will be exercisable at such time or times and subject to such terms and conditions as will be determined by the Committee. If the Committee provides that any Stock Option is exercisable only in installments, the Committee may, subject to the provisions of Section 2(d) hereof, at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Committee may determine. In addition, the Committee may, subject to the provisions of Section 2(d) hereof, at any time accelerate the exercisability of any Stock Option.      (d) METHOD OF EXERCISE. Subject to the provisions of this Section 5, Stock Options may be exercised, in whole or in part, at any time during the option term by giving written notice of exercise to the Company specifying the number of shares of Stock subject to the Stock Option to be purchased.      Such notice must be accompanied by payment in full of the purchase price by certified or bank check or such other instrument as the Company may accept. An option agreement may provide that, if approved by the Committee, payment in full or in part or payment of tax liability, if any, relating to such exercise may also be made in the form of unrestricted Stock already owned by the optionee of the same class as the Stock subject to the Stock Option and, in the case of the exercise of a Non-Qualified Stock Option, Restricted Stock subject to an Award hereunder which is of the same class as the Stock subject to the Stock Option (in both cases based on the Fair Market Value of the Stock on the date the Stock Option is exercised); provided,   --------------------------------------------------------------------------------   6 however, that, in the case of an Incentive Stock Option, the right to make a payment in the form of already owned shares of Stock of the same class as the Stock subject to the Stock Option may be authorized only at the time the Stock Option is granted. In addition, an option agreement may provide that, in the discretion of the Committee, payment for any shares subject to a Stock Option or tax liability associated therewith may also be made by instruction to the Committee to withhold a number of such shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price of such Stock Option.      If payment of the option exercise price of a Non-Qualified Stock Option is made in whole or in part in the form of Restricted Stock, the number of shares of Stock to be received upon such exercise equal to the number of shares of Restricted Stock used for payment of the option exercise price will be subject to the same forfeiture restrictions to which such Restricted Stock was subject, unless otherwise determined by the Committee.      No shares of Stock will be issued until full payment therefor has been made. Subject to any forfeiture restrictions that may apply if a Stock Option is exercised using Restricted Stock, an optionee will have all of the rights of a stockholder of the Company holding the class or series of Stock that is subject to such Stock Option (including, if applicable, the right to vote the shares and the right to receive dividends), when the optionee has given written notice of exercise, has paid in full for such shares and, if requested, has given the representation described in Section 12(a).      (e) NONTRANSFERABILITY OF STOCK OPTIONS. (1) No Stock Option will be transferable by the optionee other than (A) by will or by the laws of descent and distribution or (B) in the case of a Non-Qualified Stock Option, pursuant to a qualified domestic relations order (as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder). All Stock Options will be exercisable, during the optionee’s lifetime, only by the optionee or by the guardian or legal representative of the optionee, it being understood that the terms “holder” and “optionee” include the guardian and legal representative of the optionee named in the option agreement and any person to whom a Stock Option is transferred by will or the laws of descent and distribution or pursuant to a qualified domestic relations order.           (2) Notwithstanding Section 5(e)(1) above, the Committee may grant Stock Options that are transferable, or amend outstanding Stock Options to make them transferable, by the optionee (any such Stock Option so granted or amended a “Transferable Option”) to one or more members of the optionee’s immediate family, to partnerships of which the only partners are members of the optionee’s immediate family, or to trusts established by the optionee for the benefit of one or more members of the optionee’s immediate family. For this purpose the term “immediate family” means the optionee’s spouse, children or grandchildren. Consideration may not be paid for the transfer of a Transferable Option. A transferee described in this Section 5(e)(2) shall be subject to all terms and conditions applicable to the Transferable Option prior to its transfer. The option agreement with respect to a Transferable Option shall set forth its transfer restrictions, such option agreement shall be approved by the Committee, and only Stock Options granted pursuant to a stock option agreement expressly permitting transfer pursuant to this Section 5(e)(2) shall be so transferable.      (f) TERMINATION BY DEATH. If an optionee’s employment terminates by reason of death, any Stock Option held by such optionee may thereafter be exercised, to the extent then exercisable, or on such accelerated basis as the Committee may determine, for a period of one year (or such other period as the Committee may specify in the option agreement) from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter.      (g) TERMINATION BY REASON OF DISABILITY. If an optionee’s employment terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised by the optionee, to the extent it was exercisable at the time of termination, or on such accelerated basis as the Committee may determine, for a period of three years (or such shorter period as the Committee may specify in the option agreement) from the date of such termination of employment or until the expiration of the stated term of such Stock Option, whichever period is the shorter; provided, however, that if the optionee dies within such three-year period (or such shorter period), any unexercised Stock Option held by such optionee will, notwithstanding the expiration of such three-year (or such shorter) period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of 12 months from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. In the event of termination of employment by reason of Disability, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option.      (h) TERMINATION BY REASON OF RETIREMENT. If an optionee’s employment terminates by reason of Retirement, any Stock Option held by such optionee may thereafter be exercised by the optionee, to the extent it was exercisable at the time of termination, or on such accelerated basis as the Committee may determine, for a period of five years (or such shorter period as the Committee may specify in the option agreement) from the date of such termination of employment or until the expiration of the stated term of such Stock Option, whichever period is the shorter; provided, however, that if the --------------------------------------------------------------------------------   7 optionee dies within such five-year period (or such shorter period), any unexercised Stock Option held by such optionee will, notwithstanding such five-year (or such shorter) period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of 12 months from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. In the event of termination of employment by reason of Retirement, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option.      (i) OTHER TERMINATION. Unless otherwise determined by the Committee, if an optionee incurs a Termination of Employment for any reason other than death, Disability or Retirement or Cause, any Stock Option held by such optionee will thereupon terminate, except that such Stock Option, to the extent then exercisable, or subject to the provisions of Section 2(d) hereof, on such accelerated basis as the Committee may determine, may be exercised for the lesser of three months from the date of such Termination of Employment or the balance of such Stock Option’s term; provided, however, that if the optionee dies within such three-month period, any unexercised Stock Option held by such optionee will, notwithstanding the expiration of such three-month period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of 12 months from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. In the event of Termination of Employment, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option.      (j) CASHING OUT OF STOCK OPTION. On receipt of written notice of exercise, the Committee may elect to cash out all or part of the shares of Stock for which a Stock Option is being exercised by paying the optionee an amount, in cash or Stock, equal to the excess of the Fair Market Value of the Stock over the option price times the number of shares of Stock for which the Option is being exercised on the effective date of such cash-out.      (k) CHANGE IN CONTROL CASH-OUT. Subject to Section 12(h), but notwithstanding any other provision of the Plan, during the 60-day period from and after a Change in Control (the “Exercise Period”), unless the Committee determines otherwise at the time of grant, an optionee will have the right, whether or not the Stock Option is fully exercisable and in lieu of the payment of the exercise price for the shares of Stock being purchased under the Stock Option and by giving notice to the Company, to elect (within the Exercise Period) to surrender all or part of the Stock Option to the Company and to receive cash, within 30 days of such notice, in an amount equal to the amount by which the Change in Control Price per share of Stock on the date of such election will exceed the exercise price per share of Stock under the Stock Option (the “Spread”) multiplied by the number of shares of Stock granted under the Stock Option as to which the right granted under this Section 5(k) will have been exercised. SECTION 6. STOCK APPRECIATION RIGHTS.      (a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under the Plan. In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of grant of such Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of grant of such Stock Option. A Stock Appreciation Right will terminate and no longer be exercisable upon the termination or exercise of the related Stock Option.      A Stock Appreciation Right may be exercised by an optionee in accordance with Section 6(b) by surrendering the applicable portion of the related Stock Option in accordance with procedures established by the Committee. Upon such exercise and surrender, the optionee will be entitled to receive an amount determined in the manner prescribed in Section 6(b). Stock Options which have been so surrendered will no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised.      (b) TERMS AND CONDITIONS. Stock Appreciation Rights will be subject to such terms and conditions as will be determined by the Committee, including the following:      (1) Stock Appreciation Rights will be exercisable only at such time or times and to the extent that the Stock Options to which they relate are exercisable in accordance with the provisions of Section 5 and this Section 6;      (2) Upon the exercise of a Stock Appreciation Right, an optionee will be entitled to receive an amount in cash, shares of Stock or both equal in value to the excess of the Fair Market Value of one share of Stock as of the date of exercise over the option price per share specified in the related Stock Option multiplied by the number of shares in --------------------------------------------------------------------------------   8 respect of which the Stock Appreciation Right has been exercised, with the Committee having the right to determine the form of payment;      (3) Stock Appreciation Rights will be transferable only to permitted transferees of the underlying Stock Option in accordance with Section 5(e). SECTION 7. RESTRICTED STOCK.      (a) ADMINISTRATION. Shares of Restricted Stock may be awarded either alone or in addition to other Awards granted under the Plan. The Committee will determine the individuals to whom and the time or times at which grants of Restricted Stock will be awarded, the number of shares to be awarded to any participant, the conditions for vesting, the time or times within which such Awards may be subject to forfeiture and any other terms and conditions of the Awards, in addition to those contained in Section 7(c).      (b) AWARDS AND CERTIFICATES. Shares of Restricted Stock will be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of one or more stock certificates. Except as otherwise set forth in a Restricted Stock Agreement, any certificate issued in respect of shares of Restricted Stock will be registered in the name of such participant and will bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:      “The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the 1997 Incentive Plan and a Restricted Stock Agreement. Copies of such Plan and Agreement are on file at the offices of Viad Corp, Viad Tower, Phoenix, Arizona.” The Committee may require that the certificates evidencing such shares be held in custody by the Company until the restrictions thereon have lapsed and that, as a condition of any Award of Restricted Stock, the participant has delivered a stock power, endorsed in blank, relating to the Stock covered by such Award.      (c) TERMS AND CONDITIONS. Shares of Restricted Stock will be subject to the following terms and conditions:      (1) The Committee may, prior to or at the time of grant, designate an Award of Restricted Stock as a Qualified Performance-Based Award, in which event it will condition the grant or vesting, as applicable, of such Restricted Stock upon the attainment of Performance Goals. If the Committee does not designate an Award of Restricted Stock as a Qualified Performance-Based Award, it may also condition the grant or vesting thereof upon the attainment of Performance Goals or such other performance-based criteria as the Committee shall establish (such an Award, a “Performance-Based Restricted Stock Award”). Regardless of whether an Award of Restricted Stock is a Qualified Performance-Based Award or a Performance-Based Restricted Stock Award, the Committee may also condition the grant or vesting upon the continued service of the participant. The provisions of Restricted Stock Awards (including the conditions for grant or vesting and any applicable Performance Goals) need not be the same with respect to each recipient. The Committee may at any time, in its sole discretion, subject to the provisions of Section 7(c)(10), accelerate or waive, in whole or in part, any of the foregoing restrictions; provided, however, that in the case of Restricted Stock that is a Qualified Performance-Based Award, the applicable Performance Goals have been satisfied.      (2) Subject to the provisions of the Plan and the Restricted Stock Agreement referred to in Section 7(c)(8), during the period set by the Committee, commencing with the date of such Award for which such participant’s continued service is required (the “Restriction Period”) and until the later of (A) the expiration of the Restriction Period and (B) the date the applicable Performance Goals (if any) are satisfied, the participant will not be permitted to sell, assign, transfer, pledge or otherwise encumber shares of Restricted Stock.      (3) Except as provided in this paragraph (3) and Sections 7(c)(1) and (2) and the Restricted Stock Agreement, the participant will have, with respect to the shares of Restricted Stock, all of the rights of a stockholder of the Company holding the class or series of Stock that is the subject of the Restricted Stock, including, if applicable, the right to vote the shares and the right to receive any dividends. If so determined by the Committee in the applicable Restricted Stock Agreement and subject to Section 12(f) of the Plan, (A) dividends consisting of cash, stock or other property (other than Stock) on the class or series of Stock that is the subject of the Restricted Stock shall be automatically deferred and reinvested in additional Restricted Stock (in the case of stock or other property, based on the fair market value thereof, and the Fair Market Value of the Stock, in each case as of the record date for the --------------------------------------------------------------------------------   9 dividend) held subject to the vesting of the underlying Restricted Stock, or held subject to meeting any Performance Goals applicable to the underlying Restricted Stock, and (B) dividends payable in Stock shall be paid in the form of Restricted Stock of the same class as the Stock with which such dividend was paid and shall be held subject to the vesting of the underlying Restricted Stock, or held subject to meeting any Performance Goals applicable to the underlying Restricted Stock.      (4) Except to the extent otherwise provided in the applicable Restricted Stock Agreement, Section 7(c)(1), 7(c)(2), 7(c)(5) or 9(a)(2), upon a participant’s Termination of Employment for any reason during the Restriction Period or before any applicable Performance Goals are met, all shares still subject to restriction will be forfeited by the participant.      (5) Except to the extent otherwise provided in Section 9(a)(2) and Sections 7(c)(9) and (10), in the event that a participant retires or such participant’s employment is involuntarily terminated (other than for Cause), the Committee will have the discretion to waive in whole or in part any or all remaining restrictions (other than, in the case of Restricted Stock which is a Qualified Performance-Based Award, satisfaction of the applicable Performance Goals unless the participant’s employment is terminated by reason of death or Disability) with respect to any or all of such participant’s shares of Restricted Stock.      (6) Except as otherwise provided herein or as required by law, if and when any applicable Performance Goals are satisfied and the Restriction Period expires without a prior forfeiture of the Restricted Stock, unlegended certificates for such shares will be delivered to the participant upon surrender of legended certificates.      (7) Awards of Restricted Stock, the vesting of which is not conditioned upon the attainment of Performance Goals or other performance-based criteria, is limited to twenty percent (20%) of the number of shares of Common Stock of the Corporation available for grant under the Plan in each calendar year.      (8) Each Award will be confirmed by, and be subject to the terms of, a Restricted Stock Agreement.      (9) Performance-Based Restricted Stock will be subject to a minimum one-year performance period and Restricted Stock which is not performance-based will be subject to a minimum three-year vesting period.      (10) There will be no vesting acceleration, or waiver of forfeiture regarding any Award and any shares of Stock relating thereto, except in connection with a “change of control” of the Company, the sale of a subsidiary or majority-owned affiliate of the Company (and then only with respect to participants employed by each subsidiary or affiliate), the death or disability of a participant, or termination of employment of a participant. SECTION 8. PERFORMANCE-BASED AWARDS.      (a) ADMINISTRATION. Performance-Based Awards may be awarded either alone or in addition to other Awards granted under the Plan. Subject to the terms and conditions of the Plan, the Committee shall determine the officers and employees to whom and the time or times at which Performance-Based Awards will be awarded, the number or amount of Performance-Based Awards to be awarded to any participant, whether such Performance-Based Award shall be denominated in a number of shares of Stock, an amount of cash, or some combination thereof, the duration of the Award Cycle and any other terms and conditions of the Award, in addition to those contained in Section 8(b).      (b) TERMS AND CONDITIONS. Performance-Based Awards will be subject to the following terms and conditions:      (1) The Committee may, prior to or at the time of the grant, designate Performance-Based Awards as Qualified Performance-Based Awards, in which event it will condition the settlement thereof upon the attainment of Performance Goals. If the Committee does not designate Performance-Based Awards as Qualified Performance-Based Awards, it may also condition the settlement thereof upon the attainment of Performance Goals or such other performance-based criteria as the Committee shall establish. Regardless of whether Performance-Based Awards are Qualified Performance-Based Awards, the Committee may also condition the settlement thereof upon the continued service of the participant. The provisions of such Performance-Based Awards (including without limitation any applicable Performance Goals) need not be the same with respect to each recipient. Subject to the provisions of the Plan and the Performance-Based Award Agreement referred to in Section 8(b)(5), Performance-Based Awards may not be sold, assigned, transferred, pledged or otherwise encumbered during the Award Cycle. --------------------------------------------------------------------------------   10      (2) Unless otherwise provided by the Committee (A) from time to time pursuant to the administration of particular Award programs under this Section 8, such as the Viad Corp Management Incentive Plan, the Viad Corp Performance Unit Incentive Plan or the Viad Corp Performance-Based Stock Plan or (B) in any agreement relating to an Award, and except as provided in Section 8(b)(3), upon a participant’s Termination of Employment for any reason prior to the payment of an Award under this Section 8, all rights to receive cash or Stock in settlement of the Award shall be forfeited by the participant.      (3) In the event that a participant’s employment is terminated (other than for Cause), or in the event a participant retires, the Committee shall have the discretion to waive, in whole or in part, any or all remaining payment limitations (other than, in the case of Awards that are Qualified Performance-Based Awards, satisfaction of the applicable Performance Goals unless the participant’s employment is terminated by reason of death or Disability) with respect to any or all of such participant’s Awards.      (4) At the expiration of the Award Cycle, the Committee will evaluate the Company’s performance in light of any Performance Goals for such Award, and will determine the extent to which a Performance-Based Award granted to the participant has been earned, and the Committee will then cause to be delivered to the participant, as specified in the grant of such Award: (A) a number of shares of Stock equal to the number of shares determined by the Committee to have been earned or (B) cash equal to the amount determined by the Committee to have been earned or (C) a combination of shares of Stock and cash if so specified in the Award.      (5) No Performance-Based Award may be assigned, transferred, or otherwise encumbered except, in the event of the death of a participant, by will or the laws of descent and distribution.      (6) Each Award will be confirmed by, and be subject to, the terms of a Performance-Based Award Agreement.      (7) Performance-Based Awards will be subject to a minimum one-year performance period. SECTION 9. CHANGE IN CONTROL PROVISIONS.      (a) IMPACT OF EVENT. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change in Control:      (1) Any Stock Options and Stock Appreciation Rights outstanding as of the date such Change in Control is determined to have occurred and not then exercisable and vested will become fully exercisable and vested to the full extent of the original grant;      (2) The restrictions and conditions to vesting applicable to any Restricted Stock will lapse, and such Restricted Stock will become free of all restrictions and become fully vested and transferable to the full extent of the original grant;      (3) Performance-Based Awards will be considered to be earned and payable to the extent, if any, and in an amount, if any, and otherwise, in accordance with the provisions of the agreement relating to such Awards.      (b) DEFINITION OF CHANGE OF CONTROL. For purposes of this Plan, a “Change of Control” shall mean any of the following events:      (1) An acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of 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 Corporation (the “Outstanding Corporation Common Stock”) or (ii) the combined voting power of the then Outstanding Voting Securities of the Corporation entitled to vote generally in the election of Directors (the “Outstanding Corporation Voting Securities”); excluding, however the following: (A) any acquisition directly from the Corporation or any entity controlled by the Corporation other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Corporation or any entity controlled by the Corporation, (B) any acquisition by the Corporation, or any entity controlled by the Corporation, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any entity controlled by --------------------------------------------------------------------------------   11 the Corporation or (D) any acquisition pursuant to a transaction which complies with clauses (i), (ii) and (iii) of Section 9(b)(3); or      (2) A change in the composition of the Board such that the individuals who, as of the effective date of the Plan, constitute the Board (such Board shall be hereinafter referred to as the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this Section 9(b)(2) that any individual, who becomes a member of the Board subsequent to the effective date of the Plan, whose election, or nomination for election by the Corporation’s shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board, (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board, or      (3) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation (a “Corporate Transaction”) excluding, however, such a Corporate Transaction pursuant to which (i) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Corporate Transaction (the “Prior Shareholders”) beneficially own, directly or indirectly, more than 60% of, respectively, the 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 or other entity resulting from such Corporate Transaction (including, without limitation, a corporation or other entity which as a result of such transaction owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (ii) no Person (other than the Corporation or any entity controlled by the Corporation, any employee benefit plan (or related trust) of the Corporation or any entity controlled by the Corporation or such corporation or other entity resulting from such Corporate Transaction) will beneficially owns, directly or indirectly, 20% or more of, respectively, the outstanding shares of Common Stock of the Corporation or other entity resulting from such Corporate Transaction or the combined voting power of the Outstanding Voting Securities of such Corporation or other entity entitled to vote generally in the election of Directors except to the extent that such ownership existed prior to the Corporate Transaction and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the Board of Directors of the Corporation resulting from such Corporate Transaction; and further excluding any disposition of all or substantially all of the assets of the Corporation pursuant to a spin-off, split-up or similar transaction (a “Spin-off”) if, immediately following the Spin-off, the Prior Shareholders beneficially own, directly or indirectly, more than 80% of the 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 of both entities resulting from such transaction, in substantially the same proportions as their ownership, immediately prior to such transaction, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities; provided, that if another Corporate Transaction involving the Corporation occurs in connection with or following a Spin-off, such Corporate Transaction shall be analyzed separately for purposes of determining whether a Change of Control has occurred;      (4) The approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation.      (c) CHANGE IN CONTROL PRICE. For purposes of the Plan, “Change in Control Price” means the higher of (1) the highest reported sales price, regular way, of a share of Stock in any transaction reported on the New York Stock Exchange Composite Tape or other national exchange on which such shares are listed or on The Nasdaq Stock Market during the 60-day period prior to and including the date of a Change in Control or (2) if the Change in Control is the result of a tender or exchange offer or a Corporate Transaction, the highest price per share of Stock paid in such tender or exchange offer or Corporate Transaction; provided, however, that in the case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options, the Change in Control Price will be in all cases the Fair Market Value of the Stock on the date such Incentive Stock Option or Stock Appreciation Right is exercised. To the extent that the consideration paid in any such transaction described above consists all or in part of securities or other non-cash consideration, the value of such securities or other non-cash consideration will be determined in the sole discretion of the Board. --------------------------------------------------------------------------------   12 SECTION 10. TERM, AMENDMENT AND TERMINATION.      The Plan will terminate May 31, 2007, but may be terminated sooner at any time by the Board, provided that no Incentive Stock Options shall be granted under the Plan after February 19, 2007. Awards outstanding as of the date of any such termination will not be affected or impaired by the termination of the Plan.      The Board may amend, alter, or discontinue the Plan, but no amendment, alteration or discontinuation will be made which would (a) impair the rights of an optionee under a Stock Option or a recipient of a Stock Appreciation Right, Restricted Stock Award or Performance-Based Award theretofore granted without the optionee’s or recipient’s consent, except such an amendment which is necessary to cause any Award or transaction under the Plan to qualify, or to continue to qualify, for the exemption provided by Rule 16b-3, or (b) disqualify any Award or transaction under the Plan from the exemption provided by Rule 16b-3. In addition, no such amendment may be made without the approval of the Company’s stockholders to the extent such approval is required by law or agreement.      The Committee may amend the terms of any Stock Option or other Award theretofore granted, prospectively or retroactively, but no such amendment will (1) impair the rights of any holder without the holder’s consent except such an amendment which is necessary to cause any Award or transaction under the Plan to qualify, or to continue to qualify, for the exemption provided by Rule 16b-3 or (2) amend any Qualified Performance-Based Award in such a way as to cause it to cease to qualify for the exemption set forth in Section 162(m)(4)(C). The Committee may also substitute new Stock Options for previously granted Stock Options, including previously granted Stock Options having higher option prices; provided, however, that the Committee may take such action only with respect to Stock Options representing not more than 10% of then outstanding Stock Options.      Subject to the above provisions, the Board will have authority to amend the Plan to take into account changes in law and tax and accounting rules, as well as other developments and to grant Awards which qualify for beneficial treatment under such rules without stockholder approval. SECTION 11. UNFUNDED STATUS OF PLAN.      It is presently intended that the Plan constitute an “unfunded” plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or make payments; provided, however, that, unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan. SECTION 12. GENERAL PROVISIONS.      (a) The Committee may require each person purchasing or receiving shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring any shares without a view to the distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.      All certificates for shares of Stock or other securities delivered under the Plan will be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Commission, any stock exchange upon which the 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.      Notwithstanding any other provision of the Plan or agreements made pursuant thereto, the Company shall not be required to issue or deliver any certificate or certificates for shares of Stock under the Plan prior to fulfillment of all of the following conditions:      (1) Listing or approval for listing upon notice of issuance, of such shares on the New York Stock Exchange, Inc., or such other securities exchange as may at the time be the principal market for the Stock;      (2) Any registration or other qualification of such shares of the Company under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification which the Committee shall, in its absolute discretion upon the advice of counsel, deem necessary or advisable; and      (3) Obtaining any other consent, approval, or permit from any state or federal governmental agency which --------------------------------------------------------------------------------   13 the Committee shall, in its absolute discretion after receiving the advice of counsel, determine to be necessary or advisable.      (b) Nothing contained in the Plan will prevent the Company or any subsidiary or Affiliate from adopting other or additional compensation arrangements for its employees.      (c) The adoption of the Plan will not confer upon any employee any right to continued employment nor will it interfere in any way with the right of the Company or any subsidiary or Affiliate to terminate the employment of any employee at any time.      (d) No later than the date as of which an amount first becomes includible in the gross income of the participant for Federal income tax purposes with respect to any Award under the Plan, the participant will pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Company, withholding obligations may be settled with Stock, including Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan will be conditional on such payment or arrangements, and the Company and its Affiliates will, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the participant. The Committee may establish such procedures as it deems appropriate, including the making of irrevocable elections, for the settlement of withholding obligations with Stock.      (e) At the time of grant, the Committee may provide in connection with any grant made under the Plan that the shares of Stock received as a result of such grant will be subject to a right of first refusal pursuant to which the participant will be required to offer to the Company any shares that the participant wishes to sell at the then Fair Market Value of the Stock, subject to such other terms and conditions as the Committee may specify at the time of grant.      (f) The reinvestment of dividends in additional Restricted Stock at the time of any dividend payment will only be permissible if sufficient shares of Stock are available under Section 3 for such reinvestment (taking into account then outstanding Stock Options and other Awards).      (g) The Committee will establish such procedures as it deems appropriate for a participant to designate a beneficiary to whom any amounts payable in the event of the participant’s death are to be paid or by whom any rights of the participant, after the participant’s death, may be exercised.      (h) Notwithstanding any other provision of the Plan or any agreement relating to any Award hereunder, if any right granted pursuant to this Plan would make a Change in Control transaction ineligible for pooling-of-interests-accounting under APB No. 16 that, but for the nature of such grant, would otherwise be eligible for such accounting treatment, the Committee will have the ability, in its sole discretion, to substitute for the cash payable pursuant to such grant Common Stock with a Fair Market Value equal to the cash that would otherwise be payable hereunder.      (i) The Plan and all Awards made and actions taken thereunder will be governed by and construed in accordance with the laws of the State of Delaware. SECTION 13. EFFECTIVE DATE OF PLAN.      The Plan will be effective on the later of (a) the time it is approved by the Board and (b) the time certain provisions of the Plan are approved by stockholders for tax purposes.

Exhibit 10.1 EXECUTION COPY FORM OF VOTING AGREEMENT THIS VOTING AGREEMENT (this “Agreement”) is made and entered into as of November 9, 2006, by and between Genentech, Inc., a Delaware corporation (“Parent”) and the undersigned stockholder (“Stockholder”) of Tanox, Inc. (the “Company”). RECITALS A. Concurrently with the execution of this Agreement, Parent and the Company have entered into an Agreement and Plan of Merger (the “Merger Agreement”), which provides for the merger (the “Merger”) of a wholly-owned subsidiary of Parent with and into the Company. B. Pursuant to the Merger, all of the issued and outstanding shares of capital stock and options of the Company will be canceled and converted into the right to receive the consideration set forth in the Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger Agreement. C. As of the date hereof, Stockholder is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of the number of shares of outstanding capital stock of the Company (the “Shares”) and other securities convertible into, or exercisable or exchangeable for, shares of capital stock of the Company (the “Options”), all as set forth on the signature page of this Agreement; provided that for purposes of determining beneficial ownership pursuant to this Agreement, Stockholder shall in all cases be deemed to be the beneficial owner of any securities which may be acquired by such Stockholder pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise (irrespective of whether the right to acquire such securities is exercisable immediately or only after the passage of time, including the passage of time in excess of 60 days, the satisfaction of any conditions, the occurrence of any event or any combination of the foregoing). D. As a material inducement to Parent to enter into and to consummate the transactions contemplated by the Merger Agreement, Parent has required that Stockholder agree, and Stockholder is willing to agree, to restrict the transfer or disposition of any Shares, Options and any New Shares (as defined in Section 1(b) hereof), and to vote the Shares and any New Shares as set forth in this Agreement. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Agreement to Retain Shares and Options. (a) Transfer. Stockholder agrees that, at all times during the period beginning on the date hereof and ending at the Expiration Time, Stockholder shall not Transfer (as defined below) any of the Shares, Options and any New Shares, or make any agreement or understanding -------------------------------------------------------------------------------- EXECUTION COPY regarding any Transfer, in each case without the prior written consent of Parent. Stockholder agrees that any Transfer in violation of this Agreement shall be void and of no force or effect. As used herein, the term “Expiration Time” shall mean the earlier to occur of (i) such date and time as the Merger shall become effective in accordance with the terms and provisions of the Merger Agreement, or (ii) the termination of the Merger Agreement in accordance with the terms thereof. As used herein, the term “Transfer” shall mean, with respect to any security, the direct or indirect assignment, sale, transfer, tender, pledge, hypothecation, or the gift, placement in trust, or the Constructive Sale (as defined below) or other disposition of such security (excluding [exercises of Options and]1 transfers by testamentary or intestate succession or otherwise by operation of law) or any right, title or interest therein (including, but not limited to, any right or power to vote to which the holder thereof may be entitled, whether such right or power is granted by proxy or otherwise), or the record or beneficial ownership thereof, the offer to make such a sale, transfer, tender, pledge, hypothecation or Constructive Sale or other disposition, and each agreement, arrangement or understanding, whether or not in writing, to effect any of the foregoing, excluding any Transfer (A) pursuant to a court order, (B) pursuant to the Merger, (C) to any affiliate or family member of Stockholder if such transferee, prior to the Transfer, executes a binding agreement with Parent and the Company substantially in the form of this Agreement [or (D) that is a sale (other than a Constructive Sale) in the open market through a brokers’ transaction (as defined in Rule 144(g) under the Securities Act of 1933, as amended)]2. As used herein, the term “Constructive Sale” shall mean, with respect to any security, a short sale with respect to such security, entering into or acquiring an offsetting derivative contract with respect to such security, entering into or acquiring a futures or forward contract to deliver such security or entering into any other hedging or other derivative transaction that has the effect of materially changing the economic benefits and risks of ownership. (b) New Shares. Stockholder agrees that any shares of capital stock of the Company that Stockholder purchases or with respect to which Stockholder otherwise acquires beneficial ownership after the date of this Agreement and prior to the Expiration Time, including, without limitation, shares issued or issuable upon the conversion, exercise or exchange, as the case may be, of any Options held by Stockholder (“New Shares”), shall be subject to the terms and conditions of this Agreement to the same extent as if they constituted Shares as of the date hereof. 2. Agreement to Vote Shares. Until the Expiration Time, at every meeting of stockholders of the Company called with respect to any of the following, and at every adjournment or postponement thereof, and on every action or approval by written consent of stockholders of the Company with respect to any of the following, Stockholder shall vote, to the extent not voted by the person(s) appointed under the Proxy (as defined in Section 3), the outstanding Shares and any outstanding New Shares (to the extent any such New Shares may be voted):   -------------------------------------------------------------------------------- 1 This language was included in voting agreements executed by Julia Brown, Heinz Bull, Danong Chen, Gary Frashier, Osama Mikhail and Peter Traber, but was excluded from the voting agreements executed by Nancy Chang and Tse-Wen Chang. 2 This language was included in voting agreements executed by Julia Brown, Heinz Bull, Danong Chen, Gary Frashier, Osama Mikhail and Peter Traber, but was excluded from the voting agreements executed by Nancy Chang and Tse-Wen Chang.   2 -------------------------------------------------------------------------------- EXECUTION COPY (i) in favor of adoption of the Merger Agreement and in favor of any other action contemplated by the Merger Agreement or required in furtherance of the Merger and the transactions contemplated by the Merger Agreement (including one or more adjournments necessary to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and any such related proposals at the time of any meeting held for such purposes); (ii) against approval of any proposal made in opposition to, or in competition with, consummation of the Merger and the transactions contemplated by the Merger Agreement; (iii) against any of the following actions (other than those actions contemplated by the Merger Agreement): (A) any merger, consolidation, business combination, sale of assets, reorganization or recapitalization of the Company or any subsidiary of the Company with any party, (B) any sale, lease, license or transfer of any significant part of the assets of the Company or any subsidiary of the Company, (C) any reorganization, recapitalization, dissolution, liquidation or winding up of the Company or any subsidiary of the Company, (D) any amendment to the certificate of incorporation or bylaws of the Company or any subsidiary of the Company or any material change in the capitalization of the Company or any subsidiary of the Company, or the corporate structure of the Company or any subsidiary of the Company, or (E) any other action that is intended, or could reasonably be expected to, impede, frustrate, prevent, interfere with, delay, postpone, discourage, nullify or adversely affect the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement; and (iv) in favor of waiving any notice that may have been or may be required relating to any such meeting of stockholders or written consent, the Merger, the Merger Agreement or the transactions contemplated thereby. Prior to the Expiration Time, Stockholder shall not enter into any agreement or understanding with any person to vote or give instructions in any manner inconsistent with this Section 2. Prior to the Expiration Time, to the extent not represented thereat by the person(s) appointed under the Proxy, Stockholder shall [cause the Shares and any New Shares to be counted as present thereat for purposes of establishing quorum.]3 3. Irrevocable Proxy. Concurrently with the execution of this Agreement, Stockholder agrees to deliver to Parent an irrevocable proxy in the form attached hereto as Appendix A (the “Proxy”), which shall be irrevocable to the fullest extent permitted by applicable law, covering the total number of Shares and New Shares. 4. Representations, Warranties and Covenants of Stockholder. Stockholder represents, warrants and covenants to Parent as follows: (i) Stockholder is the beneficial owner of the Shares, with full power to vote or direct the voting of the Shares and to dispose of the Shares for and on behalf of any and all beneficial owners of the Shares, with no limitations, qualifications or restrictions on such rights.   -------------------------------------------------------------------------------- 3 This language was included in voting agreements executed by Julia Brown, Heinz Bull, Danong Chen, Gary Frashier, Osama Mikhail and Peter Traber. In the voting agreements executed by Nancy Chang and Tse-Wen Chang, the following language was substituted for the highlighted language: “appear at any meeting of stockholders of the Company and cause the Shares and any New Shares to be counted as present thereat for purposes of establishing quorum.”   3 -------------------------------------------------------------------------------- EXECUTION COPY (ii) As of the date hereof, the Shares are, and at all times up until the Expiration Time the Shares will be, free and clear of any rights of first refusal, co-sale rights, security interests, liens, pledges, claims, options, charges or other encumbrances of any kind or nature, in each case that could impair Stockholder’s ability to fulfill its obligations under Section 2. The execution and delivery of this Agreement by Stockholder do not, and Stockholder’s performance of its obligations under this Agreement will not, conflict with or violate any order, decree, judgment or Contract applicable to Stockholder or by which Stockholder or any of Stockholder’s properties or Shares is bound. (iii) Stockholder does not beneficially own any shares of capital stock of the Company, or any securities convertible into, or exchangeable or exercisable for, shares of capital stock of the Company, other than as set forth on the signature page hereto. (iv) Stockholder has full power and authority to make, enter into and carry out the terms of this Agreement, the Proxy and any other related agreements to which Stockholder is a party. (v) Stockholder shall not take any action that the Company is prohibited from authorizing or permitting any Representative (as defined in the Merger Agreement) from taking under Section 5.4(a) of the Merger Agreement, whether or not Stockholder is or remains a Representative. (vi) Stockholder agrees that it will not bring, commence, institute, maintain, prosecute, participate in or voluntarily aid any Action before any Governmental Entity, which alleges that the execution and delivery of this Agreement by Stockholder, either alone or together with the other Company voting agreements and proxies to be delivered in connection with the execution of the Merger Agreement, or the approval of the Merger Agreement by the board of directors of the Company, breaches any fiduciary duty of the board of directors of the Company or any member thereof; provided, that Stockholder may defend against, contest or settle any such action, claim, suit or cause of action brought against Stockholder that relates solely to Stockholder’s capacity as a director or officer of the Company. (vii) Stockholder shall not exercise any rights (including under Section 262 of the Delaware Law) to demand appraisal or dissenters’ rights with respect to any Shares or New Shares that may be available with respect to the Merger. 5. Further Assurances. Stockholder hereby covenants and agrees to take, or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary to fulfill such Stockholder’s obligations under this Agreement, and to execute and deliver any additional documents reasonably necessary or desirable to carry out the purpose and intent of this Agreement.   4 -------------------------------------------------------------------------------- EXECUTION COPY 6. Consents and Waivers. Stockholder hereby gives any consents or waivers that are reasonably required for the consummation of the Merger under the terms of any Contract or other instrument to which Stockholder is a party or subject or in respect of any rights Stockholder may have. Stockholder further consents to the Company placing a stop transfer order on the Shares and any New Shares with its transfer agent(s) in accordance with Section 8. 7. Termination. This Agreement and the Proxy delivered in connection herewith shall terminate automatically and shall have no further force or effect as of the Expiration Time. 8. Company Covenants. The Company agrees to make a notation on its records and give instructions to its transfer agent(s) to not permit, prior to the Expiration Time, the transfer of any Shares or New Shares, except as permitted pursuant to Section 1(a). 9. Miscellaneous. (a) Directors and Officers. Notwithstanding any provision of this Agreement to the contrary, Stockholder has entered into this Agreement in his or her capacity as a Stockholder of the Company, and nothing in this Agreement shall limit or restrict Stockholder from acting in the Stockholder’s capacity as a director or officer of the Company, as applicable (it being understood that this Agreement shall apply to Stockholder solely in Stockholder’s capacity as a stockholder of the Company). (b) Waiver. No waiver by any party hereto of any condition or any breach of any term or provision set forth in this Agreement shall be effective unless in writing and signed by the other party hereto. The waiver of any breach of any term or provision of this Agreement shall not operate as or be construed to be a waiver of any other previous or subsequent breach of any term or provision of this Agreement. No delay or omission by Parent in exercising any right under this Agreement shall operate as a waiver of that right or any other right under this Agreement. (c) Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or sent via telecopy (receipt confirmed) to the parties at the following addresses or telecopy numbers (or at such other address or telecopy numbers for a party as shall be specified by like notice):     (i) if to Parent, to: Genentech, Inc. 1 DNA Way South San Francisco, California 94080 Attention: Corporate Secretary Telephone No.: (650) 225-1000 Telecopy No.: (650) 467-9146   5 -------------------------------------------------------------------------------- EXECUTION COPY with a copy to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304 Attention:     Martin W. Korman, Esq.       Bradley L Finkelstein, Esq. Telephone No.: (650) 493-9300 Telecopy No.: (650) 493-6811     (ii) if to Stockholder: To the address for notice set forth on the signature page hereof. (d) Headings. All captions and section headings used in this Agreement are for are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. (e) Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. (f) Entire Agreement; Amendment. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement may not be changed or modified, except by an agreement in writing specifically referencing this Agreement and executed by each of the parties hereto. (g) Severability. In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. (h) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law thereof. The parties hereto hereby irrevocably submit to the exclusive jurisdiction of the Court of Chancery in Newcastle County in the state of Delaware (and any appellate courts therefrom), or if such jurisdiction shall be unavailable, any court in the State of Delaware and the Federal courts of the United States of   6 -------------------------------------------------------------------------------- EXECUTION COPY America, each located within Newcastle County in the State of Delaware., solely in respect of the interpretation and enforcement of the provisions of this Agreement, and in respect of the transactions contemplated hereby and thereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or thereof, that it is not subject thereto 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 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 the Court of Chancery in the State of Delaware or, if jurisdiction is not available in the Court of Chancery, any other Delaware state court or Federal court, each located in Newcastle, County Delaware. 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 9(c) or in such other manner as may be permitted by applicable law, shall be valid and sufficient service thereof. With respect to any particular action, suit or proceeding, venue shall lie solely in Newcastle County, Delaware. (i) Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in this Agreement will be construed against the party drafting such agreement or document. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” All capitalized terms that are used but not defined herein shall have the meanings ascribed to them in the Merger Agreement. (j) Remedies. The parties acknowledge that Parent will be irreparably harmed and that there will be no adequate remedy at law for a violation of any of the covenants or agreements of Stockholder set forth herein. Therefore, it is agreed that, in addition to any other remedies that may be available to Parent upon any such violation, Parent shall have the right to enforce such covenants and agreements by specific performance, injunctive relief or by any other means available to Parent at law or in equity. (k) No Assignment. Unless otherwise provided for herein, Stockholder may not assign this Agreement. This Agreement shall inure to the benefit of Parent, Company and their respective successors and assigns. (l) Waiver of Jury Trial. EACH OF PARENT AND STOCKHOLDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT OR STOCKHOLDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.   7 -------------------------------------------------------------------------------- EXECUTION COPY [Remainder of Page Intentionally Left Blank]   8 -------------------------------------------------------------------------------- EXECUTION COPY IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first above written.   GENENTECH, INC. By:     Name:     Title:     STOCKHOLDER:   Signature   Print Name Shares: Company Common Stock: ___________________________________ Company Options: _________________________________________ Stockholder’s address for notice:       **** Signature Page to Company Voting Agreement*** -------------------------------------------------------------------------------- EXECUTION COPY APPENDIX A IRREVOCABLE PROXY The undersigned stockholder (“Stockholder”) of Tanox, Inc., a Delaware corporation (the “Company”), hereby irrevocably (to the fullest extent permitted by law) appoints Stephen Julesgaard and David Ebersman of Genentech, Inc., a Delaware corporation (“Parent”), and each of them, as the sole and exclusive attorneys-in-fact and proxies of the undersigned, with full power of substitution and resubstitution, to vote and exercise all voting and related rights (to the full extent that the undersigned is entitled to do so) with respect to all Shares and New Shares (each as defined in the that certain Voting Agreement, dated of even date herewith, by and among Parent, the Company and Stockholder (the “Voting Agreement”)), in accordance with the terms of this Proxy until the Expiration Time (as defined in the Voting Agreement). The Shares beneficially owned by the undersigned stockholder of the Company as of the date of this Proxy are listed on the final page of this Proxy. Upon the undersigned’s execution of this Proxy, any and all prior proxies given by the undersigned with respect to any Shares are hereby revoked and the undersigned hereby agrees not to grant any subsequent proxies with respect to the Shares or any New Shares until after the Expiration Time (as defined in the Voting Agreement). This Proxy is irrevocable (to the fullest extent permitted by law), is coupled with an interest, is granted pursuant to the Voting Agreement, and is granted in consideration of Parent entering into that certain Agreement and Plan of Merger, dated as of November 9, 2006, by and among Parent, the Company and certain other parties (the “Merger Agreement”). The Merger Agreement provides for the merger of a wholly-owned subsidiary of Parent with and into the Company in accordance with its terms (the “Merger”), and Stockholder is receiving a portion of the proceeds of the Merger. The attorneys-in-fact and proxies named above are hereby authorized and empowered by the undersigned, at any time prior to the Expiration Time, to act as the undersigned’s attorney-in-fact and proxy to vote the Shares and any New Shares, and to exercise all voting, consent and similar rights of the undersigned with respect to the Shares and new Shares (including, without limitation, the power to execute and deliver written consents), at every annual, special, adjourned or postponed meeting of stockholders of the Company and in every written consent in lieu of such meeting: (i) in favor of adoption of the Merger Agreement and in favor of any other action contemplated by the Merger Agreement or required in furtherance of the Merger and the transactions contemplated by the Merger Agreement (including one or more adjournments necessary to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and any such related proposals at the time of any meeting held for such purposes); -------------------------------------------------------------------------------- EXECUTION COPY (ii) against approval of any proposal made in opposition to, or in competition with, consummation of the Merger and the transactions contemplated by the Merger Agreement; (iii) against any of the following actions (other than those actions contemplated by the Merger Agreement): (A) any merger, consolidation, business combination, sale of assets, reorganization or recapitalization of the Company or any subsidiary of the Company with any party, (B) any sale, lease, license or transfer of any significant part of the assets of the Company or any subsidiary of the Company, (C) any reorganization, recapitalization, dissolution, liquidation or winding up of the Company or any subsidiary of the Company, (D) any amendment to the certificate of incorporation or bylaws of the Company or any subsidiary of the Company or any material change in the capitalization of the Company or any subsidiary of the Company, or the corporate structure of the Company or any subsidiary of the Company, or (E) any other action that is intended, or could reasonably be expected to, impede, frustrate, prevent, interfere with, delay, postpone, discourage, nullify or adversely affect the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement; and (iv) in favor of waiving any notice that may have been or may be required relating to any such meeting of stockholders or written consent, the Merger, the Merger Agreement or the transactions contemplated thereby. Any obligation of the undersigned hereunder shall be binding upon the successors and assigns of the undersigned. This Proxy shall terminate, and be of no further force and effect, automatically as of the Expiration Time. [Remainder of Page Intentionally Left Blank] *****   2 -------------------------------------------------------------------------------- EXECUTION COPY This Proxy shall terminate, and be of no further force and effect, automatically upon the Expiration Time (as defined in the Voting Agreement). Dated: November 9, 2006     Signature   Print Name     Address Shares: Company Common Stock: ___________________________________ Company Options: _________________________________________ ****Signature Page to Proxy****

  EXHIBIT 10.2 SEPARATION AND RELEASE AGREEMENT      This Separation and Release Agreement (“Agreement”) is made by and between PAR PHARMACEUTICAL COMPANIES, INC., and PAR PHARMACEUTICAL, INC. (collectively referred to as “THE COMPANY”), and MARK AUERBACH (“EMPLOYEE”), a specified employee of THE COMPANY. The Effective Date of this Agreement shall be as set forth in Section 8 herein. RECITALS      A. For purposes of this Agreement, “THE COMPANY” means PAR PHARMACEUTICAL COMPANIES, INC., and PAR PHARMACEUTICAL, INC., and each and any of their parent and subsidiary corporations, affiliates, departments and divisions.      B. EMPLOYEE has been employed by THE COMPANY as the Executive Chairman of the Board of Directors of THE COMPANY (“the Board”).      C. As a result of EMPLOYEE’s separation from THE COMPANY, and to fully and finally resolve all issues concerning EMPLOYEE’s employment relationship with THE COMPANY, and to reiterate certain terms contained in EMPLOYEE’s Employment Agreement dated September 16, 2003, THE COMPANY and EMPLOYEE have decided to enter into this Agreement.      For and in consideration of the mutual promises and covenants in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: OPERATIVE PROVISIONS           1. Separation of Employment. THE COMPANY and EMPLOYEE agree that EMPLOYEE shall separate from THE COMPANY effective at the end of business on October 31, 2006 (“Separation Date”), such separation of employment with THE COMPANY occurring pursuant to Section 3.2.5 of that certain Employment Agreement dated as of September 16, 2003 by and between the parties (“Employment Agreement”).           2. Pay, Benefits and Stock Options Upon Separation.                (a) Separation Pay. In accordance with the Employment Agreement EMPLOYEE is, on account of his separation from THE COMPANY, entitled to severance in the amount of six hundred forty two thousand one hundred fourteen dollars ($642,114.00), which severance shall be payable in six (6) equal installments beginning in the seventh (7th) month after the Separation Date and continuing for five (5) months thereafter. The aforementioned payments shall be subject to all appropriate federal and state withholding and employment taxes.   --------------------------------------------------------------------------------   EMPLOYEE hereby agrees that he is entitled to no other payment from THE COMPANY as the result of his separation or during the aforementioned period.                (b) Benefits/Termination. In accordance with Section 3.3.5 the Employment Agreement, on account of EMPLOYEE’s separation from THE COMPANY, THE COMPANY shall, for a twenty-four (24) month period from the Separation Date, maintain in effect for EMPLOYEE coverage under THE COMPANY’S medical, health and accident, and disability plans and programs in which EMPLOYEE was entitled to participate immediately prior to the Separation; provided, that such benefits shall immediately terminate in the event EMPLOYEE becomes eligible for equal or comparable coverage by a subsequent employer prior to the expiration of the twenty-four (24) month period. Following the termination of the twenty-four (24) month period, if EMPLOYEE is not eligible for equal or comparable coverage under another employer’s benefit program, EMPLOYEE will have the opportunity to elect continuation coverage pursuant to COBRA and will thus be responsible for the execution of the COBRA continuation of coverage forms. All other benefits and allowances, except those in which EMPLOYEE has vested rights under the terms of an employee benefit plan, terminate as of the Separation Date. Notwithstanding the foregoing, THE COMPANY shall pay EMPLOYEE a one-time Executive Health Care Allowance in the amount of five thousand dollars ($5,000.00). THE COMPANY shall use its commercially reasonable efforts to provide such benefits to EMPLOYEE in accordance with Section 3.3.5 of the Employment Agreement.                (c) Stock Options. The parties agree that as of October 30, 2006 EMPLOYEE has been granted options for 328,816 shares of THE COMPANY’s common stock. Of these, 95,855 options are unvested. In accordance with the Employment Agreement, these unvested options shall vest as of the Separation Date. EMPLOYEE shall have twenty-four (24) months from such date to exercise all options, at the exercise price related to the respective option grants, provided that the relevant stock option plan remains in effect and such options have not otherwise expired. EMPLOYEE’S exercise of such options is governed by Section 3.3.6(b) of the Employment Agreement as well as the terms of the applicable plan, referenced in the Employment Agreement.                (d) Restricted Stock. The parties agree that as of October 30, 2006, EMPLOYEE has been granted 23,730 shares of THE COMPANY’s restricted stock. Of these, 21,098 shares are unvested. These unvested shares shall vest as of the date of EMPLOYEE’s execution of this Agreement.                (e) In accordance with the Employment Agreement, the payments and benefits contained in this Section 2 are contingent upon EMPLOYEE’s continued compliance with Section 4 of the Employment Agreement (as modified by this Agreement), as referenced in Sections 9 through 12 herein. THE COMPANY shall use its commercially reasonable efforts to provide such benefits to EMPLOYEE in accordance with Section 3.3.5 of the Employment Agreement.           3. Earned Salary and Expenses. EMPLOYEE acknowledges and agrees that he has been paid in full for all work performed, and has received reimbursement for all business 2 --------------------------------------------------------------------------------   expenses, and is entitled to no further payments or bonuses from THE COMPANY whatsoever for services rendered or any other reason, except as set forth herein.           4. Consideration.                (a) No Disparagement. THE COMPANY agrees to refrain from any publication or any type of communication, oral or written, of a defamatory or disparaging nature pertaining to EMPLOYEE, except as otherwise permitted by law.                (b) Sufficiency of Consideration. No Admission of Liability. The parties agree that the consideration tendered to EMPLOYEE is good and sufficient consideration for this Agreement, to the extent it imposes upon EMPLOYEE obligations in addition to those contained in the Employment Agreement. EMPLOYEE acknowledges that neither this Agreement, nor any consideration pursuant to this Agreement, shall be taken or construed to be an admission or concession of any kind with respect to alleged liability or alleged wrongdoing by THE COMPANY.           5. Indemnification and Advancement of Expenses. THE COMPANY acknowledges that it will comply with the indemnification and advancement of expenses covenants contained in Sections 5.1, 5.2, 5.3 and 5.4 of THE COMPANY’s Bylaws.           6. General Release and Waiver of Claims. Solely in connection with EMPLOYEE’s employment relationship with THE COMPANY and in accordance with Section 3.3 of the Employment Agreement, and in consideration of the additional promises and covenants made by THE COMPANY in this Agreement, EMPLOYEE hereby knowingly and voluntarily compromises, settles and releases THE COMPANY from any and all past, present, or future claims, demands, obligations, or causes of action, whether based on tort, contract, statutory or other theories of recovery for anything that has occurred up to and including the date of EMPLOYEE’s execution of this Agreement. The released claims include those EMPLOYEE may have or has against THE COMPANY, or which may later accrue to or be acquired by EMPLOYEE against THE COMPANY and its predecessors, successors in interest, assigns, parent and subsidiary organizations, affiliates, and partners, and its past, present, and future officers, directors, shareholders, agents, and employees, and their heirs and assigns. EMPLOYEE specifically agrees to release and waive all claims for wrongful termination and any claim for retaliation or discrimination in employment under federal or state law or regulation including, but not limited to, discrimination based on age, sex, race, disability, handicap, national origin or any claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, as amended by the Older Workers’ Benefits Protection Act (ADEA), the Americans with Disabilities Act of 1990 (ADA), the New Jersey Law Against Discrimination (LAD), the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Employee Retirement Income Security Act (ERISA), the Immigration Reform and Control Act (IRCA), the Fair Labor Standards Act (FLSA), the Conscientious Employee Protection Act (CEPA), the Family Medical Leave Act (FMLA), the New Jersey Family Leave Act (NJFLA) and the New Jersey wage and hour law. The release of claims agreed to herein specifically excludes any claims relating to a breach of this Agreement and any non-employment-related counterclaims 3 --------------------------------------------------------------------------------   that EMPLOYEE might assert against THE COMPANY if THE COMPANY were to sue EMPLOYEE.           7. Covenant Not to Sue.                (a) Each party represents and agrees that such party has not filed any lawsuits or arbitrations against the other party, or filed or caused to be filed any charges or complaints against the other party with any municipal, state or federal agency charged with the enforcement of any law or any self-regulatory organization.                (b) THE COMPANY represents that it is currently not aware of any basis for any cause of action against EMPLOYEE relative to any matter that involved THE COMPANY and that occurred up to and including the date of THE COMPANY’s execution of this Agreement, except, however, for the sake of clarity, the parties acknowledge that there is currently pending shareholder litigation in which claims have been asserted against EMPLOYEE.                (c) EMPLOYEE agrees, not inconsistent with EEOC Enforcement Guidance or Non-Waivable Employee Rights Under EEOC-Enforced Statutes dated April 11, 1997, and to the fullest extent permitted by laws, not to sue or file a charge, complaint, grievance or demand for arbitration against THE COMPANY in any claim, arbitration, suit, action, investigation or other proceeding of any kind which relates to any matter that involved THE COMPANY, and that occurred up, to and including the date of EMPLOYEE’s execution of this Agreement, other than those non-employment-related counterclaims that EMPLOYEE might assert against THE COMPANY if THE COMPANY were to sue EMPLOYEE, unless required to do so by court order, subpoena or other directive by a court, administrative agency, arbitration panel or legislative body, or unless required to enforce this Agreement. Nothing in this Agreement shall prevent EMPLOYEE from (i) commencing an action or proceeding to enforce this Agreement, or (ii) exercising EMPLOYEE’s right under the Older Workers Benefit Protection Act of 1990 to challenge the validity of EMPLOYEE’s waiver of ADEA claims set forth in this Agreement.           8. Consideration and Revocation Periods: Effective Date. EMPLOYEE also understands and acknowledges that the ADEA requires THE COMPANY to provide EMPLOYEE with at least twenty one (21) calendar days to consider this Agreement (“Consideration Period”) prior to its execution. EMPLOYEE also understands that he is entitled to revoke this Agreement at any time during the seven (7) days following EMPLOYEE’s execution of this Agreement (“Revocation Period”) by notifying THE COMPANY in writing of his revocation. This Agreement shall become effective on the day after the seven-day Revocation Period has expired unless timely notice of EMPLOYEE’s revocation has been delivered to THE COMPANY (the “Effective Date”).           9. Return of Company Property. On his Separation Date EMPLOYEE agrees forthwith to deliver to THE COMPANY all of THE COMPANY’s property in his possession or under his custody and control, including but not limited to all keys, and tangible 4 --------------------------------------------------------------------------------   items, notebooks, documents, records and other data relating to research or experiments conducted by any person relating to the products, formulas, formulations, processes or methods of manufacture of THE COMPANY, and to its customers and pricing of products, except that EMPLOYEE shall be entitled to keep the Blackberry device provided to him by THE COMPANY. EMPLOYEE represents to THE COMPANY that all confidential and proprietary information of THE COMPANY stored on the Blackberry device has been returned to THE COMPANY.           10. Confidential Information. EMPLOYEE acknowledges that during EMPLOYEE’s employment with THE COMPANY, EMPLOYEE has had access to Confidential Information (as defined in Section 4.1 of the Employment Agreement). In accordance with and subject to the covenants contained in Section 4.2 of the Employment Agreement, EMPLOYEE shall not at any time (other than as may be required in connection with the performance by him of any remaining duties or obligations under the Employment Agreement), directly or indirectly, use, communicate, disclose or disseminate any Confidential Information in any manner whatsoever (except as may be required under legal process by subpoena or other court order).           11. Covenants Not to Solicit. As EMPLOYEE acknowledged in the Employment Agreement, and in accordance with Section 4.3 thereof, for a period of two (2) years following the Separation Date, EMPLOYEE shall be restrained from, directly or indirectly, hiring, offering to hire, enticing away or in any other manner persuading or attempting to persuade any officer, employee, agent, lessor, lessee, licensor, licensee, customer, prospective customer or supplier of THE COMPANY to discontinue or alter his or its relationship with THE COMPANY. This covenant shall not be applicable to the hiring or offer to hire of employees who have previously been terminated by or who have separated from THE COMPANY, so long as any such separation was not due to conduct of EMPLOYEE as prohibited herein.           12. Covenants Not to Compete. As EMPLOYEE acknowledged in the Employment Agreement, EMPLOYEE shall be restricted in regard to his post-employment business undertakings. Specifically, in accordance with Section 4.4 of the Employment Agreement, for a period of one (1) year following the Separation Date, EMPLOYEE shall be restrained from, directly or indirectly, on his own behalf or for his own benefit, or on behalf of or for the benefit of another (other than THE COMPANY), own, operate, manage, engage in, participate in, be employed by, affiliate with, or provide material assistance to, contract for services for or with, render advice or services to or otherwise assist in any capacity, directly or indirectly (whether as an officer, director, partner, agent, investor, consultant, contractor, employee, equityholder, lender, counselor, or otherwise) any Competitive Enterprise, as defined in Section 4.5 of the Employment Agreement. Nothing herein shall prevent EMPLOYEE from owning up to five percent (5%) of a Competitive Enterprise. Notwithstanding any provision to the contrary contained in the Employment Agreement or in this Agreement, including without limitation, Sections 4.4 and 4.5 of the Employment Agreement or in this Section 12, from and after the date of this Agreement, there shall be no prohibition, restriction or any other conditions whatsoever against or relating to EMPLOYEE’s serving as a director, financial consultant or advisor to any third party’s business, whether a corporation, limited liability company, 5 --------------------------------------------------------------------------------   partnership, individual or otherwise, and whether or not such business constitutes a “Competitive Enterprise”, “Third Party Relationship” or “Employer Source” (as such terms are defined in the Employment Agreement), so long as EMPLOYEE will not knowingly and intentionally provide such activity that would have the effect of diverting THE COMPANY’s business or diverting THE COMPANY’s business opportunities with current business partners. The parties hereto acknowledge that all relevant provisions of the Employment Agreement, including Article 4 thereof, are hereby amended to reflect the foregoing agreement of the parties.           13. Confidentiality. EMPLOYEE agrees to keep both the existence and the terms of this Agreement completely confidential, except that EMPLOYEE may discuss this Agreement with EMPLOYEE’s attorney, accountant, or other professional person who may assist EMPLOYEE in evaluating, reviewing, or negotiating this Agreement, and as otherwise permitted or required under applicable law and EMPLOYEE understands and agrees that his disclosure of the terms of this Agreement contrary to the terms set forth herein will constitute a breach of this Agreement; provided, that EMPLOYEE may disclose his covenants not to solicit or compete, set forth in Paragraph 11 and 12 of this Agreement, or in the relevant provisions of the Employment Agreement, to a successor employer or potential successor employer.           14. No Disparagement. EMPLOYEE agrees to refrain from any publication or any type of communication, oral or written, of a defamatory or disparaging nature pertaining to THE COMPANY, its past, present and future officers, directors or employees, except as otherwise permitted by law.           15. Technology, Products and Inventions. EMPLOYEE shall comply with Section 4.6 of the Employment Agreement with regard to Intellectual Property, research and development, and the like, as well as copyright and property rights thereto.           16. Disclosure of Information. EMPLOYEE represents and warrants that he is not aware of any material non-public information concerning THE COMPANY, its business or its affiliates that he has not disclosed to the Board of Directors of THE COMPANY prior to the date of this Agreement or that is required to be disclosed by THE COMPANY in its filings under the Securities Exchange Act of 1934 with the Securities and Exchange Commission (“SEC”) and that has not been so disclosed.           17. Cooperation. EMPLOYEE hereby agrees that:                (a) EMPLOYEE will make himself reasonably available to THE COMPANY either by telephone or, if reasonably necessary, in person upon reasonable advance notice, to assist THE COMPANY in connection with any matter relating to services performed by him on behalf of THE COMPANY prior to the Separation Date.                (b) EMPLOYEE further agrees that he will take reasonable actions to cooperate fully with THE COMPANY in relation to any investigation or hearing with the SEC or any other governmental agency, as well as in the defense or prosecution of any claims or actions now in existence, including but not limited to ongoing commercial litigation matters, shareholder 6 --------------------------------------------------------------------------------   derivative actions, and class action law suits, or which may be brought or threatened in the future against or on behalf of THE COMPANY, its directors, shareholders, officers, or employees.                (c) EMPLOYEE will take reasonable actions to cooperate in connection with such claims or actions referred to in Section 17(b) above including, without limitation, his being available to meet with THE COMPANY to prepare for any proceeding (including depositions, fact-findings, arbitrations or trials), to provide affidavits, to assist with any audit, inspection, proceeding or other inquiry, and to act as a witness in connection with any litigation or other legal proceeding affecting THE COMPANY.                (d) EMPLOYEE further agrees that should he be contacted (directly or indirectly) by any individual or any person representing an individual or entity that is or may be legally or competitively adverse to THE COMPANY in connection with any claims or legal proceedings against THE COMPANY, he will promptly notify THE COMPANY of that fact in writing. Such notification shall include a reasonable description of the content of the communication with the legally or competitively adverse individual or entity.                (e) Notwithstanding the provisions herein, EMPLOYEE acknowledges that his cooperation obligation requires him to participate truthfully and accurately in all matters contemplated under Section 17. THE COMPANY shall reimburse EMPLOYEE for all out-of-pocket expenses incurred by EMPLOYEE as a result of or arising out of any actions taken by EMPLOYEE pursuant to this Section 17, including without limitation, all travel, meal and lodging expenses. THE COMPANY shall not be required to reimburse EMPLOYEE for any attorneys fees incurred as a result of or arising out of any actions taken by EMPLOYEE pursuant to this Section 17.           18. Injunctive Relief. EMPLOYEE acknowledges that his failure to abide by Sections 10 through 13 and Section 15 of this Agreement, and their counterparts in the Employment Agreement (as amended herein), will result in immediate and irreparable damage to THE COMPANY and will entitle THE COMPANY to injunctive relief from a court having appropriate jurisdiction.           19. Representation by Attorney. EMPLOYEE acknowledges that he has been given the opportunity to be represented by independent counsel in reviewing this Agreement, and that EMPLOYEE understands the provisions of this Agreement and knowingly and voluntarily agrees to be bound by them.           20. No Reliance Upon Representations. EMPLOYEE hereby represents and acknowledges that in executing this Agreement, EMPLOYEE does not rely and has not relied upon any representation or statement made by THE COMPANY or by any of THE COMPANY’s past or present agents, representatives, employees or attorneys with regard to the subject matter, basis or effect of this Agreement other than as set forth in this Agreement. 7 --------------------------------------------------------------------------------             21. Tax Advice.                (a) THE COMPANY makes no representations regarding the federal or state tax consequences of the payments or benefits referred to above and provided for herein, and shall not be responsible for any tax liability, interest or penalty including but not limited to those which may arise under Internal Revenue Service Code Section 409A, incurred by EMPLOYEE which in any way arises out of or is related to said payments or benefits. With the exception of the regular payroll deductions for federal and state withholding and employment taxes, EMPLOYEE agrees that it shall be his sole responsibility to pay any amount that may be due and owing as federal or state taxes, interest and penalties, including but not limited to those which may arise under Internal Revenue Service Code Section 409A, arising out of the payments or benefits provided for herein.                (b) EMPLOYEE agrees and understands that he is not relying upon THE COMPANY or its counsel for any tax advice regarding the tax treatment of the payments made or benefits received pursuant to this Agreement, and EMPLOYEE agrees that he is responsible for determining the tax consequences of all such payments and benefits hereunder, including but not limited to those which may arise under Internal Revenue Service Code Section 409A, and for paying taxes, if any, that he may owe with respect to such payments or benefits.                (c) EMPLOYEE and THE COMPANY further agree that they and their attorneys will give mutual notice of any claims by the Internal Revenue Service (“IRS”), or any other taxing authority or other governmental agency (whether federal, state or local), which may be made against EMPLOYEE or THE COMPANY and its attorneys arising out of or relating to the payments or benefits hereunder.           22. Employment Agreement. The parties acknowledge and agree that all pertinent terms of the Employment Agreement (as amended herein) shall remain in full force and effect and are enforceable, to the extent any such terms therein survive or govern the period after the Term of that Employment Agreement. The event of revocation of this Separation and Release Agreement in accordance with Section 8 herein in no way affects the validity or enforceability of the Employment Agreement (except as and to the extent amended herein); and in the event of revocation, to the extent any pertinent terms of this Agreement reiterate or confirm the terms of the Employment Agreement, the Employment Agreement shall govern.           23. Entire Agreement. When read in conjunction with the Employment Agreement, this Agreement constitutes the entire Agreement between the parties relating to EMPLOYEE’s separation from and release of employment-related claims against THE COMPANY, and it shall not be modified except in writing signed by the party to be bound.           24. Severability. If a court finds any provision of this Agreement invalid or unenforceable as applied to any circumstance, the remainder of this Agreement and the application of such provision shall be interpreted so as best to effect the intent of the parties hereto. The parties further agree to replace any such void or unenforceable provision of this 8 --------------------------------------------------------------------------------   Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business, or other purposes of the void or unenforceable provision.           25. Governing Law and Jurisdiction. Notwithstanding any provision of the Employment Agreement to the contrary, this Agreement shall be governed by the laws of the State of New Jersey and any claims hereunder shall be pursued in the state or federal courts located in the State of New Jersey.           26. Survival of Terms. EMPLOYEE understands and agrees that the terms set out in this Agreement, including the confidentiality, non-compete and non-solicitation provisions, shall survive (for any applicable periods specified herein) the signing of this Agreement and the receipt of benefits thereunder.           27. Construction. The terms and language of this Agreement are the result of arm’s length negotiations between both parties hereto and their attorneys. Consequently, there shall be no presumption that any ambiguity in this Agreement should be resolved in favor of one party and against another. Any controversy concerning the construction of this Agreement shall be decided neutrally without regard to authorship.           28. Copies. This Agreement may be executed in counterparts, and each counterpart, when executed, shall have the efficacy of a signed original.           29. Attorney Fees. The Company shall reimburse EMPLOYEE for documented attorney’s fee and expenses incurred by EMPLOYEE in connection with the drafting and negotiation of this Agreement, up to and including a maximum reimbursement amount of ten thousand dollars ($10,000.00). [SIGNATURE LINES CONTAINED ON NEXT PAGE] 9 --------------------------------------------------------------------------------        EMPLOYEE AGREES THAT: (1) HE HAS FULLY READ THIS AGREEMENT; (2) HE HAS TAKEN THE TIME NECESSARY TO REVIEW COMPLETELY AND FULLY UNDERSTAND THIS AGREEMENT; AND (3) HE FULLY UNDERSTANDS THIS AGREEMENT, ACCEPTS IT, AGREES TO IT, AND AGREES THAT IT IS FULLY BINDING UPON HIM FOR ALL PURPOSES.             EMPLOYEE       /s/ Mark Auerbach       MARK AUERBACH            Sworn and subscribed before me this 1st day of December, 2006 /s/ Laurie J. Magargal Notary Public Laurie J. Magargal Notary Public of New Jersey My Commission Expires 6/30/2010               PAR PHARMACEUTICAL, INC.   PAR PHARMACEUTICAL COMPANIES, INC.   /s/ Gerard A. Martino     /s/ Peter S. Knight   By:  Gerard A. Martino   By:  Peter S. Knight 10

Exhibit 10.1   [g112391kgi001.gif] LIMITED LIABILITY PARTNERSHIP     MR JOHN GORDON EVANS   AND   MEDICOR LTD.     --------------------------------------------------------------------------------   PUT AND CALL OPTION AGREEMENT   --------------------------------------------------------------------------------   --------------------------------------------------------------------------------   THIS AGREEMENT is made on                                        2006   BETWEEN:   (1)         MEDICOR LTD., a company existing and organized under the laws of the State of Delaware, having its registered office at 4560 S. Decatur Blvd, Ste 300, Las Vegas, Nevada, 89103-5253 (“MediCor”); and   (2)         JOHN GORDON EVANS, of 1 Sea Cliff Road, Onchan, Isle of Man IM3 2JE (“GE”).   WHEREAS:   (A)        Pursuant to the Share Purchase Agreement, the Sellers agreed to sell and MediCor agreed to purchase all of the Shares on the terms and subject to the conditions contained in the Share Purchase Agreement.   (B)         The Purchase Price under the Share Purchase Agreement was satisfied in part by the issue of the Consideration Shares by MediCor to the Sellers.   (C)         MediCor and the Sellers have agreed to grant each other put and call options in respect of the Consideration Shares.   (D)        GE is the registered and beneficial owner of the Option Shares. This Agreement sets out the terms and conditions pursuant to which MediCor and GE have agreed to grant each other put and call options in respect of the Option Shares.   THE PARTIES AGREE as follows:   1.           INTERPRETATION   1.1         IN THIS AGREEMENT:   “Call Expiry Date” means the earlier of: (a) the first date on which the closing price of the Common Stock as reported on the principal stock exchange or automated quotation system on which it is traded has been equal to or greater than US$20.00 for 30 out of the 45 previous consecutive trading days; and (b) the first date on which GE no longer holds any Option Shares pursuant to transactions made in accordance with this Agreement;   “Call Option” means the right granted to MediCor by clause 3.1;   “Call Option Notice” means the written notice in the form set out in Schedule 2;   “Commercialisation Date” means the date that the BioSil inflatable saline breast implant is approved by the United States Food and Drug Administration for unrestricted commercialisation in the United States;   “Exercise Date” means the date falling eighteen months after the Commercialisation Date;   1 --------------------------------------------------------------------------------   “Option Shares” means any of the 965,250 shares of Common Stock issued to GE (or his nominee) in accordance with the Share Purchase Agreement held by GE (or his nominee) from time to time, together with any additional or replacement shares issued to GE as a consequence of the operation of clause 5;   “Nine-Month Date” means the date falling nine months after the Commercialisation Date;   “Option Date” means the date on which a Call Option Notice pursuant to clause 2.2 or a Put Option Notice pursuant to clause 3.2, is deemed to be given to either GE or MediCor, as the case may be, by virtue of clause 8;   “Public Offer” means an offer by any person to acquire the whole of the issued share capital of MediCor, whether structured as a tender offer, merger or otherwise;   “Put Expiry Date” means earliest of: (a) the first date on which the closing price of the Common Stock as reported on the principal stock exchange or automated quotation system on which it is traded has been equal to or greater than US$10.00 for any 30 out of the previous 45 consecutive trading days; (b) the first date on which GE no longer holds any Option Shares; and (c) 30 days after the Put Option becomes exercisable pursuant to clause 2.8;   “Put Option” means the right granted to GE by clause 2;   “Put Option Notice” means the written notice in the form set out in schedule 1;   “Recommended Offer” means a Public Offer which the Directors of MediCor have recommended MediCor shareholders to accept;   “Reorganisation” means any transaction instigated by MediCor, whether at the direction of its board of directors or of one or more of its shareholders, that causes the holders of Common Stock in MediCor as a whole (and including GE in particular), without making or receiving any payment of cash, to hold a different number and/or class of securities in MediCor after the transaction than they held before the transaction;   “Share Purchase Agreement” means the share purchase agreement dated 13 September 2005 entered into between MediCor and the Sellers; and   “Silicone Approval Date” means the date that any approval is obtained from the United States Food and Drug Administration (or any successor authority) for the commercialisation of silicone filled breast implants in the United States, other than the existing approvals for such commercialisation for compassionate use.   1.2         IN THIS AGREEMENT, A REFERENCE TO A CLAUSE, PARAGRAPH OR SCHEDULE, UNLESS THE CONTEXT OTHERWISE REQUIRES, IS A REFERENCE TO A CLAUSE OR PARAGRAPH OF, OR SCHEDULE TO, THIS AGREEMENT.   2 --------------------------------------------------------------------------------   1.3         TERMS DEFINED IN THE SHARE PURCHASE AGREEMENT SHALL HAVE THE SAME MEANINGS IN THIS AGREEMENT.   1.4         THE HEADINGS IN THIS AGREEMENT DO NOT AFFECT ITS INTERPRETATION.   2.           PUT OPTION   2.1         IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED IN THIS AGREEMENT, AND SUBJECT TO THE TERMS OF THIS AGREEMENT, MEDICOR GRANTS TO GE AN OPTION TO SELL, AND TO REQUIRE MEDICOR TO BUY, ALL OR ANY OF THE OPTION SHARES.   2.2         THE PUT OPTION MAY BE EXERCISED ON THE TERMS OF THIS AGREEMENT BY GE FROM TIME TO TIME ON OR AFTER THE EXERCISE DATE UNTIL THE PUT EXPIRY DATE (THE “PUT OPTION PERIOD”) BY GE DELIVERING TO MEDICOR A PUT OPTION NOTICE, PROVIDED THAT IF THE PUT EXPIRY DATE OCCURS PRIOR TO THE EXERCISE DATE THEN GE SHALL HAVE NO RIGHT TO EXERCISE THE PUT OPTION.   2.3         GE MAY AT ANY TIME, UPON NOTICE TO MEDICOR, ELECT TO TERMINATE THE PUT OPTION WHEN, NOTWITHSTANDING CLAUSE 2.2 THE PUT OPTION SHALL TERMINATE AND, NOTWITHSTANDING CLAUSE 3.2, THE CALL OPTION SHALL ALSO TERMINATE.   2.4         SUBJECT TO CLAUSE 5, WHERE SOLD PURSUANT TO THE PUT OPTION, THE PURCHASE PRICE PER OPTION SHARE (THE “PUT OPTION PRICE”) SHALL BE AS FOLLOWS:   2.4.1         US$5.50 IF THE SILICONE APPROVAL DATE HAS OCCURRED ON OR BEFORE THE NINE-MONTH DATE;   2.4.2         US$6.50 IF THE SILICONE APPROVAL DATE HAS OCCURRED AFTER THE NINE-MONTH DATE AND ON OR BEFORE THE EXERCISE DATE; OR   2.4.3         US$7.50 IF THE SILICONE APPROVAL DATE HAS NOT OCCURRED ON OR BEFORE THE EXERCISE DATE.   2.5         THE OPTION SHARES SHALL BE SOLD WITH FULL TITLE GUARANTEE FREE FROM ANY ENCUMBRANCE AND WITH ALL RIGHTS ATTACHING TO THE OPTION SHARES AT THE DATE ON WHICH THE PUT OPTION IS EXERCISED INCLUDING, WITHOUT LIMITATION, THE RIGHT TO RECEIVE ANY DIVIDEND, DISTRIBUTION OR RETURN OF CAPITAL DECLARED, PAID OR MADE IN RESPECT OF THE OPTION SHARES IN RESPECT OF PERIODS STARTING ON OR AFTER THE DATE ON WHICH THE PUT OPTION IS EXERCISED.   2.6         SUBJECT TO CLAUSE 2.9, GE AGREES THAT AT ANY TIME:   2.6.1         THE MAXIMUM NUMBER OF OPTION SHARES IN RESPECT OF WHICH GE MAY SERVE A PUT OPTION NOTICE; AND   2.6.2         THE MAXIMUM NUMBER OF OPTION SHARES WHICH GE MAY OTHERWISE TRANSFER TO A THIRD PARTY (OTHER THAN A SELLER OR CONNECTED PERSON OF ANY SELLER),   shall be 660,000 less the aggregate of   3 --------------------------------------------------------------------------------   2.6.3         THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK OBLIGED TO BE ACQUIRED BY MEDICOR FROM GE OR ANY OF THE OTHER SELLERS, WHETHER UNDER THIS AGREEMENT OR ANY PUT AND CALL OPTION AGREEMENT ENTERED INTO BY MEDICOR WITH ANY OF THE OTHER SELLERS, IN THE THREE MONTHS PRIOR TO THE DATE OF THE PUT OPTION NOTICE; AND   2.6.4         THE AGGREGATE NUMBER OF CONSIDERATION SHARES TRANSFERRED TO THIRD PARTIES (OTHER THAN A SELLER OR ANY CONNECTED PERSON OF A SELLER) BY GE OR ANY OF THE OTHER SELLERS IN THE THREE MONTHS PRIOR TO THE DATE OF THE PUT OPTION NOTICE,   and any Put Option Notice shall be deemed null and void to the extent that it purports to require the acquisition by MediCor of a number of Option Shares in excess of this amount.   2.7         FOR THE AVOIDANCE OF DOUBT, GE MAY EXERCISE THE PUT OPTION MORE THAN ONCE.   2.8         NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT, IF FOLLOWING A PUBLIC OFFER, BUT PRIOR TO THE EXERCISE DATE (UNLESS THE PUT EXPIRY DATE HAS FIRST OCCURRED), A PERSON BECOMES ENTITLED TO COMPULSORILY ACQUIRE THE COMMON STOCK WHICH IT DOES NOT OWN, THEN THE PUT OPTION SHALL BECOME IMMEDIATELY EXERCISABLE AND THE PUT OPTION PRICE SHALL BE:   2.8.1         THE PRICE SET OUT IN CLAUSE 2.4 IF THE SILICONE APPROVAL DATE AND THE COMMERCIALISATION DATE HAVE BOTH OCCURRED BY THAT TIME; AND   2.8.2         $6.50 OTHERWISE.   2.9         NOTWITHSTANDING THE PROVISIONS OF  CLAUSE 2.6, WHILE ANY RECOMMENDED OFFER REMAINS OPEN FOR ACCEPTANCE GE MAY:   2.9.1         ACCEPT THE RECOMMENDED OFFER FOR ANY NUMBER OF OPTION SHARES; OR   2.9.2         TRANSFER ANY NUMBER OF OPTION SHARES TO THE PERSON MAKING THE RECOMMENDED OFFER.   3.           CALL OPTION   3.1         IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED IN THIS AGREEMENT, AND SUBJECT TO THE TERMS OF THIS AGREEMENT, GE GRANTS TO MEDICOR AN OPTION TO BUY, AND TO REQUIRE GE TO SELL, ALL OR ANY OF THE OPTION SHARES.   3.2         SUBJECT TO CLAUSE 3.3, THE CALL OPTION MAY BE EXERCISED BY MEDICOR FROM TIME TO TIME ON OR AFTER THE COMMERCIALISATION DATE UNTIL THE CALL EXPIRY DATE (THE “CALL OPTION PERIOD”) BY MEDICOR DELIVERING TO GE A CALL OPTION NOTICE PROVIDED THAT IF THE CALL EXPIRY DATE OCCURS PRIOR TO THE COMMERCIALISATION DATE THEN MEDICOR SHALL HAVE NO RIGHT TO EXERCISE THE CALL OPTION.   3.3         NOTWITHSTANDING CLAUSE 3.2, THE CALL OPTION WILL AUTOMATICALLY TERMINATE UPON TERMINATION BY GE OF THE PUT OPTION IN ACCORDANCE WITH CLAUSE 2.3.   4 --------------------------------------------------------------------------------   3.4         SUBJECT TO CLAUSE 5, WHERE SOLD PURSUANT TO THE CALL OPTION, THE PURCHASE PRICE PER OPTION SHARE  (THE “CALL OPTION PRICE”) SHALL BE AS FOLLOWS:   3.4.1         US$7.50 IF THE CALL OPTION IS EXERCISED ON OR BEFORE THE NINE-MONTH DATE;   3.4.2         US$10.00 IF THE CALL OPTION IS EXERCISED AFTER THE NINE-MONTH DATE BUT ON OR BEFORE THE EXERICSE DATE;   3.4.3         US$15.00 IF THE CALL OPTION IS EXERCISED AFTER THE EXERCISE DATE.   3.5         THE OPTION SHARES SHALL BE SOLD WITH FULL TITLE GUARANTEE FREE FROM ANY ENCUMBRANCE AND WITH ALL RIGHTS ATTACHING TO THE OPTION SHARES AT THE DATE ON WHICH THE CALL OPTION IS EXERCISED INCLUDING, WITHOUT LIMITATION, THE RIGHT TO RECEIVE ANY DIVIDEND, DISTRIBUTION OR RETURN OF CAPITAL DECLARED, PAID OR MADE IN RESPECT OF THE OPTION SHARES IN RESPECT OF PERIODS STARTING ON OR AFTER THE DATE ON WHICH THE CALL OPTION IS EXERCISED.   3.6         GE ACKNOWLEDGES THAT MEDICOR MAY CANCEL THE OPTION SHARES WHICH ARE THE SUBJECT OF THE CALL OPTION UPON COMPLETION OF THE EXERCISE OF THE CALL OPTION IN ACCORDANCE WITH THIS AGREEMENT, WITHOUT THE REQUIREMENT FOR ANY ACTIONS WHATSOEVER TO BE TAKEN BY GE.   3.7         FOR THE AVOIDANCE OF DOUBT, MEDICOR MAY EXERCISE THE CALL OPTION MORE THAN ONCE.   4.           RESTRICTIONS   GE ACKNOWLEDGES THAT HIS RIGHTS UNDER THIS AGREEMENT ARE PERSONAL TO HIM AND THAT THE FOLLOWING OR SUBSTANTIALLY SIMILAR WORDING MAY BE INCLUDED ON THE SHARE CERTIFICATES REPRESENTING THE OPTION SHARES:   “The Shares represented by this certificate are subject to a Put and Call Option Agreement with MediCor. The rights granted to the holder of the Shares represented by this certificate under the Put and Call Option Agreement may not be transferred, assigned, encumbered or otherwise disposed of other than in accordance with the terms of the Put and Call Option Agreement. A copy of the Put and Call Option Agreement is on file at the principal executive office of MediCor.”   Upon any permitted transfer of the Option Shares, the foregoing legend shall be removed from the certificates representing such shares and the Put Option and the Call Option shall terminate with respect to such Option Shares.   5.           REORGANISATIONS   5.1         THE PUT OPTION PRICE AND THE CALL OPTION PRICE SHALL EACH BE ADJUSTED FOLLOWING ANY REORGANISATION SO THAT THE AMOUNT PAYABLE BY MEDICOR TO GE UPON THE EXERCISE IN FULL OF THE PUT OPTION OR THE CALL OPTION WOULD BE THE SAME AFTER AS BEFORE SUCH REORGANISATION, TAKING INTO ACCOUNT ANY MEDICOR SECURITIES OR RIGHTS ATTACHING TO OR DERIVING FROM THE OPTION SHARES TO RECEIVE MEDICOR SECURITIES, IN EITHER CASE RECEIVED AS A RESULT OF SUCH REORGANISATION AND WHICH SHALL ALL BE SUBJECT TO THE CALL OPTION AND THE PUT OPTION ON SUCH TERMS AS ARE NECESSARY TO GIVE EFFECT TO THIS PROVISION. CLAUSE 2.6   5 --------------------------------------------------------------------------------   SHALL BE AMENDED CORRESPONDINGLY. MEDICOR SHALL PROMPTLY NOTIFY GE OF ANY SUCH ADJUSTMENTS FOLLOWING CONSUMMATION OF ANY REORGANISATION.   5.2         IF A REORGANISATION TAKES PLACE AFTER THE OPTION DATE BUT BEFORE COMPLETION OF THE TRANSFER OR CANCELLATION OF THE OPTION SHARES IN CONNECTION WITH THE EXERCISE OF THE PUT OPTION OR CALL OPTION (AS THE CASE MAY BE), GE SHALL EITHER RENOUNCE OR, WHERE PERMISSIBLE AND REQUESTED BY MEDICOR, ASSIGN TO MEDICOR ALL RIGHTS DERIVING FROM THE OPTION SHARES WHICH ARE THE SUBJECT OF THE PUT OPTION OR CALL OPTION AS A RESULT OF THE REORGANISATION.   6.           FURTHER ASSURANCE   Each party shall, at the request of the other party, execute or procure the execution of all documents and do or procure the doing of such acts and things as may reasonably be required for the purpose of completing the transfer of the Option Shares in accordance with the terms of this Agreement.   7.           GENERAL   7.1         SUBJECT TO CLAUSE 4, GE SHALL AS SOON AS REASONABLY PRACTICAL AND IN ANY EVENT WITH 5 BUSINESS DAYS INFORM MEDICOR OF ANY TRANSFER BY HIM OF ANY OPTION SHARES.   7.2         A VARIATION OF THIS AGREEMENT IS VALID ONLY IF IT IS IN WRITING AND SIGNED BY OR ON BEHALF OF EACH PARTY.   7.3         THE FAILURE TO EXERCISE OR DELAY IN EXERCISING A RIGHT OR REMEDY PROVIDED BY THIS AGREEMENT OR BY LAW DOES NOT IMPAIR OR CONSTITUTE A WAIVER OF THE RIGHT OR REMEDY OR AN IMPAIRMENT OF OR A WAIVER OF OTHER RIGHTS OR REMEDIES. NO SINGLE OR PARTIAL EXERCISE OF A RIGHT OR REMEDY PROVIDED BY THIS AGREEMENT OR BY LAW PREVENTS FURTHER EXERCISE OF THE RIGHT OR REMEDY OR THE EXERCISE OF ANOTHER RIGHT OR REMEDY.   7.4         NO PARTY MAY (AND MAY NOT PURPORT TO) ASSIGN OR TRANSFER OR DECLARE A TRUST OF THE BENEFIT OF OR IN ANY OTHER WAY ALIENATE ANY OF ITS RIGHTS UNDER THIS AGREEMENT IN WHOLE OR IN PART.   8.           NOTICES   8.1         A NOTICE OR OTHER COMMUNICATION UNDER OR IN CONNECTION WITH THIS AGREEMENT (A “NOTICE”) SHALL BE:   8.1.1         IN WRITING;   8.1.2         IN THE ENGLISH LANGUAGE; AND   8.1.3         DELIVERED PERSONALLY OR SENT BY FIRST CLASS POST (AND AIR MAIL IF OVERSEAS) OR BY FAX TO THE PARTY DUE TO RECEIVE THE NOTICE TO THE ADDRESS SET OUT IN CLAUSE 8.3 OR TO ANOTHER ADDRESS, PERSON OR FAX NUMBER SPECIFIED BY THAT PARTY BY NOT LESS THAN 7 DAYS’ WRITTEN NOTICE TO THE OTHER PARTY RECEIVED BEFORE THE NOTICE WAS DESPATCHED.   6 --------------------------------------------------------------------------------   8.2         UNLESS THERE IS EVIDENCE THAT IT WAS RECEIVED EARLIER, A NOTICE IS DEEMED GIVEN IF:   8.2.1         DELIVERED PERSONALLY, WHEN LEFT AT THE ADDRESS REFERRED TO IN CLAUSE 8.3;   8.2.2         SENT BY MAIL, FIVE BUSINESS DAYS AFTER POSTING IT; AND   8.2.3         SENT BY FAX, WHEN CONFIRMATION OF ITS TRANSMISSION HAS BEEN RECORDED BY THE SENDER’S FAX MACHINE.   8.3         THE ADDRESS REFERRED TO IN CLAUSE 8.1.3 IS:   Name of party   Address   Fax No.   Marked for the attention of               Gordon Evans   Global House Isle of Man Business Park Douglas Isle of Man British Isles   +44 1624 661 656   Sellers’ Representative               With a copy to   Brodies LLP 15 Atholl Crescent Edinburgh EH3 8HA   +44 131 228 3878   Mr Iain Young/Mr Grant Campbell               MediCor   4560 Decatur Boulevard Suite 300 Las Vegas Nevada 89103-5253 USA   +1 70 2932 4563   Mr Donald K. McGhan   9.           GOVERNING LAW AND JURISDICTION   9.1         THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH ENGLISH LAW.   9.2         THE PARTIES IRREVOCABLY AGREE THAT THE COURTS OF ENGLAND HAVE EXCLUSIVE JURISDICTION TO SETTLE ANY DISPUTE ARISING FROM OR CONNECTED WITH THIS AGREEMENT (A “DISPUTE”) INCLUDING A DISPUTE REGARDING THE EXISTENCE, VALIDITY OR TERMINATION OF THIS AGREEMENT OR THE CONSEQUENCES OF ITS NULLITY.   9.3         THE PARTIES AGREE THAT THE COURTS OF ENGLAND ARE THE MOST APPROPRIATE AND CONVENIENT COURTS TO SETTLE ANY DISPUTE AND, ACCORDINGLY, THAT THEY WILL NOT ARGUE TO THE CONTRARY.   9.4         THE PARTIES AGREE THAT THE DOCUMENTS WHICH START ANY PROCEEDINGS AND ANY OTHER DOCUMENTS REQUIRED TO BE SERVED IN RELATION TO THOSE PROCEEDINGS MAY BE SERVED ON GE   7 --------------------------------------------------------------------------------   in accordance with clause 8. These documents may, however, be served in any other manner allowed by law. This clause applies to all proceedings wherever started.   9.5         MEDICOR IRREVOCABLY APPOINTS BIOSIL LIMITED OF TOURNAMENT WAY, IVANHOE INDUSTRIAL ESTATE, OFF SMISBY ROAD, ASHBY DE LA ZOUCH, LEICESTERSHIRE (THE “AGENT”) OR SUCH OTHER PERSON IN ENGLAND AND WALES AS MEDICOR MAY FROM TIME TO TIME NOMINATE IN WRITING TO THE GE AS AGENT TO ACCEPT PROCESS IN ENGLAND IN ANY LEGAL ACTION OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND THE DOCUMENTS TO BE ENTERED INTO PURSUANT TO IT.   9.6         MEDICOR IRREVOCABLY AGREES THAT ANY CLAIM, JUDGEMENT, OR OTHER NOTICE PROCESS OR ANY WRITTEN COMMUNICATION IN CONNECTION WITH THIS AGREEMENT OR THE DOCUMENTS TO BE ENTERED INTO PURSUANT TO IT SHALL BE SUFFICIENTLY AND EFFECTIVELY SERVED ON IT IF DELIVERED TO THE AGENT FOR THE TIME BEING AT THE UK ADDRESS NOTIFIED TO GE WHETHER OR NOT FORWARDED TO OR RECEIVED BY MEDICOR.   9.7         IF THE AGENT CEASES TO BE ABLE TO ACT AS SUCH OR CEASES TO HAVE AN OFFICE IN ENGLAND WHERE PROCESS OR WRITTEN COMMUNICATIONS MAY BE SERVED, IN EITHER CASE FOR ANY REASON WHATEVER, OR MEDICOR ELECTS TO REPLACE SUCH AGENT, MEDICOR IRREVOCABLY AGREES TO APPOINT A NEW PROCESS AGENT IN ENGLAND ACCEPTABLE TO THE SELLERS’ REPRESENTATIVE (ACTING REASONABLY) AND TO DELIVER TO THE SELLERS’ REPRESENTATIVE WITHIN 14 DAYS A COPY OF WRITTEN ACCEPTANCE OF APPOINTMENT BY THE PROCESS AGENT, SOME OTHER PERSON OR PERSONS RESIDENT IN ENGLAND OR WALES AS ITS AGENT FOR THE PURPOSES OF THIS CLAUSE AND FORTHWITH TO NOTIFY THE SELLERS’ REPRESENTATIVE IN WRITING OF SUCH APPOINTMENT. NOTHING IN THIS AGREEMENT SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.   10.         COUNTERPARTS   This Agreement may be executed in any number of counterparts, each of which when executed and delivered is an original and all of which together evidence the same agreement.   11.         INVALIDITY   If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, that shall not affect or impair:   11.1       THE LEGALITY, VALIDITY OR ENFORCEABILITY IN THAT JURISDICTION OF ANY OTHER PROVISION OF THIS AGREEMENT; OR   11.2       THE LEGALITY, VALIDITY OR ENFORCEABILITY UNDER THE LAW OF ANY OTHER JURISDICTION OF THAT OR ANOTHER PROVISION OF THIS AGREEMENT.   12.         CONFIDENTIALITY AND ANNOUNCEMENTS   12.1       SUBJECT TO CLAUSE 12.2, NO PARTY MAY, AT ANY TIME MAKE OR SEND A PUBLIC ANNOUNCEMENT, COMMUNICATION OR CIRCULAR CONCERNING THE TRANSACTIONS REFERRED TO IN THIS AGREEMENT   8 --------------------------------------------------------------------------------   UNLESS IT HAS FIRST OBTAINED EACH OTHER PARTY’S PRIOR WRITTEN CONSENT WHICH MAY NOT BE UNREASONABLY WITHHELD OR DELAYED.   12.2       CLAUSE 12.1 DOES NOT APPLY TO A PUBLIC ANNOUNCEMENT, COMMUNICATION OR CIRCULAR REQUIRED BY LAW BY A RULE OF A LISTING AUTHORITY ON WHICH MEDICOR’S SHARES ARE LISTED, A STOCK EXCHANGE ON WHICH MEDICOR’S SHARES ARE LISTED OR TRADED OR BY A GOVERNMENTAL AUTHORITY OR OTHER AUTHORITY WITH RELEVANT POWERS TO WHICH EITHER PARTY IS SUBJECT OR SUBMITS, WHETHER OR NOT THE REQUIREMENT HAS FORCE OF LAW PROVIDED THAT ANY PUBLIC ANNOUNCEMENT, COMMUNICATION OR CIRCULAR WILL SO FAR AS IS PRACTICABLE BE MADE AFTER CONSULTATION WITH THE OTHER PARTY AFTER TAKING INTO ACCOUNT THE REASONABLE REQUIREMENTS OF THE OTHER PARTY AS TO ITS TIMING, CONTENT AND MANNER OF MAKING OR DISPATCH.   13.         COSTS   13.1       EACH PARTY SHALL PAY ITS OWN COSTS AND EXPENSES RELATING TO THE NEGOTIATION, PREPARATION, EXECUTION, ENFORCEMENT AND PERFORMANCE BY IT OF THIS AGREEMENT AND OF EACH DOCUMENT REFERRED TO IN IT.   14.         SUCCESSORS AND ASSIGNS   14.1       MEDICOR AGREES THAT THE BENEFIT OF EVERY PROVISION IN THIS AGREEMENT IS GIVEN TO GE FOR HIMSELF AND FOR HIS SUCCESSORS IN TITLE. THIS AGREEMENT IS PERSONAL TO AND OTHERWISE NOT ASSIGNABLE BY GE.   15.         PAYMENTS FREE OF WITHHOLDING   15.1       IF THERE IS A DEDUCTION OR WITHHOLDING REQUIRED BY LAW FROM A PAYMENT MADE PURSUANT TO THIS AGREEMENT, THE SUM DUE FROM THE RELEVANT PARTY SHALL BE INCREASED TO THE EXTENT NECESSARY TO ENSURE THAT, AFTER THE MAKING OF ANY DEDUCTION OR WITHHOLDING, THE RECIPIENT RECEIVES A SUM EQUAL TO THE SUM IT WOULD HAVE RECEIVED HAD NO DEDUCTION OF WITHHOLDING BEEN MADE.   16.         CONTRACT (RIGHTS OF THIRD PARTIES) ACT 1999   16.1       A PERSON WHO IS NOT A PARTY TO THIS AGREEMENT HAS NO RIGHTS UNDER THE CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 TO ENFORCE ANY TERM OF THIS AGREEMENT.   9 --------------------------------------------------------------------------------   SCHEDULE 1   FORM OF PUT OPTION NOTICE   To:          MediCor Ltd. 4560 Decatur Boulevard Suite 300 Las Vegas Nevada 89103-5253 USA   Fax:   Attention: Mr Donald K. McGhan   Date:       [insert date]   PUT OPTION NOTICE   1.           I refer to the Put and Call Option Agreement dated                    2005 between Mr. Gordon Evans and MediCor Ltd (the “Option Agreement”).   2.           Terms defined in the Option Agreement shall have the same meanings in this Put Option Notice unless the context requires otherwise.   3.           I hereby notify you pursuant to clause 2.2 of the Option Agreement that I wish to exercise the Put Option in relation to [/[state number]] of Option Shares at the Put Option Price of $• for an aggregate consideration of $• to be paid to [specify account].   4.           I certify that the number of Consideration Shares transferred in the last three months, whether by myself or any of the other Sellers, is •.   5.           I enclose a stock certificate for [•] Option Shares and a duly executed stock power for [•] Option Shares. [Please issue me a new stock certificate for [balance of] shares of Common Stock.]   6.           Please complete the acquisition of the above Option Shares on [no fewer than 30 and no more than 60 Days later.]           Signed by John Gordon Evans   10 --------------------------------------------------------------------------------   SCHEDULE 2   FORM OF CALL OPTION NOTICE   [MEDICOR’S LETTERHEAD]   To:          Mr John A. Alsop Global House Isle of Man Business Park Douglas Isle of Man British Isles   Fax:   Date:       [insert date]   CALL OPTION NOTICE   1.           We refer to the Put and Call Option Agreement dated                     2005 between Mr. Gordon Evans and MediCor Ltd (the “Option Agreement”).   2.           Terms defined in the Option Agreement shall have the same meanings in this Call Option Notice unless the context requires otherwise.   3.           We hereby notify you pursuant to clause 3.2 of the Option Agreement that we wish to exercise the Call Option in relation to [/[state number]] of Option Shares at the Call Option Price of $• per share and for an aggregate consideration of $•.   4.           Within 10 Business Days of receiving this notice please:   4.1         send us the stock certificate for at least this number of Option Shares and a duly executed stock power in respect of [•] Option Shares; and   4.2         notify us of the account to which the above consideration should be paid.   5.           No later than 10 Business Days following your compliance with paragraph 4 above, we will complete the sale and purchase, pay you the above consideration and issue you (if applicable) with a new stock certificate, provided that we reserve all rights to cancel these shares as permitted by clause 3.6 of the Option Agreement whether or not paragraph 4 is complied with.             Signed by [    ] for and on behalf of MediCor Ltd.   11 --------------------------------------------------------------------------------   EXECUTED BY THE PARTIES:         Signature     Mr John Gordon Evans           Signed by   ) for   ) and on behalf of   ) MediCor Ltd.:   )             Signature   --------------------------------------------------------------------------------

Exhibit 10.4 Confirmation of OTC Warrant Transaction   Date:      April 19, 2006, as amended and restated as of April 24, 2006 To:      Gilead Sciences, Inc. (“Counterparty”) From:      Bank of America, N.A. (“Bank”) Dear Sir / Madam: The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the above-referenced transaction entered into between Counterparty and Bank on the Trade Date specified below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the Master Agreement specified below. The definitions and provisions contained in the 2000 ISDA Definitions (the “Swap Definitions”) and the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions” and, together with the Swap Definitions, the “Definitions”), in each case as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between the Swap Definitions and the Equity Definitions, the Equity Definitions will govern, and in the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. References herein to a “Transaction” shall be deemed to be references to a “Share Option Transaction” for the purposes of the Equity Definitions and to a “Swap Transaction” for the purposes of the Swap Definitions. For purposes of the Transaction, “Warrant Style”, “Warrant Type”, “Number of Warrants” and “Warrant Entitlement” (each as defined below) shall be used herein as if such terms were referred to as “Option Style”, “Option Type”, “Number of Options” and “Option Entitlement”, respectively, in the Definitions. This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. This Confirmation (notwithstanding anything to the contrary herein) shall be subject to an agreement in the 1992 form of the ISDA Master Agreement (Multicurrency Cross Border) (the “Master Agreement”) as if we had executed an agreement in such form (but without any Schedule and with the elections specified in the “ISDA Master Agreement” Section of this Confirmation) on the Trade Date of the Transaction. In the event of any inconsistency between the provisions of that Master Agreement and this Confirmation, this Confirmation will prevail for the purpose of the Transaction. The parties hereby agree that the Transaction evidenced by this Confirmation shall be the only Transaction subject to and governed by the Master Agreement. The terms of the particular Transaction to which this Confirmation relates are as follows: General Terms:   Trade Date:    April 19, 2006 Warrant Style:    European Warrant Type:    Call Effective Date:    Subject to cancellation of the OTC Warrant Transaction prior to 5:00 pm (EST) on such date by Counterparty, April 25, 2006 Seller:    Counterparty Buyer:    Bank   1 -------------------------------------------------------------------------------- Shares:    Shares of common stock, $0.001 par value, of Counterparty (Security Symbol: “GILD”) Number of Warrants:    8,529,950 Warrant Entitlement:    One (1) Share per Warrant Strike Price:    $107.7902 Premium:    $133,510,000, payable by Bank to Counterparty on the Premium Payment Date Premium Payment Date:    Trade Date + 4 Full Exchange Business Days Exchange:    NASDAQ National Market Related Exchange(s):    All Exchanges Procedures for Exercise:    Expiration Time:    11:59 pm (New York time) Expiration:    The Valuation Date Exercise Date:    The Expiration Date Automatic Exercise:    Applicable; provided that Section 3.4(a) of the Equity Definitions shall apply to Cash Settlement and Net Physical Settlement. Valuation:    Valuation Date:    The later of (a) July 30, 2013 and (b) the 20th Averaging Date. Averaging Dates:    The 20 Full Exchange Business Days beginning on and including July 1, 2013. Full Exchange Business Day:    A Scheduled Trading Day that has a scheduled closing time for its regular trading session that is 4:00 pm (New York City time) or the then standard closing time for regular trading on the Exchange and is not a Disrupted Day. Averaging Date Disruption:    Modified Postponement Settlement Terms:    Cash Settlement:    Counterparty may elect to settle the Transaction by Cash Settlement or Net Physical Settlement by providing Bank with notice (“Settlement Notice”) in accordance with the Settlement Method Election provisions herein and in Section 7.1 of the Equity Definitions. In the event that Counterparty does not so notify Bank, the Transaction shall be settled pursuant to the Default Settlement Method provision below. Settlement Currency:    USD Settlement Price:    The arithmetic mean of the Volume Weighted Average Price of the Shares (“VWAP”) calculated from 9:45 am to 3:45 pm, as observed on the Bloomberg “VAP” page, on each Averaging Date.   2 -------------------------------------------------------------------------------- Cash Settlement Payment Date:    Three (3) Currency Business Days after the Valuation Date Settlement Method Election:    Applicable with respect to Cash Settlement or Net Physical Settlement only. Electing Party:    Counterparty Settlement Method Election Date:    Three (3) days prior to the first Averaging Date Default Settlement Method:    Net Physical Settlement. Net Physical Settlement:    In the event that the Transaction is settled by Net Physical Settlement, Counterparty shall deliver to Bank on the Settlement Date a number of Shares (the “Delivered Shares”) equal to the Net Physical Settlement Amount divided by the Settlement Price, provided that in the event that the number of Shares calculated comprises any fractional Share, only whole Shares shall be delivered and an amount in cash equal to the value of such fractional share shall be payable by Counterparty to Bank in lieu of such fractional Share. Net Physical Settlement Amount:    With respect to the Valuation Date, an amount, as calculated by the Calculation Agent, equal to the Number of Warrants multiplied by the Strike Price Differential. Strike Price Differential:    In respect of the Valuation Date, (i) if the Settlement Price is greater than the Strike Price, an amount equal to the excess of such Settlement Price over the Strike Price or (ii) if such Settlement Price is less than or equal to the Strike Price, zero. Settlement Date:    Settlement Date shall occur on the first (1st) Full Exchange Business Day following the Valuation Date. Net Physical Settlement Adjustment:    Subject to the Maximum Deliverable Share Amount, if Bank receives any Delivered Shares under the Transaction that cannot be freely sold without registration under the Securities Act (as defined below) or are subject to any legend restricting transferability:    (i) Bank shall sell the Delivered Shares in a commercially reasonable manner until the amount received by Bank for the sale of the Shares (the “Proceeds Amount”) is equal to the Net Physical Settlement Amount. Any remaining Delivered Shares shall be returned to Counterparty.    (ii) If the Proceeds Amount is less than the Net Physical Settlement Amount, Counterparty shall promptly deliver upon notice from Bank additional Shares to Bank until the dollar amount from the sale of such Shares by Bank equals the difference between the Net Physical Settlement Amount and the Proceeds Amount. In no event shall Counterparty be required to deliver to Bank a number of Shares greater than the Maximum Deliverable Share Amount. Conditions to Net Physical Settlement:    (i) If, in connection with or following delivery of Shares hereunder, Bank notifies Counterparty that Bank has reasonably determined, after advice from counsel, that there is a substantial material risk that such Shares are subject to restrictions on transfer in the hands of Bank pursuant to the rules and regulations under the Securities Act of 1933, as amended (the “Securities Act”), Counterparty shall promptly make available to Bank an effective registration   3 --------------------------------------------------------------------------------    statement (the “Registration Statement”) filed pursuant to Rule 415 under the Securities Act and such prospectuses as Bank may reasonably request to comply with the applicable prospectus delivery requirements (the “Prospectus”) for the resale by Bank of such number of Shares as Bank shall reasonably specify in accordance with this paragraph, such Registration Statement to be effective and Prospectus to be current until the earliest of the date on which (a) all Delivered Shares have been sold by Bank or returned to Counterparty pursuant to the Net Physical Settlement Adjustment provision above, (b) Bank has advised Counterparty that it no longer requires that such Registration Statement be effective, (c) all remaining Delivered Shares could be sold by Bank without registration pursuant to Rule 144 promulgated under the Securities Act (the “Registration Period”) or (d) Counterparty has provided a legal opinion in form and substance satisfactory to Bank (with customary assumptions and exceptions) that the Shares issuable upon exercise of these Warrants will be freely tradable under the Securities Act upon delivery to Bank and not subject to any legend restricting transferability. It is understood that the Registration Statement and Prospectus may cover a number of Shares equal to the aggregate number of Shares (if any) reasonably estimated by Bank to be potentially deliverable by Counterparty in connection with Net Physical Settlement hereunder (not to exceed the Maximum Deliverable Share Amount);    Notwithstanding the foregoing, the Registration Statement and Prospectus provided for by this paragraph shall be subject to the same suspension of sales during “blackout dates” as provided in the following paragraph (ii).    (ii) In the event that Bank notifies Counterparty that Bank has reasonably determined after advice from counsel that there is a substantial material risk that the Shares are subject to restrictions on transfer in the hands of Bank pursuant to the rules and regulations under the Securities Act, Counterparty will enter into a registration rights agreement with Bank in form and substance reasonably acceptable to Bank, which agreement will contain among other things, customary representations and warranties and indemnification, restrictions on sales during “blackout dates” as provided for in the registration rights agreement (the “Registration Rights Agreement”) entered into between Counterparty and the Initial Purchasers in connection with Counterparty’s 0.625% Convertible Senior Notes due 2013 (the “Convertible Notes”), and other rights relating to the registration of a number of Shares equal to the number of Delivered Shares and others Shares deliverable hereunder up to the Maximum Deliverable Share Amount.    (iii) Counterparty shall promptly pay to Bank a $0.04 per Share fee with all Shares delivered in connection with Net Physical Settlement pursuant to a Registration Statement.    (iv) In the event Counterparty fails to comply with any of the conditions set forth in “Conditions to Net Physical Settlement” herein, Counterparty shall settle the Transaction through Cash Settlement; provided however, that notwithstanding the foregoing, Counterparty may deliver unregistered Shares. In such case, the value of any unregistered Shares so delivered shall be discounted to reflect their market value (calculated in a commercially reasonable manner) or the cost (calculated in a commercially reasonable manner) to Bank of trading Shares in order to close out its hedge position, if any, and such discounted value shall be used in place of the Settlement Price for purposes of determining the number of Delivered Shares. In no event shall Counterparty be required to top-up the delivery in cash.   4 -------------------------------------------------------------------------------- Limitations on Net Physical Settlement by Counterparty:      Notwithstanding anything herein or in the Master Agreement to the contrary, the number of Shares that may be delivered at settlement by Counterparty shall not exceed 8,956,448 at any time (“Maximum Deliverable Share Amount”).    Counterparty represents and warrants that the number of Available Shares as of the Trade Date is greater than the Maximum Deliverable Share Amount. Counterparty covenants and agrees that Counterparty shall not take any action of corporate governance or otherwise to reduce the number of Available Shares below the Maximum Deliverable Share Amount.    For this purpose, “Available Shares” means the number of Shares Counterparty currently has authorized (but not issued and outstanding) less the maximum number of Shares that may be required to be issued by Counterparty in connection with stock options, convertibles, and other commitments of Counterparty that may require the issuance or delivery of Shares in connection therewith. Dividends:    Extraordinary Dividends:    Any and all dividends paid by Counterparty. Share Adjustments:    Method of Adjustment:    Calculation Agent Adjustment Extraordinary Events:    Consequences of Merger Events:    (a) Share-for-Share: Cancellation and Payment (Calculation Agent Determination)    (b) Share-for-Other: Cancellation and Payment (Calculation Agent Determination)    (c) Share-for-Combined: Cancellation and Payment (Calculation Agent Determination)    With respect to any Extraordinary Events hereunder, upon the occurrence of Cancellation and Payment in whole or in part, the parties agree that the amount to be paid, in accordance with the Equity Definitions, shall constitute a Transaction Early Termination Amount, subject to satisfaction by the payment or delivery of Shares or cash as set forth in the Early Termination section below. Tender Offer:    Not Applicable Nationalization, Insolvency and Delisting:    Cancellation and Payment (Calculation Agent Determination) (subject to satisfaction by payment or delivery of Shares or cash as set forth in “Early Termination” below) Determining Party:    Buyer Additional Disruption Events:    Change in Law:    Not Applicable   5 -------------------------------------------------------------------------------- Failure to Deliver:    Not Applicable Insolvency Filing:    Applicable Hedging Disruption Event:    Not Applicable Increased Cost of Hedging:    Not Applicable Hedging Party:    Bank Loss of Stock Borrow:    Not Applicable Increased Cost of Stock Borrow:    Not Applicable Determining Party:    Bank Non-Reliance:    Applicable Agreements and Acknowledgments Regarding Hedging Activities:    Applicable Additional Acknowledgments:    Applicable Other Provisions:    Additional Agreements:    If due to the occurrence of an Extraordinary Event or otherwise Counterparty would be obligated to pay cash to Bank pursuant to the terms of this Confirmation for any reason without having had the right (other than pursuant to this paragraph) to elect to deliver Shares in satisfaction of such payment obligation, then Counterparty may elect to deliver to Bank a number of Shares (whether registered or unregistered) having a cash value equal to the amount of such payment obligation (such number of Shares to be delivered to be determined by the Calculation Agent acting in a commercially reasonable manner to determine the number of Shares that could be sold by Bank over a reasonable period of time to realize the cash equivalent of such payment obligation taking into account any applicable discount (determined in a commercially reasonable manner) to reflect any restrictions on transfer as well as the market value of the Shares). Further, if Counterparty is delivering Shares as a result of a Merger Event, the Settlement Date will be immediately prior to the effective time of the Merger Event and the Shares will be deemed delivered at such time such that Bank will be a holder of the Shares prior to such effective time. Settlement relating to any delivery of Shares pursuant to this paragraph shall occur within a reasonable period of time. The number of Shares delivered pursuant to this paragraph shall not exceed the Maximum Deliverable Share Amount and shall be subject to the provisions under “Early Termination” hereof regarding Proceeds Amount. Early Termination:    Notwithstanding any provision to the contrary, upon the designation of an Early Termination Date hereunder, a party’s payment obligation in respect of the Transaction only as determined in accordance with Second Method and Market Quotation (the “Transaction Early Termination Amount”) may, at the option of Counterparty, be satisfied by the party owing such amount by the delivery of a number of Shares equal to the Transaction Early Termination Amount divided by the Termination Price (“Early Termination Stock Settlement”); provided,   6 --------------------------------------------------------------------------------    however, that Counterparty must notify Bank of its election of Early Termination Stock Settlement by the close of business on the day that is two Exchange Business Days following the day that the notice designating the Early Termination Date is effective.    “Termination Price” means the closing price per Share on the Exchange on the Early Termination Date.    A number of Shares calculated as being due in respect of any Early Termination Stock Settlement will be deliverable on the third Exchange Business Day following the date that notice pursuant to Section 6(d)(i) of the Master Agreement specifying the number of Shares deliverable is effective. Section 6(d)(i) of the Master Agreement is hereby amended by adding the following words after the word “paid” in the fifth line thereof: “or any delivery is to be made, as applicable.”    On or prior to the Early Termination Date (if Early Termination Stock Settlement is elected), if so requested by Bank, Counterparty shall enter into a registration rights agreement with Bank in form and substance reasonably acceptable to Bank which agreement will contain among other things, customary representations and warranties and indemnification, restrictions on sales during “blackout dates” as provided for in the Registration Rights Agreement and shall satisfy the conditions contained therein and Counterparty shall file and diligently pursue to effectiveness a Registration Statement pursuant to Rule 415 under the Securities Act. If and when such Registration Statement shall have been declared effective by the Securities and Exchange Commission, Counterparty shall have made available to Bank such Prospectuses as Bank may reasonably request to comply with the applicable prospectus delivery requirements for the resale by Bank of such number of Shares as Bank shall specify (or, if greater, the number of Shares that Counterparty shall specify). Such Registration Statement shall be effective and Prospectus shall be current until the earliest of the date on which (i) all Shares delivered by Counterparty in connection with an Early Termination Date, (ii) Bank has advised Counterparty that it no longer requires that such Registration Statement be effective or (iii) all remaining Shares could be sold by Bank without registration pursuant to Rule 144 promulgated under the Securities Act (the “Termination Registration Period”). It is understood that the Registration Statement and Prospectus will cover a number of Shares equal to the number of Shares plus the aggregate number of Shares (if any) reasonably estimated by Bank to be potentially deliverable by Counterparty in connection with Early Termination Stock Settlement hereunder, but in no event exceeding the Maximum Deliverable Share Amount. On each day during the Registration Period Counterparty shall represent that each of its filings under the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other applicable securities laws that are required to be filed have been filed and that, as of the respective dates thereof and as of the date of this representation, there is no misstatement of a material fact contained therein or omission of a material fact required to be stated therein or necessary to make the statements therein not misleading.    If Counterparty does not deliver Shares subject to an effective Registration Statement as set forth above, Counterparty may deliver unregistered Shares in an amount determined by Bank based upon Bank’s commercially reasonable judgment of the market value of such Shares. In no event shall Counterparty be required to deliver to Bank a number of Shares greater than the Maximum Deliverable Share Amount.   7 --------------------------------------------------------------------------------    If Bank receives Shares in connection with an Early Termination Stock Settlement that cannot be freely sold under the Securities Act or that are subject to any legend restricting transferability, Bank shall sell such Shares in a commercially reasonable manner until the amount received by Bank for the sale of such Shares (net of transaction costs, calculated in a commercially reasonable manner) (the “Proceeds Amount”) is equal to the Transaction Early Termination Amount. Any remaining Shares shall be returned to Counterparty. If the Proceeds Amount is less than the Transaction Early Termination Amount, Counterparty shall promptly deliver additional Shares to Bank upon request until the dollar amount from the sale of such additional Shares by Bank (net of transaction costs, calculated in a commercially reasonable manner) equals the difference between the Transaction Early Termination Amount and the Proceeds Amount. In no event shall Counterparty be required to deliver to Bank a number of Shares greater than the Maximum Deliverable Share Amount. Compliance With Securities Laws:    Each party represents and agrees that it has complied, and will comply, in connection with the Transaction and all related or contemporaneous sales and purchases of Shares, with the applicable provisions of the Securities Act, the Exchange Act, and the rules and regulations thereunder, including, without limitation, Rule 10b-5 and 13e and Regulation M under the Exchange Act, provided that each party shall be entitled to rely conclusively on any information communicated by the other party concerning such other party’s market activities and provided further that Counterparty shall have no liability as a result of a breach of this representation due to Bank’s gross negligence or willful misconduct.    Each party further represents that if such party (“X”) purchases any Shares from the other party pursuant to the Transaction, such purchase(s) will comply in all material respects with (i) all laws and regulations applicable to X, and (ii) all contractual obligations of X.    Each party acknowledges that the offer and sale of the Transaction to it is intended to be exempt from registration under the Securities Act by virtue of Section 4(2) thereof. Accordingly, Counterparty represents and warrants to Bank that (i) it has the financial ability to bear the economic risk of its investment in the Transaction and is able to bear a total loss of its investment, (ii) it is an “accredited investor” as that term is defined in Regulation D as promulgated under the Securities Act and (iii) the disposition of the Transaction is restricted under this Confirmation, the Securities Act and state securities laws. On or prior to the Trade Date, Counterparty shall deliver to Bank a resolution of Counterparty’s board of directors authorizing the Transaction and such other certificate or certificates as Bank shall reasonably request.    Counterparty represents and acknowledges that as of the date hereof:    (a) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required in connection with the execution, delivery or performance by Company of this Confirmation, except such as have been obtained or made and such as may be required under the Securities Act or state securities laws;    (b) without limiting the generality of Section 13.1 of the Equity Definitions, Bank is not making any representations or warranties with respect to the treatment of the Transaction under FASB Statements 149 or 150, EITF Issue No. 00-19 (or any successor issue statements) or under FASB’s Liabilities & Equity Project.   8 -------------------------------------------------------------------------------- Account Details:    Account for payments to Counterparty:    Not Applicable Account for payment to Bank:    Bank of America, N.A.    New York, NY    ABA# 026-009-593    SWIFT: BOFAUS3N    Account Name: Bank of America    A/C: 0012333-34172 Agreement Regarding Shares:    Counterparty agrees that, in respect of any Shares delivered to Bank, such Shares shall be, upon such delivery, duly and validly authorized, issued and outstanding, fully paid and non-assessable and subject to no adverse claims of any other party. The issuance of such Shares does not and will not require the consent, approval, authorization, registration or qualification of any government authority, except such as shall have been obtained on or before the delivery date of any Shares or in connection with any Registration Statement filed with respect to any Shares. Bankruptcy Rights:    In the event of Counterparty’s bankruptcy, Bank’s rights in connection with the Transaction shall not exceed those rights held by common shareholders. For the avoidance of doubt, the parties acknowledge and agree that Bank’s rights with respect to any other claim arising from the Transaction prior to Counterparty’s bankruptcy shall remain in full force and effect and shall not be otherwise abridged or modified in connection herewith. Set-Off:    Each party waives any and all rights it may have to set-off, whether arising under any agreement, applicable law or otherwise. Collateral:    None. Transfer:    Counterparty may transfer its rights and delegate its obligations under the Transaction in accordance with Section 7 of the Master Agreement. Bank may assign its rights and delegate its obligations hereunder, in whole or in part, to any other person (an “Assignee”) without the prior consent of Counterparty, effective (the “Transfer Effective Date”) upon delivery to Counterparty of an executed acceptance and assumption by the Assignee (an “Assumption”) of the transferred obligations of Bank under the Transaction (the “Transferred Obligations”). Indemnity:    Each party agrees to indemnify the other party, its Affiliates and their respective directors, officers, agents and controlling parties (each such person being an “Indemnified Party”) from and against any and all losses, claims, damages and liabilities, joint and several, to which such Indemnified Party may become subject because of a breach of any representation or covenant hereunder, in the Master Agreement or any other agreement relating to the Master Agreement or Transaction and will reimburse any Indemnified Party for all reasonable expenses (including reasonable legal fees and expenses) as they are incurred in connection with the investigation of, preparation for, or defense of, any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto.   9 -------------------------------------------------------------------------------- Additional Agreements, Representations and Covenants of Counterparty, Etc.:     (a) Counterparty hereby represents and warrants to Bank, on each day from the Trade Date to and including the earlier of (i) April 25, 2006 and (ii) the date by which Bank is able to initially complete a hedge of its position created by the Transaction, that:     (1) it will not, and will not permit any person or entity subject to its control to, bid for or purchase Shares during such period except as disclosed in the Offering Memorandum relating to the Convertible Notes; and     (2) it has publicly disclosed all material information necessary for it to be able to purchase or sell Shares in compliance with applicable federal securities laws and that it has publicly disclosed all material information with respect to its condition (financial or otherwise).     (b) The parties hereby agree that all documentation with respect to the Transaction is intended to qualify the Transaction as an equity instrument for purposes of EITF 00-19.     (c) No collateral shall be required by either party for any reason in connection with the Transaction.     (d) Bank shall not be entitled to exercise any Warrant hereunder as provided below, and Automatic Exercise shall not apply with respect to any Warrant, to the extent the exercise of such Warrant would cause Bank to become, directly or indirectly, the beneficial owner of more than 8.0 percent of the class of Counterparty’s equity securities that is comprised of the Shares for purposes of Section 13 of the Exchange Act (in such case, an “Excess Share Owner”). Bank shall provide prior notice to Counterparty if the exercise of any Warrant hereunder would cause Bank to become directly or indirectly, an Excess Share Owner; provided that the failure of Bank to provide such notice shall not alter the effectiveness of the provisions set forth in the preceding sentence and any purported exercise in violation of such provisions shall be void and have no effect. If Bank is not entitled to exercise any Warrant because such exercise would cause Bank to become, directly or indirectly, an Excess Share Owner and Bank thereafter disposes of Shares owned by it or any action is taken that would then permit Bank to exercise such Warrant without such exercise causing it to become, directly or indirectly, an Excess Share Owner, then Bank shall provide notice of the taking of such action to Counterparty and such Warrant shall then become exercisable by Bank to the extent such Warrant is otherwise or had otherwise become exercisable hereunder. In such event, the Expiration Date with respect to such Warrant shall be the date on which Counterparty receives such notice from Bank, and the related Settlement Date shall be as soon as reasonably practicable after receipt of such notice but no more than three (3) Exchange Business Days thereafter (but in no event shall the Settlement Date occur prior to the date on which it would have otherwise occurred but for the provisions of this paragraph (d)); provided that the related Net Physical Settlement Amount shall be the same as the Net Physical Settlement Amount but for the provisions of this paragraph (d). In addition, within 30 calendar days of the Settlement Date, Counterparty shall use its reasonable efforts to refrain from activities that could reasonably be expected to result in Bank’s ownership of Shares exceeding 10% of all issued and outstanding Shares. ISDA Master Agreement With respect to the Master Agreement, Bank and Counterparty each agree as follows: Specified Entities: (i) in relation to Bank, for the purposes of: Section 5(a)(v):  not applicable Section 5(a)(vi): not applicable Section 5(a)(vii): not applicable Section 5(b)(iv): not applicable   10 -------------------------------------------------------------------------------- and (ii) in relation to Counterparty, for the purposes of: Section 5(a)(v):     not applicable Section 5(a)(vi):    not applicable Section 5(a)(vii):   not applicable Section 5(b)(iv):    not applicable “Specified Transaction” will have the meaning specified in Section 14 of the Master Agreement. The “Credit Event Upon Merger” provisions of Section 5(b)(iv) of the Master Agreement will not apply to Bank or to Counterparty. The “Automatic Early Termination” provision of Section 6(a) of the Master Agreement will not apply to Bank or to Counterparty. Payments on Early Termination. For the purpose of Section 6(e) of the Master Agreement: (i) Market Quotation shall apply; and (ii) the Second Method shall apply. “Termination Currency” means USD. Tax Representations:     (I) For the purpose of Section 3(e) of the Master Agreement, each party represents to the other party that 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 Master Agreement) to be made by it to the other party under the Master Agreement. In making this representation, each party may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of the Master Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of the Master Agreement, and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of the Master Agreement, and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of the Master Agreement; provided that it will not be a breach of this representation where reliance is placed on clause (ii) above and the other party does not deliver a form or document under Section 4(a)(iii) of the Master Agreement by reason of material prejudice to its legal or commercial position.     (II) For the purpose of Section 3(f) of the Master Agreement, each party makes the following representations to the other party:     (i) Bank represents that it is a national banking association chartered by the Office of the Comptroller of the Currency pursuant to the National Bank Act.     (ii) Counterparty represents that it is a corporation incorporated under the laws of the State of Delaware.   11 -------------------------------------------------------------------------------- Delivery Requirements: For the purpose of Sections 3(d), 4(a)(i) and (ii) of the Master Agreement, each party agrees to deliver the following documents: Tax forms, documents or certificates to be delivered are: Each party agrees to complete (accurately and in a manner reasonably satisfactory to the other party), execute, and deliver to the other party, United States Internal Revenue Service Form W-9 or W-8 BEN, or any successor of such form(s): (i) before the first payment date under this Confirmation; (ii) promptly upon reasonable demand by the other party; and (iii) promptly upon learning that any such form(s) previously provided by the other party has become obsolete or incorrect. Other documents to be delivered:   Party Required to Deliver Document   Document Required to be Delivered   When Required   Covered by Section 3(d) Representation Counterparty   Evidence of the authority and true signatures of each official or representative signing this Confirmation   Upon or before execution and delivery of this Confirmation   Yes Counterparty   Certified copy of the resolution of the Board of Directors or equivalent document authorizing the execution and delivery of this Confirmation   Upon or before execution and delivery of this Confirmation   Yes Addresses for Notices: For the purpose of Section 12(a) of the Master Agreement: Address for notices or communications to Bank for all purposes:   Address:    Bank of America, N.A.    c/o Banc of America Securities LLC    Equity Financial Products    9 West 57th Street, 40th Floor    New York, NY 10019 Attention:    Legal Department Facsimile No.:    (212) 230-8610 Telephone No.:    (212) 583-6580 Address for notices or communications to Counterparty for all purposes:   Address:    Gilead Sciences, Inc.    333 Lakeside Drive    Foster City, California 94404 Attention:    Treasurer Facsimile No.:    (650) 522-5727 Telephone No.:    (652) 522-3000 Process Agent: For the purpose of Section 13(c) of the Master Agreement: Neither Bank nor Counterparty appoints a Process Agent. Multibranch Party. For the purpose of Section 10(c) of the Master Agreement: The Office for Bank for the Transaction is Charlotte. Counterparty is not a Multibranch Party. Calculation Agent. The Calculation Agent is Bank.   12 -------------------------------------------------------------------------------- Credit Support Document. Bank: Not Applicable. Counterparty: Not Applicable. Credit Support Provider. With respect to Bank: Not Applicable. With respect to Counterparty: Not Applicable. Governing Law. This Confirmation will be governed by, and construed in accordance with, the laws of the State of New York. Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to the Transaction. Each party (i) certifies that no representative, agent or attorney of the other party has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter into the Transaction, as applicable, by, among other things, the mutual waivers and certifications provided herein. Netting of Payments. The provisions of Section 2(c) of the Master Agreement shall not be applicable to the Transaction. Basic Representations. Section 3(a) of the Master Agreement is hereby amended by the deletion of “and” at the end of Section 3(a)(iv); the substitution of a semicolon for the period at the end of Section 3(a)(v) and the addition of Sections 3(a)(vi), as follows: Eligible Contract Participant; Line of Business. Each party agrees and represents that it is an “eligible contract participant” as defined in Section 1a(12) of the U.S. Commodity Exchange Act, as amended (“CEA”), this Agreement and the Transaction thereunder are subject to individual negotiation by the parties and have not been executed or traded on a “trading facility” as defined in Section 1a(33) of the CEA, and it has entered into this Confirmation and the Transaction in connection with its business or a line of business (including financial intermediation), or the financing of its business. Amendment of Section 3(a)(iii). Section 3(a)(iii) of the Master Agreement is modified to read as follows: No Violation or Conflict. Such execution, delivery and performance do not materially violate or conflict with any law known by it to be applicable to it, any provision of its constitutional documents, any order or judgment of any court or agency of government applicable to it or any of its assets or any material contractual restriction relating to Specified Indebtedness binding on or affecting it or any of its assets. Amendment of Section 3(a)(iv). Section 3(a)(iv) of the Master Agreement is modified by inserting the following at the beginning thereof: “To such party’s best knowledge,” Additional Representations: Counterparty Representations. Counterparty (i) has such knowledge and experience in financial and business affairs as to be capable of evaluating the merits and risks of entering into the Transaction; and (ii) has consulted with its own legal, financial, accounting and tax advisors in connection with the Transaction.   13 -------------------------------------------------------------------------------- Acknowledgements: (1) The parties acknowledge and agree that there are no other representations, agreements or other undertakings of the parties in relation to the Transaction, except as set forth in this Confirmation. (2) The parties hereto intend for:     (a) the Transaction to be a “securities contract” as defined in Section 741(7) of Title 11 of the United States Code (the “Bankruptcy Code”), qualifying for the protections under Section 555 of the Bankruptcy Code;     (b) a party’s right to liquidate the Transaction and to exercise any other remedies upon the occurrence of any Event of Default under the Master Agreement with respect to the other party to constitute a “contractual right” as defined in the Bankruptcy Code;     (c) all payments for, under or in connection with the Transaction, all payments for the Shares and the transfer of such Shares to constitute “settlement payments” as defined in the Bankruptcy Code. (3) The parties acknowledge and agree that in the event of an Early Termination Date as a result of an Event of Default, the amount payable under the Master Agreement will be a cash amount calculated as described therein and that any delivery specified in the Transaction will no longer be required. Amendment of Section 6(d)(ii). Section 6(d)(ii) of the Master Agreement is modified by deleting the words “on the day” in the second line thereof and substituting therefor “on the day that is three Local Business Days after the day”. Section 6(d)(ii) is further modified by deleting the words “two Local Business Days” in the fourth line thereof and substituting therefor “three Local Business Days.” Amendment of Definition of Reference Market-Makers. The definition of “Reference Market-Makers” in Section 14 is hereby amended by adding in clause (a) after the word “credit” and before the word “and” the words “or to enter into transactions similar in nature to the Transactions.” Consent to Recording. Each party consents to the recording of the telephone conversations of trading and marketing personnel of the parties and their Affiliates in connection with this Confirmation. To the extent that one party records telephone conversations (the “Recording Party”) and the other party does not (the “Non-Recording Party”), the Recording Party shall in the event of any dispute, make a complete and unedited copy of such party’s tape of the entire day’s conversations with the Non-Recording Party’s personnel available to the Non-Recording Party. The Recording Party’s tapes may be used by either party in any forum in which a dispute is sought to be resolved and the Recording Party will retain tapes for a consistent period of time in accordance with the Recording Party’s policy unless one party notifies the other that a particular transaction is under review and warrants further retention. Disclosure. Each party hereby acknowledges and agrees that Bank has authorized Counterparty to disclose the Transaction and any related hedging transaction between the parties if and to the extent that Counterparty reasonably determines (after consultation with Bank) that such disclosure is required by law or by the rules of NASDAQ or any securities exchange. Notwithstanding any provision in this Confirmation or the Master Agreement, in connection with Section 1.6011-4 of the Treasury Regulations, the parties hereby agree that each party (and each employee, representative, or other agent of such party) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such U.S. tax treatment and U.S. tax structure, other than any information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws. Severability. If any term, provision, covenant or condition of this Confirmation, 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 Confirmation had   14 -------------------------------------------------------------------------------- been executed with the invalid or unenforceable provision eliminated, so long as this Confirmation as so modified continues to express, without material change, the original intentions of the parties as to the subject matter of this Confirmation and the deletion of such portion of this Confirmation will not substantially impair the respective benefits or expectations of parties to this Confirmation; provided, however, that this severability provision shall not be applicable if any provision of Section 2, 5, 6 or 13 of the Master Agreement (or any definition or provision in Section 14 to the extent that it relates to, or is used in or in connection with any such Section) shall be so held to be invalid or unenforceable. Affected Parties. For purposes of Section 6(e) of the Master Agreement, each party shall be deemed to be an Affected Party in connection with Illegality and any Tax Event.   15 -------------------------------------------------------------------------------- Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to us.   Very truly yours, BANK OF AMERICA, N.A. By:   /s/ ERIC P. HAMBLETON Name:   Eric P. Hambleton Title:   Authorized Signatory Confirmed as of the date first above written:   GILEAD SCIENCES, INC. By:   /s/ JOHN F. MILLIGAN, PH.D. Name:   John F. Milligan, Ph.D. Title:   Executive Vice President and Chief Financial Officer

  Exhibit 10.1 MEMBERSHIP INTEREST PURCHASE AGREEMENT [LA Office Purchase]      This MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”) is made and entered into this 26th day of January, 2006 (the “Signing Date”), by and among ARN TELLEM (herein called the “Buyer”), SFX SPORTS GROUP, INC. (herein called “Seller”), a Delaware corporation and SFX SPORTS GROUP, LLC (herein called the “Company”), a Delaware limited liability company. RECITALS:      A. The Seller and Buyer own all of the issued and outstanding membership interests (the “Member Interests”) of Company; and      B. The Seller desires to sell to Buyer, and Buyer desires to acquire from the Seller, all of the Member Interests owned by the Seller (herein called the “Seller Member Interests”), in consideration of the payment by Buyer of the purchase price provided for herein, all upon the terms and subject to the conditions hereinafter set forth. AGREEMENT      In consideration of the premises and of the respective representations, warranties, covenants and agreements of the parties contained herein, it is hereby agreed as follows: 1. Definitions. As used in this Agreement, each of the following terms has the meaning provided below:      1.1 “Adjustment Statement” means the Adjustment Statement attached hereto as Exhibit “A”.      1.2 “Adjustment Up Amount” means the sum total amount of all of the following as of the Closing Date:      (a) the Company’s cash on hand, if any, as listed on the Adjustment Statement;      (b) the amount of expenses paid by the Company for operations of the business of the LA Assets attributable to periods of time on or after January 1, 2006 through the Signing Date, including without limitation, those expenses itemized as “January Expenses” in the Adjustment Statement; and      (c) the Company’s prepaid expenses and advances as listed on the Adjustment Statement.      1.3 “Adjustment Down Amount” means the sum total amount of all of the following as of the Closing Date:      (a) the Company’s accounts payable or unpaid ordinary operating expenses of the Company to the extent properly attributable in accordance with GAAP to periods of time prior to the Closing Date, as set forth on the Adjustment Statement; and      (b) revenues received by the Company prior to the Closing Date that relate to the LA Assets, but only to the extent such revenues are properly attributable in accordance with GAAP to periods of time after the Closing Date, as listed on the Adjustment Statement.   --------------------------------------------------------------------------------        1.4 “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person.      1.5 “Applicable Law” means any statute, law, rule or regulation or any judgment, order, writ, injunction or decree of any governmental entity to which a specified person or property is subject.      1.6 “Applicable Sport” means all sports other than basketball and baseball.      1.7 “Distributed Assets” means all of the Company’s properties, contracts, agreements, receivables, deposits, furniture, fixtures, equipment, trade names, trademarks, licenses, client relationships and other assets other than the LA Assets. The Pelinka Assets, the Old Basketball Receivables, the Old Baseball Receivables, one-half of the 05 Basketball Receivables and the Retained Basketball Tickets are part of the Distributed Assets.      1.8 “Distribution Agreement” means that certain Distribution Agreement in the form of Exhibit “B” attached hereto which will be signed by the Company prior to the Closing for the purpose of assigning and distributing the Distributed Assets to the Seller.      1.9 “Encumbrances” means liens, charges, pledges, options, mortgages, deeds of trust, security interests, claims, restrictions (whether on voting, sale, transfer, disposition or otherwise), licenses, sublicenses, easements and other encumbrances of every type and description, whether imposed by law, agreement, understanding or otherwise.      1.10 “Equity Agreement” means that certain Letter Agreement executed and entered into by and between Buyer and Seller and dated January 28, 2005 regarding the creation of the Company and the issuance of a profits interest in the Company to the Buyer on and subject to the terms provisions and conditions contained therein.      1.11 “GAAP” means generally accepted accounting principles, consistently applied.      1.12 “LA Agents" means those sports agents listed on Schedule 1.12 attached hereto.      1.13 “LA Assets" means, except for the Pelinka Assets, the following:      (a) All of the client contracts and client relationships with clients of the Company that are principally served by any one or more of the LA Agents and all papers, documents, notes, files and records that relate to such clients and such client relationships, including but not limited to those contracts listed on Schedule 1.13(a);      (b) All furniture, fixtures, equipment and other tangible assets located in the LA Office as of the date of the execution of this Agreement, including but not limited to those listed on Schedule 1.13(b) (but specifically excluding the Retained Basketball Tickets);      (c) The notes and interest receivable owed by certain employees of the Company to Seller or Seller’s affiliates as listed on Schedule 1.13(c) attached hereto (“Agent Notes”);      (d) The Company’s leasehold estate in the LA Office created pursuant to that certain Office Lease between Duesenberg Investment Company, as landlord, and Seller, as tenant, which has been previously assigned by Seller to the Company; 2 --------------------------------------------------------------------------------        (e) Any goodwill or other similar intangible assets to the extent relating to, or derived from, the sports agency practice in the LA Office (but specifically excluding the Company’s names, trade names, trademarks and the goodwill associated therewith);      (f) All of the Company’s rights and interests under employment agreements with any of the LA Agents;      (g) The (i) prepaid expenses listed on Schedule 1.13(g) attached hereto and (ii) the Prepaid Expenses and Advances listed under the “Adjustment Up” heading on the Adjustment Statement; and      (h) All of the Company’s accounts receivables that are owed by clients of the Company that are principally served by any one or more of the LA Agents other than the Old Baseball Receivables, Old Basketball Receivables, receivables associated with the Pelinka Assets and 1/2 of the 05 Basketball Receivables.      1.14 “LA Office” means the Company’s leased space located on the third floor of Topa Plaza, 11911 San Vicente Boulevard, Los Angeles, California 90049 and containing approximately 5,043 rentable square feet and commonly known as Suite 320 and Suite 325.      1.15 “Old Baseball Receivables” means the Company’s accounts receivable owed by baseball clients principally serviced by the LA Agents and originally invoiced on or before December 31, 2005, including, without limitation, those accounts receivable listed on Schedule 1.15, less any amounts collected by the Company prior to the Closing Date. The amount of the Old Baseball Receivables shown on Schedule 1.15 are net of any consulting fees that may be payable on account of the corresponding item.      1.16 “Old Basketball Receivables” means the Company’s accounts receivable owed by basketball clients principally serviced by the LA Agents and originally invoiced on or before December 31, 2005, including, without limitation, those accounts receivable listed on Schedule 1.16, less any amounts collected by the Company prior to the Closing Date. The amount of the Old Basketball Receivables shown on Schedule 1.16 are net of any consulting fees that may be payable on account of the corresponding item.      1.17 “Pelinka Assets” means the following:      (a) All of the client contracts and client relationships with, and all accounts receivables owed by, clients of the Company that are principally served by Rob Pelinka and all papers, documents, notes, files and records that relate to such clients and such client relationships;      (b) All furniture, fixtures, equipment and other tangible assets located in the LA Office as of the date of the execution of this Agreement that are used exclusively by Rob Pelinka, even if any such assets are included in the lists attached as Schedule 1.13(b), including, without limitation, (i) any computers, laptops, blackberries and similar items issued to and used by Pelinka, and (ii) any furniture used exclusively by Pelinka; and      (c) All of the Company’s rights and interests under its employment agreement with Rob Pelinka.      1.18 “Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, enterprise, unincorporated organization or governmental entity. 3 --------------------------------------------------------------------------------        1.19 “Tax” or “Taxes” means any and all taxes, assessments, imposts, charges, duties, withholdings, fees, levies and other similar charges of any kind whatsoever, and any interest, penalties, additions to tax and additional amounts, that are imposed, assessed or levied by any government or any political subdivision, agency, commission or authority thereof or any taxing authority.      1.20 “Tax Return” means any return, report, declaration, claim for refund or credit, or information return or statement relating to Taxes, including any schedules or attachments thereto, and including any amendments or supplements thereto.      1.21 “‘05 Basketball Receivables” means the Company’s accounts receivable attributable to the 2005 portion of the 2005-2006 basketball season listed on Schedule 1.21. The amount of the ‘05 Basketball Receivables shown on Schedule 1.21 are net of any consulting fees that may be payable on account of the corresponding item.      1.22 “Retained Basketball Tickets” means the (i) the season tickets listed on Schedule 1.22 for the remaining games in the Los Angeles Clippers and Los Angeles Lakers 2005-2006 season and (ii) the right to purchase such season tickets in subsequent years. 2. Purchase and Sale.      2.1 Purchase and Sale. Subject to the terms and conditions of this Agreement, at the Closing, Seller shall sell and deliver to Buyer, and Buyer shall purchase from the Seller, all of the Seller Member Interests, free and clear of all Encumbrances.      2.2 Further Assurances. After the Closing, the Seller will execute and deliver, or cause to be executed and delivered, such other instruments of conveyance, assignment, transfer and delivery and will take such other actions as Buyer may reasonably request in order to (i) more effectively transfer, convey, assign and deliver the Seller Member Interests to Buyer and (ii) cause any LA Assets that may have inadvertently remained titled in the name of Seller (or any of its Affiliates) to be assigned to the Company. 3. Closing; Purchase Price.      3.1 Closing Date. The closing of the transactions provided for in this Agreement (the “Closing”) shall take place at the law offices of Gardere Wynne Sewell LLP, 1000 Louisiana, Suite 3400, Houston, Texas 77002 on the Signing Date but will be effective as of January 1, 2006 (the “Closing Date”).      3.2 Purchase Price. Subject to the adjustments specified in Section 3.3 hereof, the consideration to be paid by Buyer to Seller for the Seller Member Interests shall be the cash sum of $12,000,000.      3.3 Cash Purchase Price Adjustments. Buyer and the Seller agree that the amount of cash required to be paid by Buyer to Seller at Closing as specified in Section 3.2 hereof will be (i) increased by the Adjustment Up Amount and (ii) decreased by the Adjustment Down Amount as set forth on the Adjustment Statement (such amount, as so adjusted, being herein called the “Cash Purchase Price”).      3.4 Bonus Payments and Agent Note Balance.      (a) Within ten (10) business days after the Signing Date, Seller shall pay discretionary bonuses in the amounts and to the individuals listed on Schedule 3.4(a), less, in each case, applicable withholding. 4 --------------------------------------------------------------------------------        (b) Effective as of the Closing Date, Seller will offset the principal and outstanding interest due on the Agent Notes by the amounts of the contractual bonuses to be paid for 2005, less withholding, as set forth on Schedule 3.4(b), resulting in principal and interest outstanding due on the Agent Notes of $704,961.48 (the “Tentative Agent Note Balance”).      (c) Pau Gasol has prepaid $500,000 of his fees (“Prepaid Basketball Fees”) for the 2005-06 season and a portion of the 2006-2007 season, of which $75,000 is attributable to 2005. The parties have agreed to apply the Prepaid Basketball Fees as follows:      (i) $37,500 of the Prepaid Basketball Fees have been retained by Seller as its revenue.      (ii) $37,500 of the Prepaid Basketball Fees have been retained by Seller but applied as a reduction in the Tentative Agent Note Balance.      (iii) The remaining $425,000 of the Prepaid Basketball Fees have been retained by Seller but applied as a reduction in the Tentative Agent Note Balance.      (d) As a result of the payment of a prepaid expense by Joe Johnson of $67,000, Seller shall apply such sum against the Tentative Agent Note Balance.      (e) As a result of the adjustments to the Tentative Agent Note Balance referenced in Section 3.4(c)(ii) and (iii) and Section 3.4(d) hereof, the resulting balance of the Agent Notes is $175,461.48 (the “Agent Note Balance”).      3.5 Receivables.      (a) Billing and Collection of Receivables.      (i) Consistent with past practice, the Company, as Seller’s agent, shall bill, and shall exercise commercially reasonable efforts to collect, the Old Basketball Receivables, the Old Baseball Receivables and the Seller’s one-half (1/2) of the ‘05 Basketball Receivables.      (ii) The Company shall not forgive or reduce any of the Old Baseball Receivables or Old Basketball Receivables without the prior written consent of Seller. If such Old Basketball Receivables and Old Baseball Receivables are not all collected in full by December 31, 2006, then (i) Company’s right to collect any such remaining unpaid Old Baseball Receivables and Old Basketball Receivables, as Seller’s agent, shall be terminated upon Seller’s request and (ii) Company and Buyer shall each be thereafter obligated to provide reasonable assistance to Seller with regard to the collection of all such assigned unpaid Receivables. Seller consents to the reductions in the Old Basketball Receivables payable by clients Tracey McGrady and Jermaine O’Neal as described in Schedule 3.5(a)(ii).      (iii) The Company shall not forgive or reduce any of the ‘05 Basketball Receivables without the prior written consent of Seller; provided that no consent shall be required if (i) the Company reduces receivables as a result of a player’s suspension in proportion to the salary lost and fines paid as a result of such suspension, (ii) the Company’s reduction also applies in like manner to the 2006-2007 basketball season or (iii) the Company pays Seller its share of the ‘05 Basketball Receivables as if such receivable had not been forgiven or reduced. 5 --------------------------------------------------------------------------------        (b) Reporting and Payment to Seller for Old Receivables. Commencing on February 10, 2006, and continuing on the 10th day of every month thereafter, the Company shall (i) remit to Seller 100% of the payments attributable to the Old Baseball Receivables and Old Basketball Receivables received by the Company during the prior month and (ii) deliver to Seller a summary statement reflecting the payments received with respect to the Old Baseball Receivables and Old Basketball Receivables during such month and the remaining unpaid balance of all such Old Baseball Receivables and Old Basketball Receivables as of the end of such month.      (c) Reporting and Payment to Seller for ‘05 Basketball Receivables.      (i) On January 10, 2007, the Company shall (x) provide to Seller a summary statement reflecting the payments received with respect to the ‘05 Basketball Receivables through December 31, 2006 and the remaining unpaid balance of all such ‘05 Basketball Receivables as of December 31, 2006 and (y) remit to Seller the following amounts:      (A) 50% of the payments attributable to the ‘05 Basketball Receivables received by Company through December 31, 2006; plus      (B) the lesser of (x) the Agent Note Balance and (y) 50% of the payments attributable to the ‘05 Basketball Receivables received by Company through December 31, 2006. The Agent Note Balance will be reduced by the amount of payments made to the Seller pursuant to clause (B), and the Company will retain any portion of the payments attributable to the ‘05 Basketball Receivables received by Company through December 31, 2006 to the extent such amounts exceed the Company’s remittance obligations in this Section 3.5(c)(i).      (ii) Commencing on February 10, 2007, and continuing on the 10th day of every month thereafter, for so long as any of the ‘05 Basketball Receivables remain outstanding and unpaid, the Company shall (x) provide to Seller a summary statement reflecting the payments received with respect to the ‘05 Basketball Receivables during the prior month and the remaining unpaid balance of all such ‘05 Basketball Receivables as of the end of such month and (y) remit to Seller the following amounts:      (A) 50% of the payments attributable to the ‘05 Basketball Receivables received by Company during the prior month; plus      (B) the lesser of (x) the then Agent Note Balance, if any, and (y) 50% of the payments attributable to the ‘05 Basketball Receivables received by Company during the prior month. The Agent Note Balance will be reduced by the amount, if any, of payments made to the Seller pursuant to clause (B), and the Company will retain any portion of the payments attributable to the ‘05 Basketball Receivables received by Company during the prior month to the extent such amounts exceed the Company’s remittance obligations in this Section 3.5(c)(ii).      (iii) Any remaining Agent Note Balance as of September 30, 2007 shall be paid in a single lump sum amount by Buyer to Seller on or before October 15, 2007. 6 --------------------------------------------------------------------------------        3.6 Jalen Rose. The Seller has retained, as part of the Distributed Assets, the client contract with Jalen Rose. The Seller shall bill, and shall exercise commercially reasonable efforts to collect, the Jalen Rose receivable pursuant to his contract and shall remit to Company, within 10 business days of receipt, 25% of the fees payable by Rose pursuant to Rose’s contract in consideration for Company’s services and assistance with regard to the client relationship with Jalen Rose. Each of Seller and Company shall be free to pursue the right to represent Jalen Rose in regard to any future contract negotiations without any contractual obligation hereunder to the other party. 4. Representations and Warranties.      4.1 Representations and Warranties of Seller. The Seller represents and warrants to Buyer as of the date hereof as follows:      (a) Authorization and Validity of Agreement. The Seller has the power and authority to consummate the transactions contemplated hereby, including the execution, delivery and performance of this Agreement by the Seller. This Agreement has been duly executed and delivered by the Seller and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.      (b) No Approvals or Notices Required; No Conflict with Instruments. The execution, delivery and performance of this Agreement by the Seller and the consummation by the Seller of the transactions contemplated hereby (i) will not violate (with or without the giving of notice or the lapse of time or both) or require any consent, approval, filing or notice under, any provision of any Applicable Law and (ii) will not require any consent or approval under, result in the creation of any Encumbrance on the Seller Member Interests under, conflict with, or result in the breach or termination of any provision of, or constitute a default under, or result in the acceleration of the performance of the obligations of the Seller under the charter or bylaws of the Seller or any indenture, mortgage, deed of trust, lease, licensing agreement, contract, instrument or other agreement to which the Seller or any of its assets is a party or by which the Seller is bound or affected.      (c) Certain Fees. The Seller has not employed any broker or finder or incurred any other liability for any brokerage fees, commissions or finders’ fees in connection with the transactions contemplated hereby.      (d) Seller Member Interests. The Seller Member Interests have been duly authorized and validly issued. The Seller Member Interests constitute all of the issued and outstanding Member Interests in the Company (other than the profit interests granted to Buyer pursuant to the Equity Agreement). The Seller is the record and beneficial owner of, and upon consummation of the transactions contemplated hereby, Buyer will acquire, good, valid and marketable title to, the Seller Member Interests, free and clear of all Encumbrances. The Seller Member Interests are transferable and assignable to Buyer as contemplated by this Agreement without the waiver of any right of first refusal or the consent of any other party being obtained, and there exists no preferential right of purchase in favor of any person with respect to the Seller Member Interests.      4.2 Representations and Warranties of Buyer. Buyer represents and warrants to the Seller as of the date hereof, as follows:      (a) Validity of Agreement. This Agreement has been duly executed and delivered by Buyer and constitutes a legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. 7 --------------------------------------------------------------------------------        (b) No Approvals or Notices Required; No Conflict with Instruments. The execution, delivery and performance of this Agreement by Buyer and the consummation by him of the transactions contemplated hereby (i) will not violate (with or without the giving of notice or the lapse of time or both), or require any consent, approval, filing or notice under any provision of any Applicable Law and (ii) will not require any consent or approval under, conflict with, or result in the breach or termination of any provision of, or constitute a default under, or result in the acceleration of the performance of the obligations of Buyer, under any indenture, mortgage, deed of trust, lease, licensing agreement, contract, instrument or other agreement to which Buyer is a party or by which Buyer or any of his assets or properties is bound or affected.      (c) Certain Fees. Buyer has not employed any broker or finder or incurred any other liability for any brokerage fees, commissions or finders’ fees in connection with the transactions contemplated hereby.      (d) Buyer’s Familiarity with Company Business. Buyer, as an executive officer of the Company, has full knowledge of the legal, financial and operational status of the Company and its business operations and has had the opportunity to review all of the information of the Company that he considers necessary or appropriate for deciding upon the acquisition of the Seller Member Interests. Buyer, in connection with this acquisition has not been induced by, and has not relied upon, (i) any representation, warranty, statement or agreement, whether express or implied, and whether made in writing or orally, of Seller, or any of its respective directors, officers, employees, Affiliates, stockholders, partners, agents, advisors or representatives (collectively, “Related Persons”) other than those expressly set forth in this Agreement or (ii) any other information (including presentations, projections, forecasts, budgets and estimates) provided or made available to Buyer or any of his Related Persons prior to or concurrently with the execution of this Agreement.      (e) Buyer’s Acknowledgment of the Distribution Agreement. Buyer specifically acknowledges that (i) the Distributed Assets will be assigned by the Company to the Seller for no consideration prior to the Closing, and (ii) by acquiring the Seller Member Interests, Buyer will not be acquiring any direct or indirect ownership in the Distributed Assets. 5. Other Covenants Relating to this Transaction.      5.1 Company Employees. Attached hereto as Schedule 5.1 is a list of those employees who currently work for the Company in the LA Office (“LA Employees”). The Seller and Buyer mutually agree as follows with respect to the LA Employees:      (a) LA Employees. Buyer will cause the Company to continue to employ all of the LA Employees after the Closing Date with at least the salary as each such LA Employee is currently employed by the Company.      (b) Ongoing Obligations to the LA Employees. Buyer acknowledges that, from and after the Closing, (A) all LA Employees will cease to participate in all of the Clear Channel employee benefit plans and (B) the Company shall be solely responsible for (i) establishing and thereafter maintaining its own employee benefit plans for the LA Employees at the Company’s sole cost and expense and (ii) paying and discharging all salary, wages, severance costs, benefits and claims (including workers compensation or other similar benefits and claims) arising out of or relating to the employment of the Continued Employees after the Closing Date, including, without limitation, the following: 8 --------------------------------------------------------------------------------        (i) all liabilities for accrued vacation, holiday, sick leave, salary continuation or short-term disability benefits;      (ii) the payment of accrued payments or bonuses under any annual or long-term management or employee incentive or bonus plans, programs or arrangements; and      (iii) any retirement plan and non-qualified deferred compensation plan arising out of or relating to the employment of the Company Employees.      (c) Health Insurance and COBRA. Seller shall continue to provide, or cause to be provided, for all of the LA Employees the currently provided health and hospitalization plan through January 31, 2006. Buyer will cause the Company to obtain and maintain from and after February 1, 2006 a health and hospitalization plan for the LA Employees. The Seller shall not provide any continuation health coverage pursuant to the Consolidated Omnibus Reconciliation Act of 1985 (also known as “COBRA”) to any of the Company Employees.      (d) Indemnity Related to LA Employees. Buyer shall indemnify, defend and hold the Seller harmless from and against any claim, demand or cause of action that may be brought by any LA Employee against the Seller (or its Affiliates) arising as a result of the transactions contemplated herein or after the Closing Date to the extent relating to such LA Employee’s employment relationship with the Company.      5.2 Indemnities for Operational Obligations. On and subject to the other specific covenants and agreements contained herein, (i) Buyer shall indemnify, defend and hold Seller harmless from and against any claim, demand or cause of action that may be brought against Seller to the extent arising from a failure of the Company to pay any of its debts, liabilities, contractual obligations or other operating obligations that relate to the LA Assets (including without limitation, all obligations and liabilities under the office lease for the LA Office) arising, or related to periods, after the Closing Date and (ii) Seller shall indemnify, defend and hold Buyer and Company harmless from and against any claim, demand or cause of action that may be brought against Buyer or Company to the extent arising from a failure of the Company to pay any of its debts, liabilities, contractual obligations or other operating obligations that relate to the LA Assets arising, or related to periods, prior to the Closing Date (including without limitation, contribution obligations to the Company’s retirement plans for the LA Employees accrued on or before the Closing Date, which will be made by Seller as required by the retirement plans and consistent with past practices).      5.3 Seller’s Indemnity of Buyer for Distributed Asset Obligations. On and subject to the other specific covenants and agreements contained herein, Seller shall indemnify, defend and hold Buyer and the Company harmless from and against any claim, demand or cause of action that may be brought against Buyer or the Company to the extent related to or arising from any matter related to the Distributed Assets.      5.4 Certain Tax Matters. The Seller shall cause to be prepared and filed all Tax Returns for the Company for all periods ending on or prior to the Closing Date, which are filed after the Closing Date. Seller shall reimburse Buyer for any Taxes of the Company to the extent attributable to any periods on or before the Closing Date within five (5) days after payment by Buyer or the Company of such Taxes, including, without limitation, any Taxes attributable to the distribution of the Distributed Assets pursuant to the Distribution Agreement. Notwithstanding the foregoing, and for the avoidance of doubt, Seller shall assume responsibility for, and indemnify Buyer and Company against, all Taxes relating to periods prior to the Closing Date, including but not limited to the disputed 2003 City of Los Angeles Business Taxes. Buyer shall permit the Seller to review and comment on each Tax Return that covers any period of time which begins prior to the Closing Date and ends after the Closing Date prior to filing, and Buyer 9 --------------------------------------------------------------------------------   shall give due consideration to all comments reasonably provided by the Seller in connection with such Tax Returns.      5.5 Mutual No-Solicit and Non-Compete Agreement.      (a) For a period of two years following the Closing Date, (i) Buyer covenants to refrain, and cause the Company to refrain, from actively inducing or soliciting any of the employees, agents and clients of Seller from leaving Seller and (ii) Seller covenants to refrain from actively inducing or soliciting the Company’s employees, agents and clients from leaving Buyer or the Company. In addition to the foregoing, Buyer covenants to cause, for a period of two years following the Closing Date, any of the Company’s successors or assigns in which Buyer owns an interest or by which Buyer is employed to refrain from actively inducing or soliciting any of the Seller’s clients that are currently being principally served by Rob Pelinka.      (b) Buyer further covenants and agrees with Seller as follows:      (i) Buyer agrees to refrain, and to cause the Company to refrain, from using or exploiting, at any time following the Closing Date, without regard to the 2 year limitation in Section 5.5(b)(ii) below, any of Seller’s confidential information and trade secrets related to the Distributed Assets to which Buyer gained access prior to the Closing. Confidential Information and trade secrets shall not include (A) information which is or becomes generally available to the public other than as a result of a disclosure by (i) Buyer or at Buyer’s insistence or direction or (ii) any other person who directly or indirectly receives such information from Buyer, (B) information concerning business opportunities that have not advanced beyond the mere conceptual planning stages at the time of the Closing or (C) information relating to clients who leave Seller after the Closing (subject to the rights of the clients in any such information).      (ii) Buyer covenants to refrain from, and to cause the Company to refrain from, pursuing or engaging in, for two (2) years following the Closing Date, any specific, identifiable and discrete proprietary business opportunity      (A) with respect to opportunities involving acquisitions of third parties, that Seller and the third party are actively pursuing (beyond mere conceptual planning) at the time of the Closing; and      (B) (including, any business opportunity substantially similar thereto), with respect to non-acquisition or non-third party opportunities, that Seller is actively pursuing (beyond mere conceptual planning) at the time of the Closing. Notwithstanding the foregoing provisions, a pre-existing sports or entertainment agency with which Buyer may become affiliated after the Closing Date will not be prevented from pursuing any business opportunity that is generally available to the public provided that Buyer does not disclose any of Seller’s confidential information with respect to such opportunity.      (iii) Buyer covenants to refrain from, and to cause the Company to refrain from, providing representation services for professional athletes in any Applicable Sport at any time within two (2) years following the Closing Date; provided, however, this restriction will not preclude Buyer (or the Company) from (i) acting as an owner, partner, executive, investor or in any general management or consulting position with a pre- 10 --------------------------------------------------------------------------------   existing sports or entertainment agency or business as long as Buyer is not involved, directly or indirectly, in the day-to-day business activities of agents that represent professional athletes in any Applicable Sport or (ii) engaging in limited representation of professional football players so long as Buyer, in an agency or business in which he is the majority owner, does not start a “football practice” with agents who devote a substantial part of their time and efforts to the representation of football players.      5.6 Change of Company’s Name. Buyer covenants and agrees with the Seller that, from and after the Closing, the Company will cease to conduct business using the trade names “SFX”, “Clear Channel”, “CC”, “CCE” or any confusingly similar name or portion thereof. In furtherance of the foregoing, Buyer authorizes the Seller to prepare and file with the Delaware Secretary of State, between the date hereof and the Closing Date, such documents as may be necessary to change the name of the Company to “Tellem & Associates, LLC”.      5.7 Malpractice Claims. Notwithstanding Section 5.2 hereof, the parties hereto agree as follows:      (a) Seller shall indemnify, defend and hold Buyer and the Company harmless from and against any claim, demand or cause of action (“Claim”) that may be brought by a client of the Company against Buyer or the Company asserting negligence or malpractice in the representation of such client on or before the Closing Date.      (b) Buyer and Company shall indemnify, defend and hold Seller (and its affiliates) harmless from and against any Claim that may be brought by a client of the Company or the Buyer against Seller (or its affiliates) asserting negligence or malpractice in the representation of such client after the Closing Date.      5.8 Audit Rights. Seller shall have the right upon reasonable advance notice, at its expense, to review Buyer’s financial books and accounting records during the Company’s normal business hours with respect to the Old Basketball Receivables, Old Baseball Receivables, and ‘05 Basketball Receivables for the limited purpose of determining whether payments to Buyer have been made pursuant to such receivables.      5.9 Discontinuation of IT Services. Buyer and Company acknowledge and understand that, effective as of the Signing Date, the Seller and its affiliated companies will cease to provide those computer and other intellectual technology services and functions previously provided to the Company and the LA Employees, including, without limitation, computer network maintenance and access, email service and internet access. Buyer and Company shall be responsible for providing their own email service, computer network, internet access and similar services and functions from and after the Signing Date.      5.10 Rob Pelinka. Rob Pelinka has elected to remain employed by the Seller although he is an agent currently employed by the Company in the LA Office. The parties each hereby agree as follows with regard to Rob Pelinka:      (a) As soon as reasonably practicable following the Signing Date, the Seller will relocate Pelinka’s office to another location outside of the LA Office.      (b) The Buyer and the Company will permit Seller to have access to the LA Office after the Signing Date to the extent necessary to retrieve and remove any of the Pelinka Assets. 11 --------------------------------------------------------------------------------        (c) As soon as reasonably practicable following the Signing Date, Buyer will (i) sign such documents as may be necessary to remove himself as the “agent of record” for Maggette, Stevenson and Vujacic and (ii) cause Thad Foucher to sign such documents as may be necessary to remove himself as “agent of record” for Wallace. Buyer represents, warrants and covenants to Seller that none of him, Foucher or the Company shall have any right to receive or retain any fees with respect to past services rendered to Maggette, Stevenson, Vujacic or Wallace.      (d) As soon as reasonably practicable following the Signing Date, Seller will cause Rob Pelinka to sign such documents as may be necessary to remove himself as the “agent of record” for Fred Hoiberg and Jamaal Maglorie.      (e) Upon request of Seller, Company and Buyer will hereafter execute such instruments of assignment or other documents or forms as may be reasonably necessary to transfer ownership and title to the Retained Basketball Tickets for all subsequent seasons into the name of Seller (or its designee or assigns). 6. Documents to Be Delivered at Closing.      6.1 Seller’s Deliveries. At the Closing, the Seller shall deliver or cause to be delivered to Buyer the following:      (a) A duly executed Assignment of Membership Interest whereby Seller assigns, transfers and conveys to Buyer all of Seller’s right, title and interest in and to the Seller Member Interests;      (b) A release signed by Seller in favor of the Company and Buyer, whereby Seller, on its own behalf and on behalf of all of its Affiliates, releases any and all claims, demands and causes of action that any such party may have against the Company and Buyer (excluding only the rights and obligations created by this Agreement and the Assignment Agreement);      (c) An originally signed copy of the Assignment Agreement signed on behalf of the Company and Seller; and      (d) Bill of Sale in the form attached as Exhibit “D”.      6.2 Buyer’s Deliveries. At the Closing, Buyer shall deliver or cause to be delivered to Seller the following:      (a) The Cash Purchase Price in immediately available funds by wire transfer to an account designated by the Seller;      (b) A release signed by Buyer and the Company, in favor of Seller and its Affiliates, whereby Buyer and the Company, for themselves and each of their respective Affiliates, release any and all claims, demands and causes of action that any such party may have against the Seller or any Affiliate of the Seller (excluding only the rights and obligations created pursuant to this Agreement and the Assignment Agreement); and      (c) A letter of resignation signed by Buyer and in a form approved by the Seller in which Buyer (i) resigns any positions or offices that he may hold with Seller or any Affiliate of Seller (other than the Company) and (ii) releases Seller and its Affiliates (other than the Company) from any and all obligations, responsibilities or liabilities to Buyer under any employment agreement (written or oral). 12 --------------------------------------------------------------------------------   7. Miscellaneous.      7.1 Payment of Certain Fees and Expenses. Each of the parties hereto shall pay the fees and expenses incurred by it in connection with the negotiation, preparation, execution and performance of this Agreement, including, without limitation, brokers’ fees, attorneys’ fees and accountants’ fees.      7.2 Notices. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or mailed, first class mail, postage prepaid, return receipt requested, as follows:      (a) If to the Seller: Clear Channel Entertainment 9348 Civic Center Drive, 4th Floor Beverly Hills, California 90210 Attention: Alan Ridgeway Facsimile No: (310) 867-7001 with a copy to: Gardere Wynne Sewell, LLP 1000 Louisiana, Suite 3400 Houston, Texas 77002 Attention: Michael F. Rogers Facsimile No.: (713) 276-6769      (b) If to Buyer: Arn Tellem c/o Wasserman Media Group, LLC 12100 W. Olympic Blvd., Suite 400 Los Angeles, CA 90064 with a copy to: Munger Tolles & Olson LLP 355 South Grand Avenue, 35th Floor Los Angeles, California 90071-1560 Attention: Rob Knauss Facsimile: (213) 683-5137 or to such other address as either party shall have specified by notice in writing to the other party. All such notices, requests, demands and communications shall be deemed to have been received on the date of delivery.      7.3 Entire Agreement. This Agreement (including the Exhibits and Schedules hereto) constitutes the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. 13 --------------------------------------------------------------------------------        7.4 Binding Effect; Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, personal representatives, successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, personal representatives, successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. The representations, warranties, covenants and agreements contained in this Agreement shall survive and continue in full force and effect from and after the Closing.      7.5 Amendment; Waiver. This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the parties hereto and duly signed by its respective legal representatives. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and executed by the party so waiving or his or her personal representative. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants, or agreements contained herein, and in any documents delivered or to be delivered pursuant to this Agreement and in connection with the Closing hereunder. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.      7.6 Section Headings; Index. The section headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.      7.7 Severability. If any provision of this Agreement shall be declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement shall not be affected and shall remain in full force and effect.      7.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.      7.9 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.      7.10 Dispute Resolution. Any dispute, difference or question (“Dispute”) between Buyer and Seller (“Disputing Parties”) shall be resolved in accordance with the following dispute resolution procedures:      (a) Good Faith Negotiations. The Disputing Parties shall endeavor, in good faith, to resolve the Dispute through negotiations. If the Parties fail to resolve the Dispute within a reasonable time, each Party shall nominate a senior officer or officers of its management to meet at any mutually agreed location to resolve the Dispute.      (b) Mediation. In the event that the negotiations do not result in a mutually acceptable resolution, either Disputing Party may require that the Dispute shall be referred to mediation in Los Angeles. One mediator shall be appointed by the agreement of the Parties. The mediator shall be suitably qualified person having no direct or personal interest in the outcome of the Dispute. Mediation shall be held within thirty (30) days of referral to mediation. In the event the Disputing Parties are unable to agree on a mediator, the Parties agree to the appointment of a mediator pursuant to the Commercial Mediation Rules of the American Arbitration Association.      (c) Arbitration. In the event the Parties are unsuccessful in their mediation of the Dispute, either Disputing Party may request that the Dispute be settled by arbitration by an 14 --------------------------------------------------------------------------------   arbitrator mutually acceptable to the Disputing Parties in an arbitration proceeding conducted in the City of Los Angeles in accordance with the rules existing at the date hereof of the American Arbitration Association. If the Disputing Parties hereto cannot agree on an arbitrator within ten (10) business days of the initiation of the arbitration proceeding, an arbitrator shall be selected for the Disputing Parties by the American Arbitration Association. The Disputing Parties shall use their reasonable best efforts to have the arbitral proceeding concluded and a judgment rendered by the arbitrator within forty (40) business days of the initiation of the arbitration proceeding. The decision of such arbitrator shall be final, and judgment upon the award rendered by the arbitration may be entered in any court having jurisdiction thereof, and the costs (including, without limitation, reasonable fees and expenses of counsel and experts for the Disputing Parties) of such arbitration (including the costs to enforce or preserve the rights awarded in the arbitration) shall be borne by the Disputing Party whom the decision of the arbitrator is against. If the decision of the arbitrator is not clearly against one of the disputing Parties or the decision of the arbitrator is against more than one Disputing Party on one or more issues, the costs of such arbitration shall be determined solely by the arbitrator. Notwithstanding the foregoing, Buyer may apply to any court of competent jurisdiction for injunctive relief under Section 5 without breach of this arbitration provision.      7.11 Jointly Drafted Document. Buyer and the Seller were both represented by separate counsel during the drafting of this Agreement and such respective counsel has reviewed all documents relevant hereto. This Agreement is a jointly drafted document and neither Buyer nor Seller shall be deemed to have been the draftsman hereof.      7.12 Confidentiality. Except for a press release approved and authorized in writing by the Seller, neither party hereto shall make any promotional announcement or advertise or otherwise disseminate any information regarding this Agreement or the subject matter hereof, except that each party may disclose such matters (i) in connection with obtaining its legal or financial advise with regard to the transactions described herein and (ii) as required by Applicable Law.      7.13 References. All references in this Agreement to Sections, paragraphs and other subdivisions refer to the Sections, paragraphs and other subdivisions of this Agreement unless expressly provided otherwise. The words “this Agreement”, “herein”, “hereof”, “hereby”, “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Whenever the words “include”, “includes” and “including” are used in this Agreement, such words shall be deemed to be followed by the words “without limitation”. Each reference herein to a Schedule, Exhibit or Annex refers to the item identified separately in writing by the parties hereto as the described Schedule, Exhibit or Annex to this Agreement. All Schedules, Exhibits and Annexes are hereby incorporated in and made a part of this Agreement as if set forth in full herein.      7.14 Parent Guaranty.      (a) By joining in the execution of this Agreement, SFX Entertainment, Inc. (d/b/a Live Nation) (“Guarantor”), the parent entity of Seller, irrevocable and unconditionally guarantees to Buyer the full, complete and timely performance by Seller of any and all obligations of Seller under this Agreement. This guaranty shall remain in full force and effect so long as Seller shall have any obligations or liabilities hereunder. This guaranty shall be deemed a continuing guaranty and the waivers of Guarantor herein shall remain in full force and effect until the satisfaction in full of all of Seller’s obligations hereunder. If any default shall occur by Seller in its performance or satisfaction of any of its obligations hereunder, then Guarantor will itself perform or satisfy, or cause to be performed or satisfied, such obligations immediately upon notice from Buyer specifying in summary form the default. This guaranty is an absolute, unconditional and continuing guaranty of payment and performance which shall remain in full 15 --------------------------------------------------------------------------------   force and effect without respect to future changes in conditions, including any change of law. Guarantor agrees that its obligations hereunder shall not be contingent upon the exercise or enforcement by Buyer of whatever remedies it may have against Seller. To the maximum extent permitted by law, Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any adverse change in the financial condition of Seller or of any other fact that might increase Guarantor’s risk hereunder; (iii) presentment, protest, demand, action or delinquency in respect of any of Seller’s obligations hereunder and (iv) all suretyship defenses.      (b) If Guarantor should hereafter request that Seller be released from its remaining obligations and liabilities under this Agreement, then Buyer will agree to so release Seller conditioned upon Guarantor executing such instruments or agreements as may be reasonably required by Buyer to evidence and confirm that Guarantor will thereafter be the direct obligor of all of Seller’s obligations hereunder to the same extent and in the same manner as if Guarantor had been the Seller hereunder. [Remainder of this page is intentionally blank.] 16 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the date first above written.                       BUYER:                                     ARN TELLEM                           COMPANY:                           SFX SPORTS GROUP, LLC                           By:                                   Arn Tellem, Chief Executive Officer                           SELLER:                           SFX SPORTS GROUP, INC.                           By:                                   Name:                               Title:                                For the purposes set forth in Section 7.14, the undersigned joins in the execution of this Agreement.                       SFX ENTERTAINMENT, INC.                           By:                                   Name:                                   Title:                           17 --------------------------------------------------------------------------------   LIST OF EXHIBITS Exhibit “A” — Adjustment Statement Exhibit “B” — Form of Distribution Agreement Exhibit “D” – Form of Bill of Sale   --------------------------------------------------------------------------------   LIST OF SCHEDULES Schedule 1.12 – List of LA Agents Schedule 1.13(a) – Client Contracts Schedule 1.13(b) – FF&E Schedule 1.13(c) – Agent Notes Schedule 1.13(g) – Prepaid Expenses not included in Adjustment Up Amount Schedule 1.15 – Old Baseball A/R Schedule 1.16 – Old Basketball A/R Schedule 1.21 – ‘05 Basketball A/R Schedule 1.22 – Retained Basketball Tickets Schedule 3.4(a) – Discretionary Bonus Schedule 3.4(b) – Contractual Offsets Schedule 3.5(a)(ii) – McGrady and O’Neal Fee Adjustments Schedule 5.1 – List of LA Employees  

                                                                                    Exhibit 10.54 FIRST LEASE MODIFICATION THE LEASE AGREEMENT dated January 28, 2003 by and between AMERICAN CENTER LLC, a Michigan Limited Liability Company f/k/a AMERICAN CENTER ACQUISITION, LLC, a Michigan Limited Liability Company successor in interest to HALL AMERICAN CENTER ASSOCIATES: LIMITED PARTNERSHIP, a Michigan Limited Partnership (the “Landlord”), and LDMI TELECOMMUNICATIONS INC., a Michigan corporation (the “Tenant”) for Suites #400 and #500 consisting of 38,336 rentable square feet (the “Premises” or “demised premises”) in the AMERICAN CENTER (the “Building”) 27777 Franklin Road, Southfield, Michigan 48034 (the “Project”) is hereby modified as follows: 1. Tenant shall lease Suite #1660 on an “as-is” basis (the “Additional Office Space”) consisting of 1,258 rentable / 1,108 usable square feet (as marked on Exhibit “A”) of Office Space for a term of ten years, six months to become effective June 1, 2003 and expire November 30, 2013. Landlord shall not be responsible for constructing any improvements in the Additional Office Space for the benefit of Tenant or any other person. Landlord’s delivery of the Additional Office Space to Tenant shall not constitute a representation, warranty or agreement, and Landlord shall have no responsibility or liability for, the completeness, design sufficiency, or the compliance of the Additional Office Space with any laws, rules or regulations of any governmental or other authority, 2. DELETION OF CERTAIN TERMS AND CONDITIONS - Section 1.01 (g), BASE RENT, of the Lease dated January 28, 2003 is deleted in its entirety and replaced with the following: The Base Monthly Rent shall be: Date Existing Additional Office Space Total Monthly Base Rent Annual Base Rent 6/1/03 - 5/31/04 $66,289.33 $2,175.29 $68,464.62 $821,575.44 6/1/04 - 5/31/05 $67,886.67 $2,227.71 $70,114.38 $841,372.56 6/1/05 - 5/31/06 $69,484.00 $2,280.13 $71,764.13 $861,169.56 6/1/06 - 5/31/07 $72,678.67 $2,384.96 $75,063.63 $900,763.56 6/1/07 - 5/31/08 $74,276.00 $2,437.38 $76,713.38 $920,560.56 6/1/08 - 5/31/09 $75,873.33 $2,489.79 $78,363.12 $940,357.44 6/1/09 - 5/31/10 $77,470.67 $2,542.21 $80,012.88 $960,154.56 6/1/10 - 5/31/11 $79,068.00 $2,594.63 $81,662.63 $979,951.56 6/1/11 - 5/31/12 $80,665.33 $2,647.04 $83,312.37 $999,748.44 6/1/12 - 5/31/13 $82,262.67 $2,699.46 $84,962.13 $1,019,545.56 6/1/13 - 11/30/13 $82,262.67 $2,699.46 $84,962.13 $509,772.78*       Aggregate $9,754,972.02                                                 * total is for six months 3. Effective upon the date of this First Lease Modification, the Existing Office Space and the Additional Office Space for a total square footage of 37,398 usable / 39, 594 rentable square feet shall be called the Premises. 4. The Base Year shall remain 2004. 5. DELETION OF CERTAIN TERMS AND CONDITIONS - Section 1.01 (h), TENANT’S PROPORTIONATE SHARE, of the Lease dated January 28, 2003 is deleted in its entirety and replaced with the following:   TENANT'S PROPORTIONATE SHARE: Tenant’s Proportionate Share of Operating Expenses, Utilities and Taxes: 39,594 Rentable square feet in the Premises divided by 488,465 Rentable square feet in the Building = 8.1058% Tenant’s Proportionate Share of Office Tower Space Cleaning: 39,594 Rentable square feet in the Premises divided by 442,370 Rentable square feet in the Building 8.9504% -------------------------------------------------------------------------------- 6. DELETION OF CERTAIN TERMS AND CONDITIONS - Section D1, EXCESS TENANT IMPROVEMENT COSTS, of the Lease dated January 28, 2003 is deleted in its entirety and replaced with the following:   EXCESS TENANT IMPROVEMENT COSTS - Landlord shall provide up to Nine Hundred Forty-Eight Thousand Eight Hundred Sixteen Dollars ($979,951.50) (the "Tenant Improvement Allowance") for the tenant improvements. Tenant shall be responsible for all costs in excess of the Tenant Improvement Allowance to construct the Tenant Improvements in accordance with the Plans. In the event the cost of completing the Tenant Improvements is less than the Tenant Improvement Allowance, Landlord shall retain the difference and Tenant shall have up to twelve (12) months to use the remaining balance of the Tenant Improvement Allowance for other improvements to the Premises or for other ancillary leasehold improvements, such as the installation of equipment, facilities and business communication facilities to the Premises, however, in no event shall such excess Tenant Improvement Allowance available for Tenant’s use for such ancillary costs exceed Ninety Four Thousand Eight Hundred Eighty One and 60/100 Two One Hundred Fifty Eighty Nine Thousand Seven Hundred Sixty Three and 20/100 Dollars ($94,551.60) ($189,763.20) ($250,000.00). If Tenant elects to use any or all of such remaining balance of the Tenant Improvement Allowance Tenant shall provide ten (10) days prior written notice to Landlord of its intent to use all or a portion of such remaining balance of the Tenant Improvement Allowance within thirty (30) days of such notice to Landlord. After the twelfth (12th) lease month Tenant have no claim for and not be entitled to receive any such sums. In the event the estimated cost of completing the Tenant Improvements in accordance with the Plans as a result of Tenant changes shall exceed the Tenant Improvement Allowance, the Landlord shall provide Tenant with a Change Order (as defined below), documenting such increased cost and Tenant shall reimburse Landlord for such increased costs pursuant to the payment terms set forth in such Change Order.   7. DELETION OF CERTAIN TERMS AND CONDITIONS - Section D4.02, Deferral of Base Rent, of the Lease dated January 28, 2003 is deleted in its entirety and replaced with the following:   Deferral of Base Rent - The amounts defined in the table below the “Deferred Rent”, of the Base Rent due for each Deferral Period will be paid according to Paragraph D4.03 of the Lease, and the balance of the Base Rent will be paid according to the Lease.     --------------------------------------------------------------------------------   For Deferral Periods   (defined above)     DEFERRED RENT     First Deferral Period     $68,464.62, the "First Deferred Rent"     Second Deferral Period     $68,464.62, the "Second Deferred Rent"     Third Deferral Period     $68,464.62, the "Third Deferred Rent"     Fourth Deferral Period     $68,464.62, the "Fourth Deferred Rent"     Fifth Deferral Period     $68,464.62, the "Fifth Deferred Rent"     Sixth Deferral Period     $68,464.62, the "Sixth Deferred Rent"     Seventh Deferral Period     $68,464.62, the "Seventh Deferred Rent"     Eighth Deferral Period     $68,464.62, the "Eighth Deferred Rent"     Ninth Deferral Period     $68,464.62, the "Ninth Deferred Rent"     Tenth Deferral Period     $68,464.62, the "Tenth Deferred Rent"     Eleventh Deferral Period     $68,464.62. the “Eleventh Deferred Rent”     Twelfth Deferral Period     $68,464.62, the “Twelfth Deferred Rent”   Thirteenth Deferral Period   $35,057.19, the " Thirteenth Deferral Rent"   Fourteenth Deferral Period   $35,057.19, the "Fourteenth Deferral Rent"   Fifteenth Deferral Period   $70,114.38, the "Fifteenth Deferral Rent"   Sixteenth Deferral Period   $35,057.19, the "Sixteenth Deferral Rent"   Seventeenth Deferral Period   $35,057.19, the "Seventeenth Deferral Rent"   Eighteenth Deferral Period   $70,114.38, the "Eighteenth Deferral Rent"   Nineteenth Deferral Period   $35,057.19, the "Nineteenth Deferral Rent"   Twentieth Deferral Period   $35,057.19, the "Twentieth Deferral Rent"   Twenty-First Deferral Period   $70,114.38, the "Twenty-First Deferral Rent"   Twenty-Second Deferral Period   $35,057.19, the "Twenty-Second Deferral Rent"   Twenty-Third Deferral Period   $35,057.19, the “Twenty-Third Deferral Rent”   Twenty-Fourth Deferral Period   $35,057.19, the “Twenty-Fourth Deferral Rent”     -------------------------------------------------------------------------------- 8. NON-DISCLOSURE - Tenant will not record this Lease or a memorandum hereof, and will not otherwise disclose the terms of this Lease to anyone other than its attorneys, accountants or employees who need to know of its contents in order to perform their duties for Tenant. Any other disclosure will be an event of Default under the Lease. Tenant agrees that Landlord shall have the right to publish a "tombstone" or other promotional description of this Lease. Except as hereinabove specifically provided to the contrary, all of the remaining terms, covenants, and agreements contained in said Lease, and all modifications thereafter, shall remain in full force and effect and shall be applicable to the Premises as described in said Lease is hereby acknowledged, ratified, and confirmed by the parties hereto. TENANT:  LANDLORD: LDMI TELECOMMUNICATIONS, INC., a Michigan corporation AMERICAN CENTER LLC, a Michigan Limited Liability Company f/k/a AMERICAN CENTER ACQUISITION, LLC, a Michigan Limited Liability Company successor in interest to HALL AMERICAN CENTER ASSOCIATES: LIMITED PARTNERSHIP, a Michigan Limited Partnership   By: Southfield Office Manager, Inc.   BY: /s/ Michael Mahoney                     BY: /s/ Paul A. Stodulski Printed  Michael Mahoney                                                                                                           Printed: Paul A. Stodulski - Secretary   DATED: 2/13/03                          DATED: 2/13/03             -------------------------------------------------------------------------------- EXHIBIT A ADDITIONAL OFFICE SPACE   Approved by Tenant:   LDMI TELECOMMUNICATIONS, INC., a Michigan corporation     By: /s/ Michael Mahoney Printed: Michael Mahoney Its: CFO           

  EXHIBIT 10.5 Executive Employment Contract      This Contract is made as of October 24, 2005 (“Effective Date”), between Commercial Bancshares, Inc. (“CBS”), an Ohio corporation having an address of 118 S. Sandusky Avenue, P.O. Box 90, Upper Sandusky, Ohio 43351, and Scott A. Oboy (“Mr. Oboy”), having an address of ______, for Mr. Oboy’s employment by CBS as Chief Financial Officer (“CFO”) of CBS. BACKGROUND      A. CBS desires to employ Mr. Oboy under the terms and conditions set forth in this Contract.      B. Mr. Oboy desires to be employed by CBS under the terms set forth in this Contract.      C. CBS has sent to Mr. Oboy, and Mr. Oboy has accepted, a letter of intent (“Letter of Intent”) to enter into an employer-employee relationship. A copy of the Letter of Intent is attached to this Contract as Exhibit A.      In consideration of the promises contained in this Contract, the parties agree as follows: 1. Employment. Upon the terms and subject to the conditions of this Contract, CBS hereby agrees to employ Mr. Oboy. Upon the terms and subject to the conditions of this Contract, Mr. Oboy agrees to serve as a full time employee of CBS. 2. Services rendered.      (a) General. Mr. Oboy shall render services and perform the duties of the position of CFO of CBS. Subject to Sections 2(b) and 2(d), Mr. Oboy shall perform such other duties and have such other responsibilities for CBS and its affiliates as are of the same character and nature as those typically performed by the chief financial officer of a bank holding company of comparable size and with a comparable market to that of CBS.      (b) Reporting and authority. Mr. Oboy shall report to and be subject to the supervision and direction of the Chief Executive Officer of CBS (the “CEO”). Mr. Oboy shall have the authority set by the CBS Code of Regulations and the authority delegated by the Board.      (c) Full-time employee. Mr. Oboy shall devote his full-time employment during the term of this Contract to the faithful and diligent performance of his duties for CBS. Mr. Oboy shall not engage in other employment or business activities, whether or not the employment or activities are pursued for gain, profit, or other pecuniary advantage without the prior written consent of CBS.      (d) Adherence to standards. Mr. Oboy shall perform all duties in a competent and professional manner in accordance with applicable accounting and financial reporting standards. Mr. Oboy shall abide by the Articles of Incorporation and Code of Regulations of CBS; the rules, regulations, policies, and performance objectives of CBS as they exist from time to time; applicable ethical and business standards; and the law, including, but not limited to, the Sarbanes-Oxley Act of 2002 and the regulations promulgated under the act. The parties understand that collaborative goals and objectives will be developed, and that progress towards these established criteria will be used to determine performance. 3. Compensation. “Compensation” includes base salary and employee benefits.      (a) Base salary. During the initial term of this Contract, CBS shall pay Mr. Oboy a base salary of $120,000, subject to all applicable withholdings, in accordance with the then current policies of CBS for executive compensation. The base salary provided by this Section 3(a) as adjusted under Section 3(c) may be called “base salary”.      (b) Employee benefits. In addition to the base salary, CBS shall provide to, or for the benefit of, Mr. Oboy, the following employee benefits: 1. --------------------------------------------------------------------------------                 [i]   Vacation and sick leave. Participation in the vacation and sick leave plan maintained for executives of CBS, which includes four weeks of vacation each year.               [ii]   Business expense reimbursement. Reimbursement for, or payment of, the reasonable business and entertainment expenses incurred by Mr. Oboy on behalf of CBS pursuant to the written policies of CBS or as otherwise approved by the Board.               [iii]   Continuing education/seminars. Reimbursement for reasonable expenses incurred by Mr. Oboy for continuing education to maintain his status as a Certified Public Accountant. Attendance at continuing education programs and seminars shall not constitute vacation time, if the attendance is approved by the CEO or Chair of the Board.               [iv]   Benefit plans. Participation in the retirement and welfare benefit plans made available to the employees of CBS and in any such other similar plans maintained by CBS on the same basis as the other executive employees of CBS who participate in such plans.               [v]   Deferred compensation program. Participation in CBS’s deferred compensation program to the extent authorized by law.               [vi]   Health and disability insurance plans. Participation in the family group health, disability, and other insurance plans made available to the employees of CBS and in any such other similar plans maintained for the executives of CBS on the same basis as the other executives participating in such plans.               [vii]   Life insurance plans. A term life insurance policy upon the life of Mr. Oboy in an amount equal to one and one-half times his annual base salary continuing on if Mr. Oboy becomes partially or permanently disabled.               [viii]   Memberships. Reimbursement for, or payment of, the membership dues and other expenses required to maintain a membership of Mr. Oboy in a single health club or other club or organization that CBS determines to be beneficial to CBS.               [ix]   Automobile allowance. A $700 per month automobile expense allowance to reimburse Mr. Oboy for some or all of the cost of maintaining and operating an automobile for use in the performance of Mr. Oboy’s duties under this Contract. Mr. Oboy also shall receive reimbursement for mileage relating to his use of the automobile to perform his duties under this Contract at a rate equal to one-half (1/2) of the standard mileage rate established annually by the Internal Revenue Service. Mr. Oboy shall maintain the automobile in first-class condition and insure that the automobile is available for Mr. Oboy’s use in the business of CBS. (c) Reports of use of employee benefits. Mr. Oboy shall submit regular reports of personal use of the employee benefits required under the Internal Revenue Code to be treated as taxable income to Mr. Oboy in order to allow CBS to determine the amount that must be reported to the Internal Revenue Service as compensation to Mr. Oboy. In providing the employee benefits under Section 3(b), the Board may determine that the payment for any or all of such employee benefits shall be taken from the pre-tax salary of Mr. Oboy, to the extent permissible under applicable law.      The benefits provided under Section 3(b) and pursuant to annual adjustments, if any, under Section 3(d) may be called “employee benefits”.      (d) Annual review. Mr. Oboy’s base salary and employee benefits will be reviewed and, in the discretion of CBS, shall be subject to adjustment not less frequently than annually, at the end of each calendar year during the term of this Contract. Any adjustments to Mr. Oboy’s base salary and employee benefits (including any decision not to adjust base salary or employee benefits) shall be made in the sole discretion of the Board or a committee of the Board. 4. Term and termination. 2. --------------------------------------------------------------------------------        (a) Term; renewal; and non-renewal. Mr. Oboy’s employment and this Contract are effective as of the Effective Date and shall remain in full force and effect for a period expiring October 24, 2006, unless earlier terminated. Mr. Oboy’s employment and this Contract shall be renewed automatically for a one year period following the conclusion of the original term and following the end of each subsequent one year period upon the terms and conditions set forth in this Contract, unless either party gives written notification to the other party of the intention not to renew this Contract or to alter any of its terms and conditions not less than 60 days prior to the termination hereof.      (b) Termination other than expiration of term. (1) Termination by CBS without cause. CBS may terminate Mr. Oboy’s employment without cause by giving Mr. Oboy a notice of termination. The notice of termination without cause shall be effective upon the earlier of actual receipt by Mr. Oboy or two days after mailing by first class mail. If CBS terminates the employment of Mr. Oboy without cause, CBS shall provide Mr. Oboy with twelve (12) consecutive months of continuing compensation commencing upon termination. CBS shall pay the base salary component of the continuing compensation in arrears on the last day of each month commencing on the last day of the first month after the month in which termination has occurred. A termination of Mr. Oboy’s employment voluntarily by Mr. Oboy, a termination of Mr. Oboy’s employment arising out of illness or disability, and a termination of Mr. Oboy’s employment after a change in control will not be a termination without cause under this subsection. (2) Termination by Mr. Oboy. Mr. Oboy may terminate his employment by giving CBS sixty (60) days notice of his intention to resign. If Mr. Oboy voluntarily terminates his employment, CBS will not be obligated to pay continuing compensation after the date of termination, except as required by law. (3) Termination by CBS for cause. CBS may terminate Mr. Oboy’s employment for cause by giving Mr. Oboy notice of termination for cause. The notice of termination for cause is not required to describe the cause or causes, but must state that “Your employment is hereby terminated for cause”. The notice of termination for cause shall be effective upon the earlier of actual receipt by Mr. Oboy or two business days after mailing by first class mail. If CBS terminates Mr. Oboy’s employment for cause, CBS will not be obligated to pay or provide any compensation of any type after the date of termination, except as required by law. “Cause” includes, but is not limited to, conduct by Mr. Oboy concerning any one or more of the following: [i] failure to adhere to ethical standards or the law; [ii] moral and ethical misdeeds conducted on the job; [iii] failure to carry out duties of employment or to carry out directions of the CEO; [iv] willful misconduct; [v] conviction of a felony; or [vi] conduct that otherwise interferes with the performance of Mr. Oboy’s duties or CBS’s business, including any conduct that adversely reflects upon CBS or its business and any conduct committed during or outside of the employment relationship that, reasonably considered, harms the reputation of CBS. As used in this subsection, “conduct” includes one or more acts, one or more failures to act, or any combination of an act, multiple acts, a failure to act, or multiple failures to act. (4) Termination upon permanent disability. Mr. Oboy’s employment shall terminate upon the permanent disability of Mr. Oboy. “Permanent disability” means Mr. Oboy’s physical or mental inability to perform the services required under this Contract caused by a physical or mental condition or impairment for a period exceeding 180 days. If a disability prevents Mr. Oboy from performing the services required under this Contract, Mr. Oboy shall receive such short-term and long-term disability coverage as shall then be available to employees of CBS. CBS will not otherwise be obligated to pay any continuing compensation upon the permanent disability of Mr. Oboy, except as required by law. (5) Termination after a change in control.      (i) When a termination after a change in control occurs.                A termination after a change in control occurs [i] when, within one year after a change in control, Mr. Oboy’s employment is terminated without cause; [ii] when, within one year after a change in control, Mr. Oboy resigns because he has [a] been demoted, [b] had his compensation reduced, [c] had his principal place of employment transferred away from Wyandot County, Ohio or a county contiguous 3. --------------------------------------------------------------------------------   thereto, or [d] had his job title, status or responsibility materially reduced; or [iii] when, [a] Mr. Oboy’s employment is terminated by CBS without cause, [b] there is a change in control within one (1) year following the termination, and [c] Mr. Oboy’s termination of employment [1] was at the request of a third party who has taken steps reasonably calculated to effect a change in control or [2] was otherwise in anticipation of a change in control. A termination of employment [i] upon expiration of the term of this Contract, [ii] for cause, or [iii] upon the permanent disability of Mr. Oboy is not a termination after a change in control.           (ii) Continuing compensation after termination after a change in control.                If Mr. Oboy’s employment is terminated after a change in control, CBS shall provide Mr. Oboy eighteen (18) consecutive months of continuing compensation commencing upon termination. CBS shall pay the base salary component of the continuing compensation in arrears on the last day of each month commencing on the last day of the first month after the month in which termination has occurred.           (iii) No parachute payments.                Notwithstanding any other provision of this Contract or of any other agreement, contract or understanding between Mr. Oboy and CBS or any affiliate of CBS now existing or later arising, Mr. Oboy shall not have any right to receive any compensation or benefit to the extent that the sum of all payments to or benefits received by or on behalf of Mr. Oboy from CBS or any of its affiliates would cause any payment or benefit to be considered a “parachute payment” under 28 U.S.C. § 280G(b)(2), as amended (“Parachute Payment”). If the receipt by or on behalf of Mr. Oboy of any payment or benefit from CBS or an affiliate would cause Mr. Oboy to be considered to have received a Parachute Payment, then Mr. Oboy may designate those payments or benefits that should be reduced or eliminated so as to avoid having a payment or benefit deemed a Parachute Payment. Any determination in writing by CBS’s independent public accountants (“Accountants”) of the value of payments and benefits includable in the calculation of a Parachute Payment shall be conclusive and binding upon Mr. Oboy and CBS for all purposes. For purposes of making the calculations required by this subsection, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of 28 U.S.C. §§ 280G and 4999, as amended. CBS and Mr. Oboy shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this subsection. CBS shall pay the costs for a determination by the Accountants under this subsection.           (iv) Change in control.                A “change in control” occurs on the date of a transaction pursuant to which               [i]   Any person or group (as defined for purposes of §§ 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) is or becomes the “beneficial owner” (as defined in Rule 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of CBS representing 50% or more of the combined voting power of CBS’s then outstanding securities;       [ii]   A merger, consolidation, sale of assets, reorganization, or proxy contest is consummated and, as a consequence, members of the Board in office immediately prior to the transaction or event constitute less than a majority of the Board after the transaction or event;       [iii]   During any period of twenty-four (24) consecutive months, individuals who at the beginning of the period constitute the Board (including any director whose appointment, selection, or nomination was approved by a vote of a majority of the directors who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board; or       [iv]   A merger, consolidation or reorganization is consummated with any other corporation or entity pursuant to which the shareholders of CBS immediately prior to the merger, consolidation or reorganization do not immediately thereafter directly or indirectly own 4. --------------------------------------------------------------------------------                     more than fifty percent (50%) of the combined voting power of the voting securities entitled to vote in the election of directors of the merged, consolidated or reorganized entity.           No person shall be deemed to be the beneficial owner of, or to beneficially own, any security beneficially owned by another person solely by reason of any revocable proxy, or any other agreement, arrangement or understanding if the revocable proxy, agreement, arrangement, or understanding may be revoked or terminated or if the persons would not otherwise be deemed to be a group under § 13(d) of the Exchange Act or otherwise be deemed to be acting in concert.           For purposes of this definition of change in control, [i] neither CBS nor any subsidiary of CBS, including, without limitation, any trust department or designated fiduciary or other trustee of such trust department of CBS or a subsidiary of CBS, [ii] no profit-sharing, employee stock ownership, employee stock purchase and savings, employee pension, or other employee benefit plan of CBS or any of its subsidiaries, and [iii] no trustee of any such plan in its capacity as trustee, shall be treated as a person or group that is a beneficial owner of securities of CBS.      (6) Continuing compensation calculations. “Continuing compensation” means [i] an amount equal to 1/12 of Mr. Oboy’s annual base salary in effect on the effective date of the notice of termination determined under the then current policies of CBS for executive compensation plus [ii] one month of Mr. Oboy’s annual employee benefits under Section 3(b) of this Contract, except for reimbursement of [a] business expenses incurred after termination, [b] continuing education and seminar programs occurring after termination, [c] membership expenses in clubs and organizations (except for minimum costs necessary to maintain membership for six months after termination), and [d] mileage relating to use of the automobile after termination. Employee benefits shall be reduced by any similar benefits received by or accruing to Mr. Oboy from third parties during the period during which Mr. Oboy receives continuing compensation. Federal, state, and local taxes, social security contributions, and other normal deductions will be withheld from continuation compensation. Payment of continuing compensation, including the timing and amount of each payment, shall be subject to the Treasury Regulations concerning severance pay issued under 28 U.S.C. § 409A. If Mr. Oboy dies before receiving all continuing compensation due, the balance of all continuing compensation then due shall be provided to the personal representative or other designee of Mr. Oboy, except for payments for life insurance premiums and retirement plan contributions.      (c) Consequences of termination of employment. Except for post-employment obligations under this subsection and post-employment obligations concerning continuing compensation, non-competition, and confidentiality, upon termination of Mr. Oboy’s employment for any reason, [i] this Contract shall terminate; [ii] Mr. Oboy’s employment shall terminate for all affiliates of CBS; [iii] Mr. Oboy shall cease all activity on behalf of CBS and its affiliates; [iv] Mr. Oboy shall automatically, without further action by either party, be discharged from all directorships and offices of CBS and all directorships and offices of affiliates of CBS held by Mr. Oboy; and [v] Mr. Oboy shall promptly deliver to CBS all property and all copies of property (regardless of form, and including (but not limited to) all documents, memoranda, records, specifications, electronic and digital media and other writings and materials) of CBS and all affiliates of CBS under his possession, custody or control, including (but not limited to) keys, plans, designs, computer programs, computer lists, prospect lists, records, letters, notes, reports, financial information, and all other materials relating to CBS, its subsidiaries and its affiliates, their businesses, or their clients and customers. Mr. Oboy agrees that provisions of this subsection related to resignation are reasonable and that remedies at law would be inadequate for a breach of the provisions of this subsection. For these reasons, CBS may enforce the obligations of Mr. Oboy under this subsection by injunctive relief, including a temporary restraining order, a preliminary injunction, and a permanent injunction and by an award for fees, costs, and expenses incurred by CBS to enforce this subsection, including (but not limited to) attorneys’ fees, costs and expenses, and other expenses incurred to enforce this subsection.      (d) Employment after termination. Mr. Oboy shall notify CBS in writing within 24 hours after accepting full or part-time employment with a third party. 5. --------------------------------------------------------------------------------        (e) Suspension and removal. If Mr. Oboy is suspended or temporarily prohibited from performing his duties for CBS or its affiliates as a result of any regulatory action, CBS’s obligations under this Contract shall be suspended as of the date of service of notice of the regulatory action (unless the suspension or prohibition is stayed by appropriate proceedings). If the charges in the notice are dismissed, CBS may, in its sole discretion, [i] pay Mr. Oboy all or part of the compensation withheld while its obligations under this Contract were suspended, and [ii] reinstate (in whole or in part) any of its other obligations under this Contract that were suspended. If Mr. Oboy is removed or permanently suspended from performing his duties for CBS or its affiliates as a result of any regulatory action, all obligations of CBS under this Contract will terminate as of the effective date of the action, and CBS will not be obligated to pay or provide any compensation of any type to Mr. Oboy, except as required by law.      5. Noncompetition. During the initial term of this Contract and any renewal term, and for a period of one year following termination of this Contract for any reason, Mr. Oboy shall not provide services similar to those provided under this Contract to any bank, financial institution or bank holding company, or any affiliate of a bank, financial institution or bank holding company, within a fifty (50) mile radius of Upper Sandusky, Ohio.      During the term of this Contract (initial term and any renewal period) and for a period of one year thereafter, Mr. Oboy (for himself or on behalf of a third party) shall not employ, offer to employ, or solicit employment of any employee of CBS or any of its affiliates, subsidiaries or any professional under contract with CBS or any of its subsidiaries.      Mr. Oboy agrees that he has received consideration to which he was not otherwise entitled in return for his obligations under this Section 5, and that the provisions of this Section 5 are reasonable and necessary to protect the legitimate business interests of CBS, and are reasonable with respect to time, territory, and business. Mr. Oboy shall pay any and all legal fees, costs, and other expenses incurred by CBS in the course of legal action to enforce the provisions of this Section 5. Mr. Oboy agrees that the remedies at law for a breach of this Section 5 would be inadequate to protect CBS because money damages would be difficult, if not impossible, to ascertain and would be estimable only by conjecture, and therefore, Mr. Oboy agrees that CBS will be entitled to injunctive relief, including a temporary restraining order, a preliminary injunction and a permanent injunction for any such breach as well as all reasonable attorneys’ fees, costs and other expenses incurred to enforce this Section 5. The duty to arbitrate disputes under this Contract shall not apply to any claim for violation of this Section 5.      The obligations of Mr. Oboy under this Section 5 shall survive the termination of the Contract for any reason.      6. Confidentiality. Mr. Oboy hereby acknowledges that he may be required to handle Confidential Business Information (as defined below) in the performance of his responsibilities. Mr. Oboy is aware that Confidential Business Information is proprietary information to CBS or the party supplying it and the exclusive property of CBS or its clients and customers, and Mr. Oboy shall not disclose Confidential Business Information in any manner at any time, to others inside or outside CBS or to unauthorized employees and officers of CBS. Unauthorized disclosure or other mishandling of Confidential Business Information may result in termination of Mr. Oboy’s employment for cause and in other appropriate actions. Mr. Oboy agrees that his obligation not to reveal Confidential Business Information will remain in force permanently, including in the event that [i] Mr. Oboy’s authorization to handle Confidential Business Information is revoked while still under contract with CBS, and [ii] this Contract or Mr. Oboy’s employment with CBS is terminated.      Except as CBS may require or otherwise consent to in writing, Mr. Oboy shall not, at any time during or subsequent to the termination of this Contract disclose or use in any way any information or knowledge or data received or developed while providing services to CBS, including but not limited to, plans, designs, formulas, business processes, methods, test data, inventions, discoveries, computer programs, customer/client lists, prospect lists, financial information, and trade secrets of CBS or its customers (collectively, “Confidential Business Information”). 6. --------------------------------------------------------------------------------        In addition to any other remedies CBS may have at law or in equity, Mr. Oboy agrees that CBS will be entitled to a restraining order, injunction, or similar remedy to enforce the terms of this section, as well as all reasonable attorneys’ fees, costs, and other expenses incurred to enforce this section. The duty to arbitrate disputes under this Contract shall not apply to any claim for a violation of this section or Mr. Oboy’s obligation to return property of CBS upon termination of employment. The obligations of Mr. Oboy under this section shall survive the termination of this Contract for any reason.      7. Indemnification. Subject to any other applicable statutory or regulatory standard or restriction, CBS shall indemnify Mr. Oboy for any and all acts or omissions of Mr. Oboy related in any way to his employment with CBS, provided Mr. Oboy acted in good faith, in a manner reasonably believed to be in, or not opposed to, the best interests of CBS, and with the care that an ordinary prudent person in a like position would use under similar circumstances. Notwithstanding the preceding sentence, CBS shall not be obligated to indemnify Mr. Oboy when such indemnification would be contrary to law or public policy or appropriate ethical standards.      8. Validity. The invalidity or unenforceability of any particular provision of this Contract shall not affect the validity or enforceability of any other provision contained in the Contract.      9. Choice of Law. This Contract and the interpretation of each of its provisions shall be governed by the laws of the State of Ohio and the venue of any dispute or litigation shall be Wyandot County, Ohio. The rights of the parties under this Contract will likewise be governed by the laws of the State of Ohio.      10. Entire Contract. CBS and Mr. Oboy hereby incorporate the Letter of Intent into this Contract. This Contract contains the complete agreement between the parties concerning the subjects covered by this Contract. This Contract supersedes any and all prior contracts and understandings between CBS and Mr. Oboy. The provisions of this Contract are solely for the benefit of the parties to this Contract and not for the benefit of any other persons or legal entities.      11. Assignment. This Contract is binding on and inures to the benefit of successors and assigns of CBS. Neither this Contract nor any rights hereunder shall be assignable or otherwise subject to hypothecation by Mr. Oboy.      12. Amendments. No change, waiver, or amendment to this Contract, in any form, shall be binding on the parties unless signed in writing by the CEO or the Chair of the Board of CBS and Mr. Oboy. No representations have been made by CBS or Mr. Oboy concerning the terms, conditions, and agreements of the contractual relationship covered by this Contract other than those representations contained in this Contract and no representations made during the course of performance of services under this Contract can alter any of the provisions of this Contract (unless such representation is in a signed writing as provided in the preceding sentence).      13. Arbitration. CBS and Mr. Oboy agree to work in good faith to resolve any disputes arising under this Contract. Except as otherwise provided in this Contract, any controversy or claim arising out of or relating to the interpretation or application of this Contract, or any breach hereof, shall be settled by arbitration in Wyandot County in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association then in effect, and judgment upon the award rendered by the arbitrator(s) shall be final and binding on the parties hereto and may be entered in any court having jurisdiction thereof.      In Witness Whereof, the parties hereto have executed this Contract effective as of the day and year first above written.                               Commercial Bancshares, Inc.                       By        /s/ Scott A. Oboy   By      /s/ Philip W. Kinley                                   Scott A. Oboy       Philip W. Kinley               Its Senior Vice President and Chief Financial Officer   Its President and Chief Executive Officer 7. --------------------------------------------------------------------------------   Exhibit A June 27, 2005 Mr. Scott Oboy 8505 Killeen Run Ft. Wayne, Indiana 46835 Dear Scott: The Commercial Savings Bank is pleased to offer you the opportunity to join us as our Senior Vice President/Chief Financial Officer. Your benefits are as follows: Salary $120,000.00 annually commencing your first day of employment. You will be eligible for a review in 90 days at which time you will be named Executive Vice President. Health and Dental Benefits Family coverage fully paid by the Company. By the terms of our health and dental contract there is normally a 45 day wait for coverage. We will attempt to have this waived and if unsuccessful, the Company will pay for all COBRA coverage you may elect from your previous employer. Other Insurance Benefits BOLI coverage at the equivalent of three times salary upon employment. Also, there are other standard insurance benefits including Long Term Disability (90 day elimination period) and term life insurance 1.5 times salary. Contractual Arrangements Employment contract of 12 months payment unless dismissal for cause. Non-compete clause for duration of contract with radius of 50 miles of CSB — Upper Sandusky. In addition, there will be a Change in Control provision whereby your salary will be paid for 18 months upon a change in control of the Company. 401(k) Plan After 30 days of employment you are eligible to participate in the Company 401(k) plan. The Company matches 50% of all contributions up to 6% of your salary. Club Membership Health and/or Country Club membership paid for the entire family. Car Allowance $700.00 per month. Cell Phone Provided by the Company. Relocation Costs 8. --------------------------------------------------------------------------------   All-inclusive relocation costs including realtor fees, any temporary housing, storage, OOP closing fees and moving fees. Sign-on Bonus Sign-on bonus of $10,000.00 for company stock purchase, if desired, in lieu of initial stock options. You will be asked to assist the Board Compensation Committee to develop a comprehensive stock option plan for executive management that is incentive based in the year 2005. Bonus Plan Traditional plan has been to pay an aggregate of 5% of earnings in excess of ROAA of .5%. Of the aggregate pool your share would be 20%. A budget-based plan is being developed for 2005 whereby you would be eligible to receive up to 12.5% of salary if the Company budget is met. Some payment is to be made once 85% of the budget is met but the amount has yet to be determined. Also, for each $100,000.00 increment of earnings in excess of the budget the executive officers will be eligible for 20% of said amount and of this pool your share would be a minimum of 13%. You will be asked to provide assistance to the Compensation Committee for the finalization of the bonus plan for 2005. Vacation Four weeks upon commencing employment. We will ask you to sign an Agreement of Intent, once completed, which basically confirms your intent to begin your employment with CSB upon the completion of your position with your current employer. This, along with the other contracts mentioned in this letter will be forwarded to you immediately upon completion. Should you have any questions, Scott, please contact me. Respectfully, Philip W. Kinley President & CEO ACCEPTED:____________________ DATE:________________ 9.

  Exhibit 10.1 FIRST INDUSTRIAL REALTY TRUST, INC. 2001 STOCK INCENTIVE PLAN NON-EMPLOYEE DIRECTOR FORM OF RESTRICTED STOCK AWARD AGREEMENT      AGREEMENT, made and entered into as of ___, 200___by and between the      First Industrial Realty Trust, Inc. 2001 Stock Incentive Plan Committee (the “Committee”) and (the “Grantee”).      WHEREAS, the Grantee has been elected to participate in the First Industrial Realty Trust, Inc. 2001 Stock Incentive Plan (the “Plan”).      NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other good and valuable consideration, First Industrial Realty Trust, Inc. (the “Company”) and the Grantee agree as follows:      (a) Grant. Pursuant to the provisions of the Plan, the terms of which are incorporated herein by reference, the Committee hereby grants to the Grantee an interest (the “Award”) in ___shares of common stock, par value $.01 per share, of the Company (the “Shares”). The Award is granted as of ___, 200___(the “Date of Grant”) and such grant is subject to the terms and conditions contained herein, and the terms and conditions of the Plan.      (b) Vesting. The Award shall vest, and the Grantee shall be deemed to have acquired complete ownership and control over the Award Shares, under the following circumstances:   (i)   on January 31 of the fifth calendar year following the Date of Grant calendar year (e.g. January 31, 20___for an Award with an ___, 200_ Date of Grant);     (ii)   in the event of a Change in Control of the Company, as defined under the Plan;     (iii)   on the January 31 of the year following the year in which the Grantee voluntarily terminates service as a Board member with the Company, as long as the total funds from operations (FFO) or FFO per share of the Company for such year of termination has increased from the FFO or FFO per share for the calendar year immediately preceding the Date of Grant calendar year;     (iv)   in the event of the involuntary termination of the service of the Grantee as a Board member for any reason; or     (v)   the Compensation Committee so directs.   --------------------------------------------------------------------------------        (a) Share Delivery. Upon vesting, a share certificate shall be delivered to the Grantee; provided, however, that the Company shall not be obligated to issue any Shares hereunder until all applicable securities laws and other legal and stock exchange requirements have been satisfied. The Grantee shall execute a stock power in the form attached hereto granting the Company the right to transfer Award Shares in the event the Grantee does not vest in the Award.      (b) Rights of Stockholder. The Grantee shall, by virtue of the Award, be entitled to receive dividends and vote the Award Shares. The grant of the Award shall not confer on the Grantee any right with respect to continuance of service as a Board member with the Company nor shall such grant interfere in any way with the right of the Company to terminate the Grantee’s service as a Board member at any time.      (c) Recapitalizations, Dividends and Adjustments. In the event of any recapitalization, reclassification, split-up or consolidation of Shares, separation (including a spin-off), dividend on Shares payable in capital stock or other similar change in capitalization of the Company, merger or consolidation of the Company, sale by the Company of all or a portion of its assets or other similar event, the Committee shall make such appropriate adjustments in the number and kind of securities, cash or other property which may be issued pursuant to the Award as is necessary to maintain the proportionate interest of the Grantee and preserve the value of the Award.      (d) Nontransferability. The Award shall not be transferable by the Grantee except by will or the laws of descent and distribution.      (e) Withholding. The Grantee agrees to make appropriate arrangements, consistent with the provisions of Section 11 of the Plan, with the Company for satisfaction of any applicable tax withholding requirements, or similar requirements, arising out of this Agreement.      (f) References. References herein to rights and obligations of the Grantee shall apply, where appropriate, to the Grantee’s legal representative or estate without regard to whether specific reference to such legal representative or estate is contained in a particular provision of this Agreement. Capitalized terms referred to herein but not defined shall have the meanings given to them in the Plan.      (g) Notice. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or by courier, or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently by similar process give notice of:           If to the Company:   First Industrial Realty Trust, Inc.       311 S. Wacker Drive, Suite 4000       Chicago, Illinois 60606       Attn: Chief Financial Officer 2 --------------------------------------------------------------------------------             If to the Grantee:   «Name»       «Company»       «Address1»       «City»,    «State»    «Postal Code»      (h) Counterparts. This Agreement may be executed in counterparts, each of which shall constitute one and the same instrument.      (i) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to the principles of conflict of laws, except to the extent such law is preempted by federal law. IN WITNESS WHEREOF, the undersigned has executed this Agreement as of _______, 200_.                       FIRST INDUSTRIAL REALTY TRUST, INC.       By:                              I hereby acknowledge that I have received a copy of the Plan and am familiar with the terms and conditions set forth therein. I agree to accept as binding, conclusive, and final all decisions and interpretations of the Committee. As a condition to the receipt of the Award, I hereby authorize the Company to withhold from any regular cash compensation payable to me by the Company any taxes required to be withheld under any federal, state or local law as a result of this Award.                       GRANTEE              «Name»                         Date:         3

EXHIBIT 10.1   Schedule Prepared in Accordance with Instruction 2 to Item 601 of Regulation S-K   The Restricted Stock Agreements are substantially identical in all material respects except as to the grantee and the number of shares. Grantee: George L. Ball Albert H. Cox, Jr. Terry E. Fields David N. Jordan   -------------------------------------------------------------------------------- RESTRICTED STOCK AGREEMENT This Restricted Stock Agreement (this “Agreement”) is made as of this 3rd day of July 2006 (the “Effective Date”) between Nestor, Inc., a Delaware corporation (the “Company”), and Albert H. Cox, Jr. (the “Director”). R E C I T A L S A. The Company believes it to be in the best interests of the Company and its stockholders to take action to promote the stability of its Board of Directors and otherwise align the interests of the members of the Board of Directors with those of the Company; and B. Accordingly the Company has determined to issue restricted shares of stock in accordance with the provisions of this Agreement and the 2004 Stock Incentive Plan of the Company (the “Plan”). NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Issuance of Restricted Stock. Pursuant to the provisions of the Plan, and subject to the terms and conditions of the Plan and the terms and conditions herein, upon execution of this Agreement (the “Grant Date”), the Company will issue to the Director 5,000 shares of Common Stock, $0.01 par value per share, of the Company (the “Common Stock”) in consideration of the Director’s services to the Company for the term ending at the 2006 annual meeting of stockholders. All of such Common Stock issued to the Director hereby is referred to herein as “Restricted Stock”. The Restricted Stock will also include equity interests of the Company issued with respect to the Restricted Stock by way of an equity split, dividend of equity or other recapitalization. To secure the restrictions on the Restricted Stock, the Company will retain possession of the certificates representing the Restricted Stock, together with executed stock powers in blank, and will provide the Director with copies thereof. 2. Vesting of Restricted Stock. All of the Restricted Stock is non-vested and forfeitable as of the Grant Date. The Restricted Stock granted hereunder will be deemed “vested” on the date of the annual meeting of the stockholders of the Company in 2006 (currently scheduled for July 6, 2006). 3. Forfeiture of Restricted Stock. If the Director’s service with the Company ceases for any reason, all Restricted Stock that is not then vested and non-forfeitable will be immediately forfeited to the Company upon such cessation for no consideration. 4. Non-Transferability; Legend. Until the Restricted Stock becomes vested and non-forfeitable, it may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process.   -1- -------------------------------------------------------------------------------- The certificates representing the Restricted Stock will bear the following legend: “THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS AND OTHER TERMS SET FORTH IN A RESTRICTED STOCK AGREEMENT DATED AS OF JULY 3, 2006, BETWEEN THE COMPANY AND THE OTHER SIGNATORY THERETO. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY’S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.” 5. Rights as Stockholder. Except as otherwise provided in this Agreement with respect to the non-vested and forfeitable Restricted Stock, the Director is entitled to all rights of a stockholder of the Company, including the right to vote the Restricted Stock and receive dividends and/or other distributions declared on the Restricted Stock. 6. General Provisions. (a) Severability. The parties agree that each provision herein shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of any other clauses of this Agreement. If any one or more provisions of this Agreement is held to be invalid or unenforceable for any reason, including due to being overbroad in scope activity, subject or otherwise: (i) this Agreement shall be considered divisible; (ii) such provision shall be deemed inoperative to the extent it is deemed invalid or unenforceable; and (iii) in all other respects this Agreement shall remain in full force and effect; provided, however, that if any such provision may be made valid or enforceable by limitation thereof, then such provision shall be deemed to be so limited and shall be valid and/or enforceable to the maximum extent permitted by applicable law. (b) Entire Agreement. This Agreement, together with the Plan, constitutes the entire agreement and understanding of the parties hereto concerning the subject matter hereof and from and after the date of this Agreement, this Agreement shall supersede any other prior negotiations, discussions, writings, agreements or understandings, both written and oral, between the parties with respect to such subject matter. (c) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (d) Successors and Assigns. (i)   This Agreement is personal to the Director and without the prior written consent of the Company shall not be assignable by the Director. This Agreement shall inure to the benefit of and shall be enforceable by the Director and the Director’s legal representatives.   (ii) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.   -2- --------------------------------------------------------------------------------   (iii) Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties hereto, and their respective heirs, legal representatives, successors, and permitted assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement. (e) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Rhode Island, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Rhode Island or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Rhode Island. (f) Remedies. Each of the parties to this Agreement and any such Person granted rights hereunder whether or not such Person is a signatory hereto shall be entitled to enforce its rights under this Agreement specifically to recover damages and costs (including reasonable attorneys’ fees) for any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party and any such Person granted rights hereunder whether or not such Person is a signatory hereto may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or other injunctive relief (without posting any bond or deposit) in order to enforce or prevent any violations of the provisions of this Agreement. (g) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the Company and the Director and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof. (h) Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via facsimile, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder and received when delivered personally, when received if transmitted via facsimile, five (5) days after deposit in the U.S. mail and one (1) day after deposit with a reputable overnight courier service. If to the Company, to: Nestor, Inc. 42 Oriental Street Providence, Rhode Island 02908 Attention: President With a copy to: Nestor, Inc. 42 Oriental Street Providence, Rhode Island 02908 Attention: Benjamin M. Alexander, Esq., General Counsel   -3- -------------------------------------------------------------------------------- If to the Director, to:   ___________________________ ___________________________ ___________________________ ___________________________ (i) Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or holiday in the state in which the Company’s chief executive office is located, the time period for giving notice or taking action shall be automatically extended to the business day immediately following such Saturday, Sunday or holiday. (j) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.   (k) Construction. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party. (l) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT. (m) Nouns and Pronouns. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock Agreement as of the date first written above.     NESTOR, INC.             By:   /s/ Nigel P. Hebborn Name:   Nigel P. Hebborn Title:   Chief Financial Officer                 DIRECTOR:                 /s/ Albert H. Cox, Jr. Name:   Albert H. Cox, Jr.   -4- --------------------------------------------------------------------------------

Exhibit(10)B AMENDMENT NO. 1 VALLEY NATIONAL BANCORP BENEFIT EQUALIZATION PLAN Effective as of January 1, 1996, the Valley National Bancorp Benefit Equalization Plan (the “Plan”) is amended as follows:   1. Article I of the Plan is amended by renumbering Sections 1.5 through 1.23 as Sections 1.6 through 1.24 respectively, and by adding the following new Section 1.5: “1.5. ‘Change in Control’ means any of the following events: (i) when Valley National Bancorp (“Valley”) or any corporation in an unbroken chain of corporations, beginning with Valley, 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 (a “Subsidiary”), acquires actual knowledge that any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), other than an affiliate of Valley or a Subsidiary or an employee benefit plan established or maintained by Valley, a Subsidiary or any of their respective affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or indirectly, or securities of Valley representing more than twenty-five percent (25%) of the combined voting power of Valley’s then outstanding securities (a “Control Person”), (ii) upon the first purchase of Valley’s common stock Pursuant to a tender or exchange offer (other than a tender or exchange offer made by Valley, a Subsidiary or an employee benefit plan established or maintained by Valley, a Subsidiary or any of their respective affiliates), (iii) upon the approval by Valley’s stockholders of (A) a merger or consolidation of Valley with or into another corporation (other than a merger or consolidation which is approved by at least two-thirds of the Continuing Directors (as hereinafter defined) or the definitive agreement for which provides that at least two-thirds of the directors of the surviving or resulting corporation immediately after the transaction are Continuing Directors (in either case, a “Non-Control Transaction”)), (B) a sale or disposition of all or substantially all of Valley’s assets or (C) a plan of liquidation or dissolution of Valley, (iv) if during any   – 1 – -------------------------------------------------------------------------------- period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of Valley (the “Continuing Directors”) cease for any reason to constitute at least two-thirds thereof or, following a Non-Control Transaction, two-thirds of the board of directors of the surviving or resulting corporation; provided that any individual whose election or nomination for election as a member of the Board of Directors of Valley (or, following a Non-Control Transaction, the board of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Valley National Bank (the “Bank”) if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than Valley, an employee benefit plan established or maintained by Valley or a Subsidiary, or an affiliate of Valley or a Subsidiary, owns a majority of the Bank’s common stock or (B) all or substantially all of the Bank’s assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power of Valley’s then outstanding securities if the acquisition of all voting securities in excess of ten percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of Valley’s then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law.”   2. Section 2.8, as renumbered, is amended to read as follows: “1.8 ‘Compensation Committee’ means the Personnel and Compensation Committee of the Board of Directors.”   3. Section 1.10 (as renumbered) of the Plan is amended by deleting the terms “ ten (10) Years Of Continuous Service” and substituting “fifteen (15) Years Of Continuous Service” in their place.   – 2 – -------------------------------------------------------------------------------- 4. The Plan is amended by renumbering Sections 1.10 through 1.25 (as renumbered) as Sections 1.11 through 1.26, and by adding the following new Section 1.10: “1.10 . ‘Disabled’ shall mean, with respect to a participant, that the Participant has become mentally or physically disabled such that he or she is, or is reasonably expected to be, unable to perform the usual and customary duties of his or her position for a period of long and continued duration. For this purpose the determination of a Participant’s disability shall be determined by the Compensation Committee, in its sole but reasonable discretion. The Compensation Committee shall consult with one physician of its choosing and one physician of the subject Participant’s choosing in helping it to determine the existence and extent of the Participant’s disability.”   5. Article IV of the Plan is amended by adding the following new paragraph to the end thereof: “Notwithstanding anything herein to the contrary, a Participant will have his or her SERP Benefit forfeited in its entirety in the event that the Participant leaves the employment of the Company for any reason, voluntarily or involuntarily, prior to the attainment of age 55, except if such employment terminates as a result of the Participant’s death or Disability. The preceding sentence will not apply, and all Participant’s will be fully and absolutely vested in their accrued SERP Benefits, in the event of a Change of Control. A Participant’s SERP Benefit, if any, will only be paid in the same form and beginning at the same time as his or her Pension Plan Benefit under the Pension Plan.” IN WITNESS WHEREOF, the Personnel and Compensation Committee of the Board of Directors of Valley National Bancorp hereby adopts the foregoing Amendment No. 1 to the Valley National Bancorp Benefit Equalization Plan.   BY:   /s/ Robert McEntee   ROBERT McENTEE   Chairman VNB Personnel and Compensation Committee 5/4/96 Date   – 3 –

-------------------------------------------------------------------------------- SHARE PLEDGE AGREEMENT This Agreement dated as of the 16 day of May, 2006. MADE BY: SASS PERESS and PERESS FAMILY TRUST of 287 Kindersley Avenue Montreal, Quebec H3R 1R6 ARLENE ADES of 6586 Mackle Rd., Cote St. Luc, Quebec H4W 3J9 JOEL COHEN of 2800 Cote Vertu, Montreal, Quebec H4R 2M5 (collectively the "Pledgors") OF THE FIRST PART TO AND IN FAVOUR OF: FC FINANCIAL SERVICES INC., of 110 Jardin Drive Suite 13-14 Concord, ON L4K 2T7 (the "Creditor") OF THE SECOND PART WHEREAS: A. ICP Solar Technologies Inc. (“ICP”) and the Creditor have entered into a loan agreement dated the 16th day of May, 2006 (the "Loan Agreement");     B. The Pledgors have guaranteed the obligations of ICP under the Loan Agreement pursuant to a limited recourse guarantee dated May 16, 2006 ( The “Guarantee”), with the recourse of the Lender thereunder being limited to the shares pledged by the Pledgors under this Share Pledge Agreement as security for the obligations of the Pledgors under the Guarantee NOW THEREFORE, in consideration of the foregoing premises, the sum of $10.00 in lawful money of Canada now paid by the Creditor to the Pledgors and other good and valuable consideration delivered by the Creditor to the Pledgors, the receipt and sufficiency of which is hereby acknowledged by the Pledgors, the Pledgors hereby agree as follows: 1.                       Definitions 1.1                     In this Agreement, the following terms shall have the meanings set forth below:   (a) “Guarantee” means the guarantee made by the Pledgors in favour of the Creditor dated the date hereof;         (b) "Loan" means the loan advanced pursuant to the Loan Agreement; --------------------------------------------------------------------------------   (c) "Obligations" means all obligations and indebtedness owed from time to time by the Pledgors to the Creditor pursuant to the Guarantee;       (d) "Pledged Shares" means the following securities: 3,064,291 common shares of ICP represented by the following certificates: Certificate No. Number of Shares     A-8 5150 A-7 531 A-6 319 B-3 4000 E-1 3,054,291 2.                        Share Pledge 2.1                      The Pledgors do hereby assign, mortgage, charge, hypothecate, and pledge to the Creditor the Pledged Shares and hereby deposit with the Creditor’s solicitors, Northwest Law Group any and all present and after acquired security certificates evidencing such Pledged Shares duly endorsed for transfer. 2.2                      The Pledged Shares shall include any substitutions therefor, additions thereto or proceeds thereof, arising out of any consolidation, subdivision, reclassification, stock dividend, or similar increase or decrease in or alteration of the capital of the issuer of the Pledged Shares (the "Issuer"). 2.3                      If at any time any further or other securities or shares shall be deposited by the Pledgors with the Creditor or its nominee in substitution for or in addition to the Pledged Shares, such securities shall thereupon be deemed to be a part of the Pledged Shares for the purposes of this Share Pledge Agreement and shall forthwith become subject to all the terms hereof and the warranties contained herein. 2.4                      If the Pledgors acquire any certificates evidencing the Pledged Shares not already delivered to the Creditor after the date hereof, the Pledgors will, forthwith upon receipt by the Pledgors, deliver to the Creditor such certificates and shall, at the request of the Creditor:   (a) duly endorse the certificate(s) for transfer in blank, or         (b) duly endorse the certificate(s) for transfer in blank, signature guaranteed. 2.5                      The Pledgors hereby covenant that they will pay or discharge to the Creditor all of the Pledgors’ obligations under the Guarantee. 3.                        Obligations Secured 3.1                      The assignments, mortgages, charges, hypothecation and pledges granted hereby (collectively, the "Pledge") shall, until discharged, secure payment to the Creditor of the Obligations. 2 -------------------------------------------------------------------------------- 4.                        Attachments 4.1                      The Pledgors and the Creditor hereby acknowledge that:   (a) value has been given;         (b) the Pledgors have rights in the Pledged Shares; and         (c) they have not agreed to postpone the time of attachment of the Pledge. 5.                         Creditor's Care and Custody of Pledged Shares 5.1                      The Creditor or its nominee shall not be bound to collect, dispose of, realize, protect or enforce any of the Pledgors' right, title and interest in and to the Pledged Shares, to institute proceedings for the purpose therefor or to take any steps necessary to preserve rights against any other parties in respect thereof. 5.2                      The Creditor or its nominee need not see to the collection of dividends on or exercise any option or right in connection with the Pledged Shares and need not protect or preserve them from any loss of value and is hereby released from all responsibility for loss of value. 6.                         Covenants of the Pledgors 6.1                      The Pledgors shall not, without the prior written consent of the Creditor, sell, exchange, release or abandon or otherwise dispose of, absolutely or by way of security, any of its right, title or interest in and to the Pledged Shares. 6.2                      The Pledgors shall promptly furnish to the Creditor on request such information in respect of the Pledged Shares as the Creditor may from time to time require and shall promptly notify the Creditor of the occurrence of any event or circumstance which can be reasonably be foreseen and is likely to cause or constitute a breach of the warranties, undertakings and agreements contained herein. 7.                        Rights of the Pledgors 7.1                      Until the Pledge has become enforceable, the Pledgors shall be entitled to vote the Pledged Shares and to receive all cash dividends in respect thereof. In order to allow the Pledgors to vote the Pledged Shares, the Creditor hereby appoints the Pledgors as its true and lawful attorney for purposes of:   (a) appointing proxy holders to attend and act at meetings of shareholders; and         (b) executing resolutions in writing and proxies, all pursuant to the relevant provisions of ICP's governing legislation. 7.2                      Whenever the Pledge has become enforceable, all rights of the Pledgors to exercise the voting and other rights or to receive the cash dividends shall cease, and all such rights shall 3 -------------------------------------------------------------------------------- thereupon become vested solely and absolutely in the Creditor. Any cash dividends received by the Pledgors contrary to this section or any other moneys or other property which may be received by the Pledgors at any time for or in respect of the Pledged Shares contrary to this section shall be received in trust for the Creditor by the Pledgors and shall be forthwith paid over to the Creditor. 8.                         Enforcement 8.1                      This Share Pledge Agreement shall be and become enforceable five (5) days after the Creditor has given notice to the Pledgors of the occurrence of:   (a) any default by the Borrower in the due payment of the Loan or any instalment of principal or interest with respect thereof; or         (b) any default hereunder or under the Loan Agreement or in the performance of the Obligations. 8.2                      Whenever this Share Pledge Agreement has become enforceable, the Creditor or its nominee may at any time in its sole discretion, realize upon or otherwise dispose of or contract to dispose of the Pledged Shares by sale, transfer or delivery or may exercise and enforce all rights and remedies of a holder of the Pledged Shares as if the Creditor were absolute owner thereof (including, if necessary, causing the Pledged Shares to be registered in the name of the Creditor or its nominee), without demand of performance or other demand, advertisement or notice of any kind to or upon the Pledgors and any such remedy may be exercised separately or in combination and shall be in addition to and not in substitution for any other rights the Creditor may have, however created. The Creditor shall not be bound to exercise any such right or remedy, and the exercise of such rights and remedies shall be without prejudice to the rights of the Creditor in respect of the Obligations including the right to claim for any deficiency. 8.3                      The Pledgors hereby irrevocably appoint the Creditor or its nominee (and any officer thereof) as attorney of the Pledgors (with full power of substitution) to exercise in the name of and on behalf of the Pledgors any of the Pledgors’ rights (including the right of disposal), title and interest in and to the Pledged Shares including the execution, endorsement, delivery and transfer of the Pledged Shares to the Creditor, its nominees or transferees, and the Creditor and its nominees or transferees are hereby empowered to exercise all rights and powers and to perform all acts of ownership with respect to the Pledged Shares to the same extent as the Pledgors might do. The power of attorney herein granted is in addition to, and not in substitution for, any stock power of attorney delivered by the Pledgors and such powers of attorney may be relied upon by the Creditor severally or in combination. All acts of any such attorney are hereby ratified and approved, and such attorney shall not be liable for any act, failure to act or other any other matter or thing in connection therewith, except for its own negligence or wilful misconduct. 8.4                      Without limiting the generality of the foregoing, the Pledgors hereby irrevocably authorizes the Creditor at any time after this Share Pledge Agreement becomes enforceable to register the Pledged Shares or any of them in the name of the Creditor or its nominee in the absolute discretion of the Creditor. 8.5                      The Creditor shall not be obliged to exhaust its recourse against the Pledgors, or any other person or persons or against any other security it may hold in respect of the Obligations before realizing upon or otherwise dealing with the Pledged Shares in such manner as the Creditor may consider desirable. 4 -------------------------------------------------------------------------------- 8.6                      The Creditor may grant extensions or other indulgences, take and give up securities, accept compositions, grant releases and discharges and otherwise deal with the Pledgors and with other parties, sureties or securities as the Creditor may see fit without prejudice to the Obligations or the rights of the Creditor in respect of the Pledged Shares. 8.7                      Without prejudice to the ability of the Creditor to dispose of the Pledged Shares in any manner which is commercially reasonable, the Pledgors acknowledge that a disposition of Pledged Shares by the Creditor which takes place substantially in accordance with the following provisions shall be deemed to be commercially reasonable:   (a) Pledged Shares may be disposed in whole or in part;         (b) Pledged Shares may be disposed of by public sale, private contract or otherwise, with or without advertising and without any other formality;         (c) any purchaser of such Pledged Shares may be the Creditor or any parent, subsidiary, or affiliate of the Creditor, provided that such purchase is at fair market value         (d) any sale conducted by the Creditor shall be at such time and place, on such notice and in accordance with such procedures as the Creditor, in its sole discretion, may deem advantageous;         (f) a disposition of the Pledged Shares may be on such terms and condition as to credit or otherwise as the Creditor, in its sole discretion, may deem advantageous; and         (g) the Creditor may establish an upset or reserve bid or price in respect of the Pledged Shares. 8.8                      No person dealing with the Creditor or its nominee or nominees or their agent or a receiver shall be required:   (a) to determine whether the Pledge has become enforceable;         (b) to determine whether the powers which the Creditor, its nominee or their agent is purporting to exercise have become exercisable;         (c) to determine whether any obligation remains due to the Creditor by the Pledgors;         (d) to determine the necessity or expediency of the stipulations and conditions subject to which any sale shall be made;         (e) to determine the propriety or regularity of any sale or of any other dealing by the Creditor or its nominee with the Pledged Shares; or         (f) to see to the application of any money paid to the Creditor. 8.9                      Any purchaser of Pledged Shares from the Creditor shall hold the Pledged Shares absolutely free from any claim or right of whatever kind, including any equity of redemption, of the Pledgors, which they hereby specifically waive (to the fullest extent permitted by law) as against any 5 -------------------------------------------------------------------------------- such purchaser, all rights of redemption, stay or appraisal which the Pledgors have or may have under any rule of law or statute now existing or hereafter adopted. 9.                        Representations and Warranties 9.1                      The Pledgors do hereby represent, warrant and undertake to the Creditor that:   (a) the Pledged Shares are now and will at all times be beneficially owned by the Pledgors free from any option, lien, charge, encumbrance, adverse claim or restriction of any kind;         (b) the execution and delivery of this Share Pledge Agreement has been duly authorized by all necessary action of the Pledgors and will not cause or constitute any breach or event of default under any provision of any trust deed, agreement or other instrument to which the Pledgors are a party or by which they are bound;         (c) all of the Pledged Shares are fully paid up and validly issued. 10.                       Discharge 10.1                     The Pledge shall be fully released and discharged upon, but only upon, payment in full of the Loan and the Obligations. 10.2                     The Creditor shall return to the Pledgors the share certificates and the power of attorney upon a release and discharge of the Loan and the Obligations. 11.                       Miscellaneous 11.1                     No judgment recovered by the Creditor shall operate by way of merger of or in any way affect the Pledge, which is in addition to and not in substitution for any other security now or hereafter held by the Creditor in respect of the Obligations. 11.2                     No amendment, consent or waiver by the Creditor shall be effective unless made in writing and signed by an authorized officer of the Creditor and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 11.3                     The Pledgors shall from time to time, whether before or after the Pledge shall have become enforceable, do all such acts and things and execute and deliver all such deeds, transfers, assignments, and instruments as the Creditor may reasonably require for protecting the Pledged Shares or perfecting the Pledge and for exercising all powers, authorities, and discretions hereby conferred upon the Creditor, and the Pledgors shall, from time to time after the Pledge has become enforceable do all such acts and things and execute and deliver all such deeds, transfers, assignments and instruments as the Creditor may require for facilitating the sale of the Pledged Shares in connection with any realization thereof. 11.4                     This Share Pledge Agreement shall be binding upon the Pledgors and their successors and assigns, and shall enure to the benefit of the Creditor and its respective successors 6 -------------------------------------------------------------------------------- and assigns. All rights of the Creditor hereunder shall be assignable only after this Share Pledge Agreement has become enforceable by the Creditor and in any action brought by an assignee to enforce any such rights, the Pledgors shall not assert against such assignee any claim or defence which the Pledgors now have or hereafter may have against the Creditor. 11.5                     The division of this Share Pledge Agreement into articles, sections and subsections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation thereof. 11.6                     If any provision of this Share Pledge Agreement shall be deemed by any court of competent jurisdiction to be invalid or void, the remaining provisions shall remain in full force and effect. 11.7                     The Pledgors acknowledge receipt of an executed copy of this Share Pledge Agreement and waive all rights to receive from the Creditor a copy of any financing statement, financing change statement or verification statement filed or created at any time in respect of this Share Pledge Agreement. 11.8                     This Share Pledge Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and of Canada applicable therein. 11.9                     Any notice, statement, demand or request herein required or permitted to be given by any party hereto to the other shall be in writing and shall be deemed to have been sufficiently and effectually given if signed by or on behalf of the party giving the notice and delivered by hand or telecopied (with original to follow concurrently by mail) to: the Pledgors at: 287 Kindersley Avenue   Montreal, Quebec H3R 1R6       Fax No. 514-221-4786     the Creditor at: 110 Jardin Drive, Suite 13-14   Concord, Ontario L4K 2T7       Fax No. 905.761.1095 Any notice telecopied shall be deemed to be received when sent and duly received during normal business hours at the office set forth above. Any notice delivered by hand shall be deemed to be received when left during nominal business hours at the office set forth above. Any party referred to above shall be entitled to change its address or telecopier 7 -------------------------------------------------------------------------------- 11.10                    This Agreement has been prepared by Northwest Law Group acting solely on behalf of the Creditor and the Pledgors acknowledge that they have been advised to obtain independent legal advice. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first written above. /s/ Sass M. Peress   /s/ Arlene Ades SASS M. PERESS   ARLENE ADES             PERESS FAMILY TRUST     by its authorized signatory:                        /s/ Sass M. Peress   /s/ Joel Cohen *   JOEL COHEN Trustee                 FC FINANCIAL SERVICES INC.     by its authorized signatory:                       /s/ Taras Chebountchak     Taras Chebountchak     President     8 --------------------------------------------------------------------------------

  Exhibit 10.65 FIRST AMENDMENT TO LEASE AGREEMENT This FIRST AMENDMENT TO LEASE AGREEMENT (“First Amendment”) is made and entered into effective as of August 1, 2006 (“Effective Date”), by and between DCT CREEKSIDE III LLC, a Delaware limited liability company (“Landlord”), and RED ENVELOPE, INC. (“Tenant”). RECITALS      This First Amendment is made with respect to the following facts:      A. Creekside III LLC (“Creekside”), as predecessor in interest to Landlord (hereinafter collectively “Landlord”), and Tenant entered into a Lease Agreement dated April 1, 2004 (the “Lease”), whereby Tenant leased certain premises consisting of approximately 238,674 rentable square feet located at 4000 Creekside Parkway, Lockbourne, Ohio 43137 (the “Premises”).      B. Landlord and Tenant now desire to amend the Lease to provide for an extension of the Term of the Lease for the Premises on the terms and conditions set forth below. AGREEMENT      NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which, are hereby acknowledged, the parties hereby agree as follows:      1. Defined Terms. Unless otherwise expressly defined herein, all initially capitalized terms used herein shall have the meanings set forth for such terms in the Lease.      2. Extension Term. As of August 1, 2006 (the “Extension Term Commencement Date”), the Lease shall be extended for an additional period of twelve (12) months (the “Extension Term”), so that the expiration date of the Lease shall thereby be July 31, 2007 (the “Termination Date”). For purposes herein, Tenant hereby acknowledges that the extension of the Term of the Lease as contemplated by this First Amendment shall be deemed to mean the exercise of Tenant’s first renewal option as granted under Section 1 of Exhibit F of the Lease, and therefore, Tenant shall have one (1) remaining renewal option to extend the Term of the Lease beyond the Extension Term in accordance with the provisions thereof.      3. Monthly Base Rent. From and after the Extension Term Commencement Date until the Termination Date, the Monthly Base Rent payable to Landlord in accordance with the provisions of the Lease shall be $68,618.78 per month.      4. Operating Expenses. In addition to the Monthly Base Rent as set forth above, Tenant shall remain obligated for the payment of Operating Expenses in accordance with the provisions of the Lease during the Extension Term.      5. Tender of Premises. Tenant currently occupies the Premises as of the Effective Date hereof. Tenant’s continued occupancy of the Premises on August 1, 2006 shall be deemed Tenant’s acceptance thereof in its As-Is condition, and Landlord shall have no obligations to make or perform any alterations or improvements to the Premises.   --------------------------------------------------------------------------------        6. Brokers. Tenant hereby represents and warrants to Landlord that Tenant has not engaged or dealt with any broker, finder, or agent in connection with the negotiation and/or execution of this First Amendment, other than Pizzuti Management LLC (“Landlord’s Broker”) and The Staubach Company (“Tenant’s Broker”) (Landlord’s Broker and Tenant’s Broker collectively hereinafter referred to as the “Brokers”), and Tenant agrees to indemnify and save Landlord harmless from any claim, demand, damage, liability, cost or expense (including, without limitation, attorneys’ fees) paid or incurred by Landlord as a result of any claim for brokerage or other commissions or fees made by any other broker, finder, or agent, other than Brokers, whether or not meritorious, employed or engaged or claiming employment or engagement by, through, or under Tenant.      7. Status of Lease Obligations. Tenant acknowledges and certifies that as of the date hereof, Landlord has performed all covenants and obligations on the part of Landlord to be performed under the Lease and that Tenant has no claims or right of offset against Landlord.      8. Effect of Amendment., Except as expressly amended hereby, the Lease shall continue in full force and effect and unamended. In the event of any conflict or inconsistency between the provisions of the Lease and this First Amendment, the provisions of this First Amendment shall control.      9. Binding Effect. This First Amendment will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.      10. Severability. In the event that any one or more of the provisions of this First Amendment shall for any reason be held to be invalid or unenforceable, the remaining provisions of this First Amendment shall be unimpaired, and shall remain in full force and effect and be binding upon the parties hereto.      11. Headings. The paragraph headings that appear in this First Amendment are for purposes of convenience of reference only and are not in any sense to be construed as modifying the substance of the paragraphs in which they appear.      12. Counterparts. This First Amendment may be executed in one or more counterparts, each of which will constitute an original, and all of which together shall constitute one and the same agreement. Executed copies hereof may be delivered by telecopy and, upon receipt, shall be deemed originals and binding upon the parties hereto. Without limiting or otherwise affecting the validity of executed copies hereof that have been delivered by telecopy, the parties will use best efforts to deliver originals as promptly as possible after execution.      13. Governing Law. This First Amendment shall be governed by and construed in accordance with the laws of the state in which the Premises is located.      14. Limitation of Liability. Notwithstanding anything herein to the contrary, the person or persons executing this First Amendment on behalf of Landlord and Tenant, respectively, are authorized to do so and to so bind each respective entity with respect to the provisions herein; provided, however, that such individuals shall incur no personal liability with respect to the obligations or performance of Landlord and Tenant, as applicable, under the Lease, as amended.   --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first set forth above.               LANDLORD:   TENANT:     DCT CREEKSIDE III LLC, a Delaware   RED ENVELOPE, INC.     limited liability company                       By:   Dividend Capital Operating Partnership LP,             a Delaware limited partnership,             its sole member                           By:   Dividend Capital Trust Inc.,             a Maryland corporation,             its general partner                   By:   /s/ Daryl H. Mechem   By:   /s/ Ken Constable                   Daryl H. Mechem       Ken Constable     Managing Director       President & CEO               Date:   8/7/06   Date:   8/1/06  

Exhibit 10 (i). 2 Agency Agreement with First Integrated Health, Inc. February 22, 2006 Dear Muzzy: This Agreement sets forth the general terms upon which First Integrated Health, Inc. (“FIH”) will produce insurance business for Independence American Insurance Company ("IAIC") and other Independence Holding Company (“IHC”) affiliates as further described in this letter.   1) New Business.  FIH shall begin to write all of its fully-insured group and individual medical insurance (“Fully-Insured”) and stop-loss medical insurance (“Stop-Loss”) that is currently underwritten and/or administered by FIH (collectively, “Health Business”) on IAIC Paper in the states listed on Schedule A hereto as soon as practicable after the date hereof.  In addition, FIH shall begin to write life and dental coverage using IHC Paper as soon as practicable (“Other Business”). 2) Transfer of Existing Block.  At least 40% of the Fully-Insured Health Business shall be transferred to IAIC Paper on January 1, 2007  FIH will use its best efforts to transfer the balance of the Fully-Insured Health Business to IAIC on January 1, 2007 and in no event later than July 1, 2007.  The Stop-Loss Health Business will be transferred at each respective renewal date during 2007. 3) Compensation. (a) Initial Compensation.  Within 5 business days after execution of this Agreement by both parties, IAIC shall pay to FIH $2,500,000 cash. FIH shall simultaneously pay such amount to IHC, which hereby agrees to issue to FIH 125,000 shares of unregistered IHC common stock (the “IHC Stock”) in consideration of $2,500,000 cash and other good and valuable consideration.  IAIC shall hold the IHC Stock in escrow until such time as the aggregate annualized premiums for the Health Business and Other Business written by FIH is at least $30 million, at which time IAIC shall distribute to FIH the IHC Stock less the number of shares of IHC Stock necessary to maintain the Collateralization of Risk. (b) Compensation after Five Years.  If the Threshold Premium for 2011 is at least $50 million and the Aggregate Underwriting Gain is at least 6% from inception through December 31, 2011, in the event that the Fair Market Value of the IHC Stock as January 1, 2012 is less than $40, IAIC agrees to pay to FIH, in cash, $5,000,000 less the Fair Market Value as of January 1, 2012 multiplied by 125,000; provided in no event would IAIC have to pay FIH more than $2,500,000.  In the event that the Aggregate Underwriting Gain is less than 6%, but not less than 4.5%, then the additional payment will be determined in accordance with Schedule B hereto. (c) Continuation of Agreement.  If the Threshold Premium for 2011 is at least $50 million and the Aggregate Underwriting Gain is at least 6% from inception through December 31, 2011 (the “Renewal Thresholds”), this Agreement shall automatically be renewed until December 31, 2016 as follows: a. FIH shall continue to write all Health Business in all states on IAIC Paper. b. If the Threshold Premium for 2016 is at least $80 million and the Aggregate Underwriting Gain is at least 6% for years 2012 through 2016, in the event that the Fair Market Value of the IHC Stock as January 1, 2017 is less than $80, IAIC agrees to pay to FIH, in cash, $10,000,000 less the Fair Market Value as of January 1, 2017 multiplied by 125,000 and less any amounts paid to FIH pursuant to paragraph 3(b); provided in no event would IAIC have to pay FIH more than $5,000,000.  In the event that the Aggregate Underwriting Gain is less than 6%, but not less than 4.5%, then the additional payment will be determined in accordance with Schedule B hereto. (d)     2013 Bonus Payment. If the Threshold Premium for 2013 is at least $100 million and the Aggregate Underwriting Gain is at least 6% for years 2007 through 2013, then IAIC shall pay FIH an additional bonus of $1,000,000 cash. (e)     IHC Stock.  FIH shall not be required to own the IHC Stock at either Measuring Date in order to receive any cash difference.  However, FIH must retain ownership of the stock for 12 months following the issuance of the shares by IHC. 4) Loss Ratio Slide.  With respect to all Health Business, IAIC and FIH agree to enter into a loss ratio slide arrangement whereby IAIC cedes a 0.35 to 1 two-way slide off of the pivot point of a 100% Combined Ratio risk share.  All premiums with respect to the arrangement shall be controlled by IAIC.  IAIC shall determine the loss ratio 24 months after the beginning of any underwriting year and IAIC shall pay FIH its pro rata share of any profit or FIH shall pay IAIC its pro rata share of any loss within 20 days after the parties agree that such determination is final.  The Loss Ratio Slide payments will be calculated annually and paid on February 15 following each year-end based on estimated losses for the prior year.  The Loss Ratio Slide will be trued-up through each June 30 and December 31, with corresponding payouts on August 15 and February 15, respectively. 5) Collateralization of FIH Risk.  FIH agrees to maintain collateralization in the form of a Letter of Credit from a bank and in such form as reasonably acceptable to IAIC, cash or IHC Stock, in the amount of at least 3.5% of the Earned Premium for the twelve months prior to the evaluation date.  IAIC will evaluate the collateralization of risk every six months.  FIH agrees to adjust the amount of collateralization to maintain the 3.5% minimum.  The IHC Stock shall be considered Collateralization of FIH Risk during the time period the IHC Stock is held in trust described in the Initial Compensation paragraph of this letter. 6) Administrative Expenses. The Administrative Expenses shall be as set forth on Schedule C; provided (i) the premium tax (including the proportionate share of all assessments and guaranty fund obligations relating to the Health Business) shall be adjusted to actual as soon as all such taxes, assessments and obligations are finalized and (ii) IAC will continue to provide program management services to FIH in consideration of the IAC Management Fee for Fully-Insured Health Business  each year during the term of this Agreement, unless either party gives the other at least 90 days prior written notice that such party wishes to terminate or revise such arrangement. 7) Definitions: a. The term “Administrative Expenses” shall have the meaning set forth in Section 6 b. The term “Aggregate Underwriting Gain” shall mean the weighted average on a premium basis of the Aggregate Underwriting Gain for the fully insured business and the Aggregate Underwriting Gain for the stop loss business.  The Aggregate Underwriting Gain shall not include Other Business. c. The term “Aggregate Underwriting Gain for the Fully Insured Business” shall mean the Underwriting Gain divided by earned premium for the given time period.  The Aggregate Underwriting Gain for the Fully Insured Business shall not include Other Business. d. The term “Aggregate Underwriting Gain for the Stop Loss Business” shall mean the Underwriting Gain divided by the earned premium on a risk attaching basis.  The Aggregate Underwriting Gain for the Stop Loss Business shall not include Other Business. e. The term “Change of Control” shall mean: i. a change in the ownership of 50% or more of the outstanding common stock of IHC or FIH, as the case may be, within a twelve month period; or ii. the stockholders of IHC or FIH, as the case may be, approve a merger or consolidation of IHC or FIH, as the case may be,  with any other corporation, other than a merger or consolidation which would result in the voting stock of IHC or FIH, as the case may be, outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the total voting power represented by the voting stock or the other voting securities of such surviving entity outstanding immediately after such merger or consolidation; or iii. the stockholders of IHC or FIH, as the case may be, approve a plan of complete liquidation of IHC or FIH, as the case may be, or an agreement for the sale or disposition by such company of all substantially all of its assets. f. The term “Combined Ratio” shall mean the sum of losses incurred (including extra-contractual obligations and loss adjustment expenses), plus Administrative Expenses all for the contract year under consideration, divided by earned premium during the same contract year. g. The term “IAIC Paper” shall mean policy forms or certificates of coverage written by IAIC.  In the event that IAIC does not have an approved Health Business product at the time FIH has an opportunity to write business in a particular state, FIH shall first offer such business, in writing, to IHC’s other carriers who have such product approved and are rated at least B+ by AM Best.  If IHC declines to write such business or does not respond to FIH’s written offer within 10 days, then FIH shall be free to write such business with another carrier.  Any Health Business and Other Business written on IHC Paper under the terms of this paragraph shall be included in the Health Business and will be considered IAIC Paper for the purposes of this letter.  Other Business written by IAIC or one of its affiliates shall also be considered IAIC Paper for the purposes of this letter. h. The term “IHC Paper” shall mean policy forms or certificates of coverage written by Standard Security Life Insurance Company of New York or Madison National Life Insurance Company, Inc. i. The term “Threshold Premium” shall mean the sum of (i) earned premium for the Fully-Insured Business plus (ii) annualized premium for the Stop-Loss Business plus (iii) the earned premium for the Other Business for the time period specified. j. The term “Fair Market Value” shall mean the average closing price of the IHC Stock for the ten business day period prior to the Measuring Date. k. The term “Measuring Date” shall mean December 31, 2011 or December 31, 2016, as the case may be. l. The term “Underwriting Gain” shall mean earned premium less incurred claims less earned expenses. 8) Conditions. (a) FIH shall be entitled to terminate the exclusive nature of the relationship in the event: (i) of a Change of Control of IHC; (ii) of the termination of AMC as the consulting actuary for the Health Business; or (iii) of the ratings of IAIC and IHC’s other carriers that are able to write the Health Business fall below B+. (b) IAIC shall be entitled to terminate this Agreement in the event: (i) the Health Business experiences a Combined Ratio of at least 100% for two consecutive years.  This calculation shall be made three (3) months following the end of the applicable contract year; provided IAIC gave FIH written provisional notice of termination not less than six months prior to the effective date of termination ; or (ii)  of a Change of Control of FIH. 9) Termination.  Upon termination of this Agreement, IHC shall not be obligated to remit additional payments under the paragraph 3 of this Letter, and FIH shall be entitled to keep its IHC Stock.  The Loss Ratio Slide arrangement will terminate with one additional true-up of any outstanding run-out calculations, and FIH shall not be obligated to assume risk for any years after the termination date. 10) Rates and Underwriting Guidelines.  IAIC agrees that during the time the business is being written on IAIC Paper (or IHC Paper), the underwriting guidelines and rates applicable to the Health Business shall not be modified in a manner which is not actuarially justified. 11) Filing of Forms.  FIH is responsible for working with ICC to file the appropriate forms necessary to issue business on IAIC Paper.  FIH and IHC will each bear 50% of ICC’s costs related to the filing of the forms.   12) Finder’s Fee.  Neither IAIC nor FIH has incurred any liability for any finders’ or brokers’ fees or commissions in connection with the transactions contemplated hereby. 13) Expenses.  Each party hereto shall bear its own costs and expenses incurred in connection with the transactions described herein unless otherwise agreed to in writing. 14) Public Announcements.  There shall be no announcement, press release or other public statement concerning the transactions described herein without the prior approval of IAIC and FIH. 15) Entire Agreement.  This Agreement constitutes the complete understanding of the parties with respect to the matters referenced herein, and any other agreements, contracts or understandings (whether written or oral) are superseded by the terms hereof. 16) Governing Law.  The validity and interpretation of this Agreement shall be governed by the laws of the State of Delaware. If the foregoing is acceptable and sets forth our mutual understandings concerning these matters, please so indicate by signing below. Independence American Insurance Company By: /s/ David T. Kettig       David T. Kettig, Chief Operating Officer AGREED AND ACCEPTED this 22nd day of February, 2006 First Integrated Health, Inc. By: /s/ Mouzon Bass III Mouzon Bass, III President Schedule A To Be Determined Schedule B Additional Payment Schedule AP = Additional Payment AUG = Average Underwriting Gain PAUG = Payment if Actual Underwriting Gain = 6% AP = (PAUG) * ((1-(6-AUG)/1.5) Schedule C Expense Schedule   Fully Insured Stop Loss     AMC Consulting Fee 1.0% 2.0% Administration and Commission Allowance 14.0% 21.0% IAC Management Fee 1.0% N/A  IAIC Carrier Fee 3.0% 4.0% Provisional Premium Tax 2.5% 2.5% Total Expenses 21.5% 29.5%    

Exhibit 10.3 FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT PREAMBLE. This First Amendment to Amended and Restated Credit and Security Agreement (this “Amendment”), dated as of February 13, 2006 (the “Amendment Date”), is made among (i) OMNI ENERGY SERVICES CORP., a Louisiana corporation (“Parent Company”); AMERICAN HELICOPTERS INC., a Texas corporation (“AHI”); OMNI ENERGY SERVICES CORP.-MEXICO, a Louisiana corporation (“Omni Mexico”); OMNI PROPERTIES CORP., a Louisiana corporation (“Omni Properties”); OMNI OFFSHORE AVIATION CORP., a Louisiana corporation (“Omni Offshore”); OMNI LABOR CORPORATION, a Louisiana corporation, formerly known as OMNI SEISMIC AVIATION CORP. (“Omni Labor”); OMNI ENERGY SEISMIC SERVICES CORP., a Louisiana corporation (“Omni Energy”); (ii) TRUSSCO, INC., a Louisiana corporation (“Trussco”) and TRUSSCO PROPERTIES, LLC, a Louisiana limited liability company (“Trussco Properties”; Trussco Properties Trussco, Omni Energy, Omni Labor, Omni Offshore, Omni Properties, Omni Mexico, AHI and Parent Company herein called, collectively, “Initial Borrowers” and, individually, an “Initial Borrower”); (iii) PREHEAT, INC., a Louisiana corporation (“Preheat”; Preheat, together with the Initial Borrowers, herein called, collectively, “Borrowers” and, individually, a “Borrower”); and (iv) WEBSTER BUSINESS CREDIT CORPORATION, a corporation organized under the laws of the State of New York (“WBCC”), individually, as lender hereunder and as agent for itself and each other Lender Party (as hereinafter defined) (WBCC, acting in both such capacities, herein called “Lender”), for the purpose of amending the Amended and Restated Credit and Security Agreement, dated as of May 18, 2005, between Initial Borrowers and Lender (herein, as modified and amended to date, pursuant to the “First Consent” and the “Second Consent,” as each of those terms is defined below, as further amended hereby, and as it may be further modified or amended from time to time hereafter, called the “Credit Agreement”) in order to reflect the acquisition by Parent Company of the Capital Stock of New Borrower and the joinder of Preheat as a Borrower under the Credit Agreement, among other purposes. 1. Definitions. Capitalized terms used in this Amendment, but not expressly defined herein, shall have the same meanings as given to such terms in the Credit Agreement or, as applicable, in the First Consent and the Second Consent. 2. Amendments. 2.1. Definitions. The following new definitions shall be added to Annex One of the Credit Agreement in the correct alphabetical order: “First Consent” shall mean the Consent, dated as of July 29, 2005, made between Lender and the Initial Borrowers, modifying and amending the terms of the Credit Agreement to reflect (among other things) the consent of Lender to the “Rotorcraft Sale” (as that term is defined therein). “Preheat” shall mean Preheat, Inc., a Louisiana corporation. “Preheat Acquisition” shall mean the acquisition of all Equity Interests in Preheat by the Parent Company from the Preheat Sellers pursuant to the Preheat Acquisition Agreement. -------------------------------------------------------------------------------- “Preheat Acquisition Agreement” shall mean the Purchase and Sale Agreement, dated as of December 29, 2005, made among Parent Company, Preheat and the Preheat Sellers, together with all Schedules and Exhibits thereto. “Preheat Sellers” means the “Shareholders,” as that term is defined in the Preheat Acquisition Agreement. “Preheat Sellers Debt” shall mean, the Indebtedness evidenced by (i) “Seller Note No. 1” (as that term is defined in the Preheat Acquisition Agreement); and (ii) “Seller Note No. 2” (as that term is defined in the Preheat Acquisition Agreement). “Preheat Sellers Debt Subordination Agreement” shall mean the Subordination Agreement, dated not later than the Amendment Date, among Borrowers, Preheat Sellers and Lender in respect of the subordination of the Preheat Sellers Debt. “Second Consent” shall mean the Consent, dated August 26, 2005, made between Lender and the Initial Borrowers, modifying and amending the terms of the Credit Agreement to reflect (among other things) the consent of Lender to the entry by the Initial Borrowers into the “Junior Credit Agreement” (as that term is defined therein) and the incurrence for certain Indebtedness thereunder. In addition, henceforth, the term “GECC,” as defined and used in the Credit Agreement and the Other Documents, shall mean and refer to “ORIX FINANCE CORP., as successor-in-interest to GECC, having heretofore obtained a full assignment from GECC of all GECC Debt.” 2.2. Acquisition of Preheat. In reference to Section 7.5, Section 7.9 and Section 7.12 of the Credit Agreement which restrict, respectively, the purchase of Equity Interests in a Person, the incurrence of Subordinated Debt, other than Permitted Subordinated Debt, and the creation or acquisition of any Subsidiary, Lender does hereby consent to the Preheat Acquisition, the addition of Preheat as a Subsidiary of Parent Company and the incurrence by Parent Company of the Preheat Sellers Debt as Permitted Subordinated Debt (herein, collectively, the “Related Transactions”) subject, however, to the following terms, covenants and conditions: (i) the Preheat Acquisition shall have been consummated not later than the Amendment Date and on substantially the terms set forth in the Preheat Acquisition Agreement; (ii) Preheat shall have been joined to the Credit Agreement and the Other Documents as a “Borrower” thereunder in conformity with Section 7.12 of the Credit Agreement; (iii) all Equity Interests of Preheat owned by Parent Company shall have been pledged by Parent Company to Lender in conformity with the Subsidiary Pledge Agreement; (iv) the holders of the Preheat Sellers Debt shall have entered into the Preheat Sellers Debt Subordination Agreement with Lender on terms satisfactory to Lender; and (v) the Junior Lenders and the GECC Lenders shall have consented to the Related Transactions on terms satisfactory to Lender. In respect of the foregoing clause (i), the Parent Company hereby certifies to Lender that the Preheat Acquisition was consummated not later than the Amendment Date in substantially the terms set forth in the Preheat Acquisition Agreement and that, to the knowledge of Parent, all representations and warranties of the Preheat Sellers set forth in the Preheat Acquisition Agreement continue to be true and correct in all material respects as of the Amendment Date. In respect of the foregoing clause (ii), Preheat hereby agrees to join the Parent Company and its other Subsidiaries as a Borrower under the Credit Agreement and all other Other Documents, effective as of the Amendment Date, and Preheat hereby affirms all   2 -------------------------------------------------------------------------------- representations, warranties, covenants and agreements set forth therein as binding on, or applicable to, Borrowers as likewise binding on, and applicable to, Preheat, including, particularly, but without limitation, (a) the joint and several liability of Preheat for all Obligations in accordance with Article XV of the Credit Agreement and (b) the present grant by Preheat to Lender of a security interest in all Collateral as security for its payment of the Obligations pursuant to Article IV of the Credit Agreement. In respect of the foregoing clause (iii), the Parent Company acknowledges that all Equity Interests in Preheat acquired by it pursuant to the Preheat Acquisition are and shall be deemed pledged automatically to Lender as additional security for the payment of the Obligations pursuant to the Subsidiary Pledge Agreement subject to the terms and limitations set forth therein as they relate to the prior pledge thereof to the GECC Lenders. 2.3. Modifications to Financial Covenants. Existing Sections 8.2, 8.3, 8.4 and 8.5 of the Credit Agreement are deleted, each in its entirety, and the following revised Sections 8.2, 8.3, 8.4 and 8.5 are substituted in their place: 8.2. Fixed Charge Coverage Ratio. Maintain as of the ending of each of its Fiscal Quarters specified below, beginning with the Fiscal Quarter ending March 31, 2005, a Fixed Charge Coverage Ratio for the four (4) Fiscal Quarters then ending, of not less than the amount specified below corresponding to such Fiscal Quarter.        Ratio March 31, 2005    1.20 to 1.00 June 30, 2005    1.20 to 1.00 September 30, 2005    1.20. to 1.00 December 31, 2005    1.25 to 1.00 March 31, 2006    1.25 to 1.00 June 30, 2006    1.25 to 1.00 September 30, 2006    1.30 to 1.00 December 31, 2006    1.30 to 1.00 March 31, 2007    1.30 to 1.00 June 30, 2007    1.30 to 1.00 September 30, 2007    1.30 to 1.00 December 31, 2007    1.30 to 1.00 March 31, 2008    1.35 to 1.00 June 30, 2008    1.35 to 1.00 September 30, 2008    1.35 to 1.00 December 31, 2008    1.35 to 1.00 March 31, 2009    1.35 to 1.00 June 30, 2009    1.35 to 1.00 September 30, 2009    1.35 to 1.00 December 31, 2009    1.35 to 1.00 March 31, 2010    1.35 to 1.00 8.3. Capital Expenditures. Not contract for, purchase or make any Capital Expenditure in any Fiscal Year specified below   3 -------------------------------------------------------------------------------- which would cause total Capital Expenditures to exceed the amount specified below corresponding to such Fiscal Year.   Fiscal Year    Maximum Capital Expenditure    Post-Acquisition Maximum Capital Expenditure 2005    $2,400,000    $3,000,000 2006    $2,400,000    $3,000,000 2007    $2,400,000    $3,000,000 2008    $2,400,000    $3,000,000 2009    $2,400,000    $3,000,000 2010    $600,000    $3,000,000 8.4. Leverage Ratio. Fail to maintain a Leverage Ratio at the end of each of its Fiscal Quarters specified below, beginning with the Fiscal Quarter ending March 31, 2005, of not more than the amount specified below corresponding to such Fiscal Quarter.   Fiscal Quarter Ending    Maximum Leverage Ratio March 31, 2005    4.25 to 1.00 June 30, 2005    4.25 to 1.00 September 30, 2005    4.25 to 1.00 December 31, 2005    4.25 to 1.00 March 31, 2006    4.00 to 1.00 June 30, 2006    4.00 to 1.00 September 30, 2006    3.75 to 1.00 December 31, 2006    3.75 to 1.00 March 31, 2007    3.75 to 1.00 June 30, 2007    3.75 to 1.00 September 30, 2007    3.50 to 1.00 December 31, 2007    3.50 to 1.00 March 31, 2008    3.25 to 1.00 June 30, 2008    3.25 to 1.00 September 30, 2008    3.00 to 1.00 December 31, 2008    3.00 to 1.00 March 31, 2009    3.00 to 1.00 June 30, 2009    3.00 to 1.00 September 30, 2009    3.00 to 1.00 December 31, 2009    3.00 to 1.00 March 31, 2010    3.00 to 1.00 8.5. EBITDA. Fail to maintain at the end of each of its Fiscal Quarters specified below, beginning with the Fiscal Quarter ending March 31, 2005, an EBITDA of Borrowers for the relevant   4 -------------------------------------------------------------------------------- measurement period then ending of not less than the amount specified below corresponding to such measurement period:   Fiscal Quarter Ending    Minimum EBITDA March 31, 2005    $ 10,500,000 June 30, 2005    $ 10,500,000 September 30, 2005    $ 10,500,000 December 31, 2005    $ 10,500,000 March 31, 2006    $ 2,150,000 June 30, 2006    $ 5,100,000 September 30, 2006    $ 8,500,000 December 31, 2006    $ 11,500,000 March 31, 2007    $ 12,250,000 June 30, 2007    $ 12,750,000 September 30, 2007    $ 13,000,000 December 31, 2007    $ 13,000,000 March 31, 2008    $ 13,250,000 June 30, 2008    $ 13,500,000 September 30, 2008    $ 13,500,000 December 31, 2008    $ 13,500,000 March 31, 2009    $ 13,500,000 June 30, 2009    $ 13,500,000 September 30, 2009    $ 13,500,000 December 31, 2009    $ 13,500,000 March 31, 2010    $ 13,500,000 For purposes hereof, the “relevant measurement period” shall be the four (4) Fiscal Quarters then ended except that for the Fiscal Quarters ended March 31, 2006, June 30, 2006 and September 30, 2006, it shall be, instead, the one (1), two (2) and three (3) Fiscal Quarters, respectively, then ended. 3. Conditions to Effectiveness. The amendments set forth hereinabove are further made contingent upon, and shall not become effective, unless and until: (i) Borrowers shall have executed and/or delivered to Lender this Amendment; (ii) the Borrowers and the Preheat Sellers shall have executed and delivered to Lender the Preheat Sellers Debt Subordination Agreement; (iii) Lender shall have received and been satisfied with the consents of the Junior Lenders and the GECC Lenders with regard to the Related Transactions; and (iv) Borrowers shall have remitted to WBCC, for its own account, a fully earned, non-refundable amendment fee of Ten Thousand Dollars ($10,000), which Borrowers hereby authorize Lender to cause to be paid to itself by charging same as a Revolving Advance on the Amendment Date.   5 -------------------------------------------------------------------------------- 4. Effective Date. The amendments and modifications to the Credit Agreement set forth in this Amendment shall be effective as of the Amendment Date (unless and except to the extent as otherwise may be expressly provided hereinabove). 5. No Other Changes. Except as expressly amended and modified hereby, the terms of the Credit Agreement shall remain unchanged and continue in full force and effect. 6. Other Document. This Amendment constitutes an Other Document and shall be governed and construed accordingly. 7. Inducements. To induce Lender to enter into this Amendment and perform hereunder, Borrowers hereby certify to Lender, with the understanding and intent that Lender will rely hereon in so performing hereunder, that, as of the date of this Amendment, and after giving effect to the amendments set forth herein: (i) no Default or Event of Default exists; (ii) no right of set off, counterclaim, cross-claim, defense or objection to Borrowers’ continued payment and performance of all Obligations exists; (iii) no consent or approval of any Person is required for Borrowers’ entry into and performance under this Amendment which has not been obtained by Borrowers on or prior to the date hereof; and (iv) the Credit Agreement and the Other Documents continue to constitute Borrowers’ legal, valid, binding and enforceable obligations. Borrowers hereby restate, renew and reaffirm all representations, warranties and covenants heretofore made by Borrowers under the Credit Agreement and the Other Documents, effective as of the date hereof. Borrowers further waive, release, relieve and discharge Lender from any liability which it may have to any Borrower for any action (or inaction) heretofore taken (or failed to be taken) in respect of its entry into, and performance under, the Credit Agreement and all Other Documents.   6 -------------------------------------------------------------------------------- Each of the parties has signed this Amendment as of the day and year first above written.   “BORROWERS” OMNI ENERGY SERVICES CORP. By:   /s/ G. Darcy Klug   G. Darcy Klug   Executive Vice President   AMERICAN HELICOPTERS INC. By:   /s/ G. Darcy Klug   G. Darcy Klug   Executive Vice President   OMNI ENERGY SERVICES CORP.-MEXICO By:   /s/ G. Darcy Klug   G. Darcy Klug   Executive Vice President   OMNI PROPERTIES CORP. By:   /s/ G. Darcy Klug   G. Darcy Klug   Executive Vice President   OMNI OFFSHORE AVIATION CORP. By:   /s/ G. Darcy Klug   G. Darcy Klug   Executive Vice President   7 -------------------------------------------------------------------------------- OMNI LABOR CORPORATION F/K/A OMNI SEISMIC AVIATION CORP. By:   /s/ G. Darcy Klug   G. Darcy Klug   Executive Vice President   OMNI ENERGY SEISMIC SERVICES CORP. By:   /s/ G. Darcy Klug   G. Darcy Klug   Executive Vice President   TRUSSCO, INC. By:   /s/ G. Darcy Klug   G. Darcy Klug   Executive Vice President   TRUSSCO PROPERTIES, LLC By:   /s/ G. Darcy Klug   G. Darcy Klug   Executive Vice President   PREHEAT, INC. By:   /s/ G. Darcy Klug   G. Darcy Klug   Executive Vice President   8 -------------------------------------------------------------------------------- “LENDER” WEBSTER BUSINESS CREDIT CORPORATION By:   /s/ Arthur V. Lippens   Authorized Officer   9

Exhibit 10.2 Execution Version -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   The Hain Celestial Group, Inc.   $150,000,000 Senior Notes due May 2, 2016   ________________   Note Purchase Agreement   ________________   Dated as of May 2, 2006     -------------------------------------------------------------------------------- --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- Table of Contents     SECTION HEADING PAGE       SECTION 1. AUTHORIZATION OF NOTES 1 Section 1.1. Description of Notes 1 Section 1.2. Interest Rate 1 SECTION 2. SALE AND PURCHASE OF NOTES 2 Section 2.1. Notes 2 Section 2.2. Subsidiary Guaranty 2 SECTION 3. CLOSING 3 SECTION 4. CONDITIONS TO CLOSING 3 Section 4.1. Representations and Warranties 3 Section 4.2. Performance; No Default 3 Section 4.3. Compliance Certificates 4 Section 4.4. Opinions of Counsel 4 Section 4.5. Purchase Permitted by Applicable Law, Etc 4 Section 4.6. Sale of Other Notes 5 Section 4.7. Payment of Special Counsel Fees 5 Section 4.8. Private Placement Number 5 Section 4.9. Changes in Corporate Structure 5 Section 4.10. Subsidiary Guaranty 5 Section 4.11. Funding Instructions 5 Section 4.12. Proceedings and Documents 5 SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 5 Section 5.1. Organization; Power and Authority 5 Section 5.2. Authorization, Etc 6 Section 5.3. Disclosure 6 Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates 6 Section 5.5. Financial Statements; Material Liabilities 7 Section 5.6. Compliance with Laws, Other Instruments, Etc 7 Section 5.7. Governmental Authorizations, Etc 7 Section 5.8. Litigation; Observance of Agreements, Statutes and Orders 8 Section 5.9. Taxes 8 Section 5.10. Title to Property; Leases 8 Section 5.11. Licenses, Permits, Etc 9 Section 5.12. Compliance with ERISA 9 Section 5.13. Private Offering by the Company 10 -i- -------------------------------------------------------------------------------- Section 5.14. Use of Proceeds; Margin Regulations 10 Section 5.15. Existing Debt; Future Liens 10 Section 5.16. Foreign Assets Control Regulations, Etc 11 Section 5.17. Status under Certain Statutes 11 Section 5.18. Environmental Matters 11 Section 5.19. Notes Rank Pari Passu 12 SECTION 6. REPRESENTATIONS OF THE PURCHASER 12 Section 6.1. Purchase for Investment 12 Section 6.2. Accredited Investor 12 Section 6.3. Source of Funds 12 SECTION 7. INFORMATION AS TO COMPANY 14 Section 7.1. Financial and Business Information 14 Section 7.2. Officer’s Certificate 17 Section 7.3. Visitation 17 SECTION 8. PAYMENT OF THE NOTES 18 Section 8.1. Required Prepayments 18 Section 8.2. Optional Prepayments with Make-Whole Amount 18 Section 8.3. Allocation of Partial Prepayments 18 Section 8.4. Rejectable Offer of Prepayment Following Certain Asset Sales 18 Section 8.5. Maturity; Surrender, Etc. 19 Section 8.6. Purchase of Notes 19 Section 8.7. Make-Whole Amount for the Notes 19 SECTION 9. AFFIRMATIVE COVENANTS 20 Section 9.1. Compliance with Law 20 Section 9.2. Insurance 21 Section 9.3. Maintenance of Properties 21 Section 9.4. Payment of Taxes and Claims 21 Section 9.5. Corporate Existence, Etc 21 Section 9.6. Designation of Subsidiaries 21 Section 9.7. Notes to Rank Pari Passu 22 Section 9.8. Additional Subsidiary Guarantors 22 Section 9.9. Books and Records 23 SECTION 10. NEGATIVE COVENANTS 23 Section 10.1. Consolidated Debt to Consolidated EBITDA 23 Section 10.2. Priority Debt 23 Section 10.3. Limitation on Liens 23 Section 10.4. Sales of Asset 25 Section 10.5. Merger and Consolidation 26 -ii- -------------------------------------------------------------------------------- Section 10.6. Transactions with Affiliates 27 Section 10.7. Terrorism Sanctions Regulations 27 Section 10.8. Line of Business 27 SECTION 11. EVENTS OF DEFAULT 30 SECTION 12. REMEDIES ON DEFAULT, ETC 30 Section 12.1. Acceleration 30 Section 12.2. Other Remedies 30 Section 12.3. Rescission 31 Section 12.4. No Waivers or Election of Remedies, Expenses, Etc 31 SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES 31 Section 13.1. Registration of Notes 31 Section 13.2. Transfer and Exchange of Notes 32 Section 13.3. Transfer Restrictions 32 Section 13.4. Replacement of Notes 32 SECTION 14. PAYMENTS ON NOTES 33 Section 14.1. Place of Payment 33 Section 14.2. Home Office Payment 33 SECTION 15. EXPENSES, ETC 33 Section 15.1. Transaction Expenses 33 Section 15.2. Survival 34 SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT 34 SECTION 17. AMENDMENT AND WAIVER 34 Section 17.1. Requirements 34 Section 17.2. Solicitation of Holders of Notes 34 Section 17.3. Binding Effect, Etc 35 Section 17.4. Notes Held by Company, Etc 35 SECTION 18. NOTICES 35 SECTION 19. REPRODUCTION OF DOCUMENTS 36 SECTION 20. CONFIDENTIAL INFORMATION 37 SECTION 21. SUBSTITUTION OF PURCHASER 37 -iii- -------------------------------------------------------------------------------- SECTION 22. MISCELLANEOUS 37 Section 22.1. Successors and Assigns 37 Section 22.2. Payments Due on Non-Business Days 38 Section 22.3. Accounting Terms 38 Section 22.4. Severability 38 Section 22.5. Construction 38 Section 22.6. Counterparts 38 Section 22.7. Governing Law 38 Section 22.8. Jurisdiction and Process; Waiver of Jury Trial 39   -iv- --------------------------------------------------------------------------------       Schedule A — Information Relating to Purchasers       Schedule B — Defined Terms       Schedule 4.9 — Changes in Corporate Structure       Schedule 5.4 — Subsidiaries of the Company, Ownership of Subsidiary Stock, Affiliates       Schedule 5.5 — Financial Statements       Schedule 5.11 — Licenses, Permits, Etc.       Schedule 5.15 — Existing Debt       Schedule 10.3 — Existing Liens       Exhibit 1 — Form of Senior Notes, due May 2, 2016       Exhibit 2.2 — Form of Subsidiary Guaranty       Exhibit 4.4(a) — Form of Opinion of Associate General Counsel to the Company       Exhibit 4.4(b) — Form of Opinion of Special Counsel to the Company       Exhibit 4.4(c) — Form of Opinion of Special Counsel to the Purchasers       Exhibit 10.5 — Form of Assumption Agreement         -v- -------------------------------------------------------------------------------- The Hain Celestial Group, Inc. 58 South Service Road Melville, NY 11747   $150,000,000 Senior Notes   due May 2, 2016   Dated as of   May 2, 2006   To the Purchasers listed in the attached Schedule A:   Ladies and Gentlemen:   The Hain Celestial Group, Inc., a Delaware corporation (the “Company”), agrees with the Purchasers listed in the attached Schedule A (the “Purchasers”) to this Note Purchase Agreement (this “Agreement”) as follows:   Section 1. Authorization of Notes.   Section 1.1.  Description of Notes. The Company will authorize the issue and sale of the following Senior Notes:     Issue     Aggregate Principal Amount     Interest Rate     Maturity Date     Senior Notes     $150,000,000     5.98% (6.23% in accordance with Section 1.2(b))     May 2, 2016     The Senior Notes described above are referred to as the “Notes” (such term shall also include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by the Purchasers and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.   Section 1.2.  Interest Rate. (a) The Notes shall bear interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid principal thereof from the date of issuance at the Applicable Interest Rate then in effect payable semi-annually in arrears on the 2nd day of May and November and at maturity, commencing on November 2, 2006, until such principal --------------------------------------------------------------------------------   sum shall have become due and payable (whether at maturity, upon notice of prepayment or otherwise) and interest (so computed) on any overdue principal, interest or Make-Whole Amount from the due date thereof (whether by acceleration or otherwise) at the applicable Default Rate until paid.   (b) If, during a Transition Period, the Consolidated Debt to Consolidated EBITDA ratio exceeds 3.5 to 1.00, as evidenced by an Officer’s Certificate delivered pursuant to Section 7.2(a), the interest rate payable on the Notes shall be increased by 0.25%, commencing on the first day of the first fiscal quarter following the fiscal quarter in respect of which such Certificate was delivered and continuing until the Company has provided an Officer’s Certificate pursuant to Section 7.2(a) demonstrating that, as of the end of the fiscal quarter in respect of which such Certificate is delivered, the Consolidated Debt to Consolidated EBITDA ratio is not more than 3.5 to 1.0.  Following delivery of an Officer’s Certificate demonstrating that the Consolidated Debt to Consolidated EBITDA ratio did not exceed 3.5 to 1.0, the additional 0.25% interest shall cease to accrue or be payable for any fiscal quarter subsequent to the fiscal quarter in respect of which such Certificate is delivered.   Section 2. Sale and Purchase of Notes.   Section 2.1.  Notes. Subject to the terms and conditions of this Agreement, the Company will issue and sell to each Purchaser and each Purchaser will purchase from the Company, at the Closing provided for in Section 3, the Notes in the principal amount specified opposite such Purchaser’s name in Schedule A at the purchase price of 100% of the principal amount thereof. The obligations of each Purchaser hereunder are several and not joint obligations and each Purchaser shall have no obligation and no liability to any Person for the performance or nonperformance by any other Purchaser hereunder.   Section 2.2.  Subsidiary Guaranty. (a) The payment by the Company of all amounts due with respect to the Notes and the performance by the Company of its obligations under this Agreement will be absolutely and unconditionally guaranteed by the Subsidiary Guarantors pursuant to the Subsidiary Guaranty Agreement dated as of even date herewith, which shall be substantially in the form of Exhibit 2.2 attached hereto, and otherwise in accordance with the provisions of Section 9.6 hereof (the “Subsidiary Guaranty”).   (b) The holders of the Notes agree to discharge and release any Subsidiary Guarantor from the Subsidiary Guaranty upon the written request of the Company, provided that (i) such Subsidiary Guarantor has been released and discharged (or will be released and discharged concurrently with the release of such Subsidiary Guarantor under the Subsidiary Guaranty) as an obligor and guarantor under and in respect of the Bank Credit Agreement and the Company so certifies to the holders of the Notes in a certificate of a Responsible Officer, (ii) at the time of such release and discharge, the Company shall deliver a certificate of a Responsible Officer to the holders of the Notes stating that no Default or Event of Default exists or will exist upon such release, and (iii) if any fee or other form of consideration is given to any holder of Debt of the Company expressly for the purpose of such release, holders of the Notes shall receive equivalent consideration (a “Collateral Release”). -2- --------------------------------------------------------------------------------     Section 3. Closing.   The sale and purchase of the Notes to be purchased by each Purchaser shall occur at the offices of Chapman and Cutler LLP, 111 West Monroe Street, Chicago, Illinois at 10:00 a.m. Central time, at a closing (the “Closing Date”) on May 2, 2006 or on such other Business Day thereafter on or prior to May 31, 2006 as may be agreed upon by the Company and the Purchasers. On the Closing Date, the Company will deliver to each Purchaser the Notes to be purchased by such Purchaser in the form of a single Note (or such greater number of Notes in denominations of at least $100,000 as such Purchaser may request) dated the date of the Closing Date and registered in such Purchaser’s name (or in the name of such Purchaser’s nominee), against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to Account Number 9428438565, at Bank of America, Melville, New York, ABA Number 0260-0959-3, in the Account Name of “The Hain Celestial Group, Inc.” If, on the Closing Date, the Company shall fail to tender such Notes to any Purchaser as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to any Purchaser’s satisfaction, such Purchaser shall, at such Purchaser’s election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment.   Section 4. Conditions to Closing.   Each Purchaser’s obligation to purchase and pay for the Notes to be sold to such Purchaser at the Closing is subject to the fulfillment to such Purchaser’s satisfaction, prior to or at the Closing, of the following conditions applicable to the Closing Date:   Section 4.1.Representations and Warranties.   (a) Representations and Warranties of the Company. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing.   (b) Representations and Warranties of the Subsidiary Guarantors. The representations and warranties of the Subsidiary Guarantors in the Subsidiary Guaranty shall be correct when made and at the time of the Closing.   Section 4.2.Performance; No Default.  The Company and each Subsidiary Guarantor shall have performed and complied with all agreements and conditions contained in this Agreement and the Subsidiary Guaranty required to be performed or complied with by the Company and each such Subsidiary Guarantor prior to or at the Closing, and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Section 5.14), no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by Section 10 hereof had such Sections applied since such date. -3- --------------------------------------------------------------------------------     Section 4.3.Compliance Certificates.   (a) Officer’s Certificate of the Company. The Company shall have delivered to such Purchaser an Officer’s Certificate, dated the Closing Date, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.   (b) Secretary’s Certificate of the Company. The Company shall have delivered to such Purchaser a certificate, dated the Closing Date, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and this Agreement.   (c) Officer’s Certificate of the Subsidiary Guarantors. Each Subsidiary Guarantor shall have delivered to such Purchaser an Officer’s Certificate, dated the Closing Date, certifying that the conditions specified in Sections 4.1(b), 4.2 and 4.9 have been fulfilled.   (d) Secretary’s Certificate of the Subsidiary Guarantors. Each Subsidiary Guarantor shall have delivered to such Purchaser a certificate, dated the Closing Date, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Subsidiary Guaranty.   Section 4.4. Opinions of Counsel. Such Purchaser shall have received opinions in form and substance satisfactory to such Purchaser, dated the Closing Date (a) from Denise M. Faltischek, Esq., Associate General Counsel of the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as such Purchaser or its counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to the Purchasers), (b) from Cahill Gordon & Reindel LLP, special counsel for the Company, covering the matters set forth in Exhibit 4.4(b) and covering such other matters incident to the transactions contemplated hereby as such Purchaser or its counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to the Purchasers), and (c) from Chapman and Cutler LLP, the Purchasers’ special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(c) and covering such other matters incident to such transactions as such Purchaser may reasonably request.   Section 4.5.  Purchase Permitted by Applicable Law, Etc. On the date of the Closing such Purchaser’s purchase of Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by such Purchaser, such Purchaser shall have received an Officer’s Certificate certifying as to such matters of fact as such Purchaser may reasonably specify to enable such Purchaser to determine whether such purchase is so permitted. -4- --------------------------------------------------------------------------------     Section 4.6. Sale of Other Notes.  Contemporaneously with the Closing the Company shall sell to each other Purchaser and each other Purchaser shall purchase the Notes to be purchased by it at the Closing as specified in Schedule A.   Section 4.7. Payment of Special Counsel Fees. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing Date, the reasonable fees, reasonable charges and reasonable disbursements of the Purchasers’ special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing Date.   Section 4.8. Private Placement Number. A Private Placement Number issued by Standard & Poor’s CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes.   Section 4.9. Changes in Corporate Structure.  Neither the Company nor any Subsidiary Guarantor shall have changed its jurisdiction of organization or, except as reflected in Schedule 4.9, been a party to any merger or consolidation, or shall have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5.   Section 4.10.  Subsidiary Guaranty. The Subsidiary Guaranty shall have been duly authorized, executed and delivered by each Subsidiary Guarantor, shall constitute the legal, valid and binding contract and agreement of each Subsidiary Guarantor and such Purchaser shall have received a true, correct and complete copy thereof.   Section 4.11.  Funding Instructions. At least three Business Days prior to the date of the Closing, each Purchaser shall have received written instructions signed by a Responsible Officer on letterhead of the Company confirming the information specified in Section 3 including (i) the name and address of the transferee bank, (ii) such transferee bank’s ABA number and (iii) the account name and number into which the purchase price for the Notes is to be deposited.   Section 4.12.  Proceedings and Documents. All corporate and other organizational proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory to such Purchaser and its special counsel, and such Purchaser and its special counsel shall have received all such counterpart originals or certified or other copies of such documents as such Purchaser or such special counsel may reasonably request.   Section 5.         Representations and Warranties of the Company.   The Company represents and warrants to each Purchaser that:   Section 5.1.  Organization; Power and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to -5- --------------------------------------------------------------------------------   which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof.   Section 5.2.  Authorization, Etc. This Agreement and the Notes to be issued on the Closing Date have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each such Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).   Section 5.3.  Disclosure. The Company, through its agent, Banc of America Securities LLC, has delivered to you and each Other Purchaser a copy of a Private Placement Memorandum, dated April, 2006 (the “Memorandum”), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Restricted Subsidiaries. This Agreement, the Memorandum, the documents, certificates or other writings delivered to the Purchasers by or on behalf of the Company in connection with the transactions contemplated hereby and listed on Schedule 5.3 hereto, and the financial statements listed in Schedule 5.5, in each case, delivered to the Purchasers prior to April 13, 2006 (this Agreement, the Memorandum and such documents, certificates or other writings and such financial statements being referred to, collectively, as the “Disclosure Documents”), taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made. Except as disclosed in the Disclosure Documents, since June 30, 2005, there has been no change in the financial condition, operations, business or properties of the Company or any of its Restricted Subsidiaries except changes that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that would reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Disclosure Documents.   Section 5.4.  Organization and Ownership of Shares of Subsidiaries; Affiliates. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists (i) of the Company’s Restricted and Unrestricted Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, and all other Investments of the Company and its Restricted Subsidiaries, (ii) of the Company’s Affiliates, other than Subsidiaries and other than individuals described in clause (iii) below, and (iii) of the Company’s directors and senior officers.   (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have -6- --------------------------------------------------------------------------------   been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4).   (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.   (d) No Subsidiary is a party to, or otherwise subject to, any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary.   Section 5.5.  Financial Statements; Material Liabilities. The Company has delivered to each Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). The Company and its Subsidiaries do not have any Material liabilities that are not disclosed on such financial statements or otherwise disclosed in the Disclosure Documents.   Section 5.6.  Compliance with Laws, Other Instruments, Etc. The execution, delivery and performance by the Company of this Agreement and the Notes will not (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary, or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary.   Section 5.7.  Governmental Authorizations, Etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in -7- --------------------------------------------------------------------------------   connection with the execution, delivery or performance by the Company of this Agreement or the Notes.   Section 5.8.  Litigation; Observance of Agreements, Statutes and Orders. (a) There are no actions, suits, investigations or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Restricted Subsidiary or any property of the Company or any Restricted Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.   (b) Neither the Company nor any Restricted Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws or the USA Patriot Act) of any Governmental Authority, which default or violation, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.   Section 5.9.  Taxes. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (a) the amount of which is not individually or in the aggregate Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that would reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of federal, state or other taxes for all fiscal periods are adequate. The federal income tax liabilities of the Company and its Subsidiaries have been finally determined (whether by reason of completed audits or the statute of limitations having run) for all fiscal years up to and including the fiscal year ended June 30, 2002.   Section 5.10.  Title to Property; Leases. The Company and its Restricted Subsidiaries have good and sufficient title to their respective properties which the Company and its Restricted Subsidiaries own or purport to own that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Restricted Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business or no longer used or useful in the conduct of their respective businesses), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. -8- --------------------------------------------------------------------------------     Section 5.11.  Licenses, Permits, Etc. Except as disclosed in Schedule 5.11,   (a) the Company and its Restricted Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, proprietary software, service marks, trademarks and trade names, or rights thereto (collectively, “Intellectual Property”), that individually or in the aggregate are Material, without known conflict with the rights of others;   (b) to the best knowledge of the Company, no product of the Company or any of its Restricted Subsidiaries infringes in any Material respect any Intellectual Property owned by any other Person; and   (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Restricted Subsidiaries with respect to any Intellectual Property owned or used by the Company or any of its Restricted Subsidiaries.   Section 5.12. Compliance with ERISA. (a) The Company and, in the case of any ERISA controlled group penalties and liabilities, each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and would not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to Plans, and no event, transaction or condition has occurred or exists that would reasonably be expected to result in the incurrence of any such liability by the Company, in the case of any ERISA controlled group liabilities, or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to section 401(a)(29) or 412 of the Code or section 4068 of ERISA, other than such liabilities or Liens as would not be individually or in the aggregate Material.   (b) The present value of the aggregate benefit liabilities under each of the Plans subject to Title IV of ERISA (other than Multiemployer Plans), determined as of the end of such Plan’s most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan’s most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $10,000,000 in the aggregate for all Plans. The term “benefit liabilities” has the meaning specified in section 4001 of ERISA and the terms “current value” and “present value” have the meaning specified in section 3 of ERISA.   (c) The Company and its ERISA Affiliates have not incurred any withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material.   (d) The expected post-retirement benefit obligation (determined as of the last day of the Company’s most recently ended fiscal year in accordance with Financial Accounting Standards -9- --------------------------------------------------------------------------------   Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material.   (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of Section 406(a) of ERISA or in connection with which a tax would be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of each Purchaser’s representation in Section 6.3 as to the sources of the funds to be used to pay the purchase price of the Notes to be purchased by such Purchaser.   Section 5.13.  Private Offering by the Company. Neither the Company nor anyone acting on the Company’s behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Purchasers and not more than 50 other Institutional Investors, each of which has been offered the Notes in connection with a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act or to the registration requirements of any securities or blue sky laws of any applicable jurisdiction.   Section 5.14.  Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the sale of the Notes to refinance existing Debt and for general corporate purposes of the Company. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 5% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 5% of the value of such assets. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U.   Section 5.15.  Existing Debt; Future Liens. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Debt of the Company and its Restricted Subsidiaries as of March 31, 2006, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Debt of the Company or its Restricted Subsidiaries. Neither the Company nor any Restricted Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of the Company or such Restricted Subsidiary, and no event or condition exists with respect to any Debt of the Company or any Restricted Subsidiary, that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. -10- --------------------------------------------------------------------------------     (b) Except as disclosed in Schedule 5.15, neither the Company nor any Restricted Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.3.   (c) Neither the Company nor any Subsidiary is a party to, or otherwise subject to any provision contained in, any instrument evidencing Debt of the Company or such Subsidiary, any agreement relating thereto or any other agreement (including, but not limited to, its charter or other organizational document) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company, except as specifically indicated in Schedule 5.15.   Section 5.16.  Foreign Assets Control Regulations, Etc. (a) Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto.   (b) Neither the Company nor any Subsidiary is a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or, to the knowledge of the Company, engages in any dealings or transactions with any such Person. The Company and its Subsidiaries are in compliance, in all material respects, with the USA Patriot Act.   (c) No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that such Act applies to the Company.   Section 5.17.  Status under Certain Statutes. Neither the Company nor any Restricted Subsidiary is an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, or is subject to regulation under the ICC Termination Act of 1995, as amended, or the Federal Power Act, as amended.   Section 5.18.Environmental Matters. (a) Neither the Company nor any Restricted Subsidiary has knowledge of any liability or has received any written notice of any liability under or violation of any Environmental Law, and no proceeding has been instituted alleging any liability under or violation of any Environmental Law against the Company or any of its Restricted Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them, or other assets, except, in each case, such as would not reasonably be expected to result in a Material Adverse Effect.   (b) Neither the Company nor any Restricted Subsidiary has knowledge of any facts which would give rise to any liability under or violation of any Environmental Law related to real properties or other assets now or formerly owned, leased or operated by any of them or -11- --------------------------------------------------------------------------------   their use, except, in each case, such as would not reasonably be expected to result in a Material Adverse Effect.   (c) Neither the Company nor any of its Restricted Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them or has disposed of any Hazardous Materials in each case in violation of any Environmental Laws in each case in any manner that would reasonably be expected to result in a Material Adverse Effect.   (d) All buildings on all real properties now owned, leased or operated by the Company or any of its Restricted Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply would not reasonably be expected to result in a Material Adverse Effect.   Section 5.19. Notes Rank Pari Passu. The obligations of the Company under this Agreement and the Notes rank pari passu in right of payment with all other senior unsecured Debt (actual or contingent) of the Company, including, without limitation, all senior unsecured Debt of the Company described in Schedule 5.15 hereto.   Section 6. Representations of the Purchaser.   Section 6.1.  Purchase for Investment. Each Purchaser severally represents that it is purchasing the Notes for its own account or for one or more separate accounts maintained by it or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of such Purchaser’s or such pension or trust funds’ property shall at all times be within such Purchaser’s or such pension or trust funds’ control.   Section 6.2.  Accredited Investor. Each Purchaser represents that it is an “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) acting for its own account (and not for the account of others) or as a fiduciary or agent for others (which others are also “accredited investors”). Each Purchaser further represents that such Purchaser has had the opportunity to ask questions of the Company and received answers concerning the terms and conditions of the sale of the Notes. Each Purchaser understands that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes.   Section 6.3.  Source of Funds. Each Purchaser severally represents that at least one of the following statements is an accurate representation as to each source of funds (a “Source”) to be used by such Purchaser to pay the purchase price of the Notes to be purchased by such Purchaser hereunder:   (a) the Source is an “insurance company general account” (as the term is defined in the United States Department of Labor’s Prohibited Transaction Exemption (“PTE”) 95-60) in respect of which the reserves and liabilities (as defined by the annual -12- --------------------------------------------------------------------------------   statement for life insurance companies approved by the National Association of Insurance Commissioners (the “NAIC Annual Statement”)) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchaser’s state of domicile; or   (b) the Source is a separate account that is maintained solely in connection with such Purchaser’s fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or   (c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 and, except as disclosed by such Purchaser to the Company in writing pursuant to this clause (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or   (d) the Source constitutes assets of an “investment fund” (within the meaning of Part V of PTE 84-14 (the “QPAM Exemption”)) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part V of the QPAM Exemption), no employee benefit plan’s assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of “control” in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this clause (d); or   (e) the Source constitutes assets of a “plan(s)” (within the meaning of Section IV of PTE 96-23 (the “INHAM Exemption”)) managed by an “in-house asset manager” or “INHAM” (within the meaning of Part IV of the INHAM exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of “control” in Section IV(d) of the INHAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such INHAM and (ii) the name(s) of the employee benefit plan(s) -13- --------------------------------------------------------------------------------   whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (e); or   (f) the Source is a governmental plan; or   (g) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this clause (g); or   (h) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.   As used in this Section 6.3, the terms “employee benefit plan,” “governmental plan,” and “separate account” shall have the respective meanings assigned to such terms in section 3 of ERISA.   Section 7. Information as to Company.   Section 7.1.  Financial and Business Information. The Company shall deliver to each holder of Notes that is an Institutional Investor:   (a) Quarterly Statements— within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year),   (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and   (ii) consolidated statements of income, changes in shareholders’ equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter,   setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that filing with the Securities and Exchange Commission within the time period specified above the Company’s Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor shall be deemed to satisfy the requirements of this Section 7.1(a);   (b) Annual Statements— within 105 days after the end of each fiscal year of the Company, -14- --------------------------------------------------------------------------------     (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and   (ii) consolidated statements of income, changes in shareholders’ equity and cash flows of the Company and its Subsidiaries, for such year,   setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that filing with the Securities and Exchange Commission within the time period specified above of the Company’s Annual Report on Form 10-K for such fiscal year (together with the Company’s annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor shall be deemed to satisfy the requirements of this Section 7.1(b);   (c) Consolidated Statements of Unrestricted Subsidiaries - if one or more Unrestricted Subsidiaries shall either (i) own more than 10% of the total consolidated assets of the Company and its Subsidiaries, or (ii) account for more than 10% of the consolidated gross revenues of the Company and its Subsidiaries, determined in each case in accordance with GAAP, then, within the respective periods provided in Section 7.1(a) and (b) above, the Company shall deliver to each holder of Notes that is an Institutional Investor, unaudited financial statements of the character and for the dates and periods as in said Sections 7.1(a) and (b) covering such group of Unrestricted Subsidiaries (on a consolidated basis), together with a consolidating statement reflecting eliminations or adjustments required to reconcile the financial statements of such group of Unrestricted Subsidiaries to the financial statements delivered pursuant to Sections 7.1(a) and (b);   (d) SEC and Other Reports— except for filings referred to in Section 7.1(a) and (b) above, promptly upon their becoming available and, to the extent applicable, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; provided, that the Company shall be deemed to have made such delivery of the items in clauses (i) and (ii) of this Section 7.1(d) if it shall have timely made such items available on “EDGAR”; -15- --------------------------------------------------------------------------------     (e) Notice of Default or Event of Default— promptly, and in any event within five Business Days after a Responsible Officer becomes aware of the existence of any Default or Event of Default or the occurrence or existence of any event or circumstance that in the reasonable judgment of the Company is likely to become a Default or Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto;   (f) ERISA Matters— promptly, and in any event within five Business Days after a Responsible Officer becomes aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto:   (i) with respect to any Plan, any reportable event, as defined in   Section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date thereof and which would reasonably be expected to result in a Material Adverse Effect; or   (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or   (iii) any event, transaction or condition that would result in the incurrence of any liability by the Company (or in the case of any ERISA controlled group liabilities, any ERISA Affiliate) pursuant to Title I or IV of ERISA or the imposition of a penalty or excise tax under the provisions of the Code relating to employee benefit plans, or the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, would reasonably be expected to have a Material Adverse Effect;   (g) Notices from Governmental Authority — promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that would reasonably be expected to have a Material Adverse Effect; and   (h) Requested Information— with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes or such information regarding -16- --------------------------------------------------------------------------------   the Company required to satisfy the requirements of 17 C.F.R. §230.144A, as amended from time to time, in connection with any contemplated transfer of the Notes.   Section 7.2.  Officer’s Certificate. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth:   (a) Covenant Compliance— the information required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.5 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and   (b) Event of Default— a statement that such officer has reviewed the relevant terms hereof and such review shall not have disclosed the existence during the quarterly or annual period covered by the statements then being furnished of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.   Section 7.3.  Visitation. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor:   (a) No Default— if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company’s officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Restricted Subsidiary, all at such reasonable times during normal business hours and as often as may be reasonably requested in writing; and   (b) Default— if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Restricted Subsidiary, to examine (other than information governed by a written confidentiality agreement which prohibits such access) all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times during normal business hours and as often as may be requested. -17- --------------------------------------------------------------------------------     Section 8. Payment of the Notes.   Section 8.1.  Required Prepayments. The entire unpaid principal amount of the Notes shall become due and payable on May 2, 2016.   Section 8.2.  Optional Prepayments with Make-Whole Amount. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of the Notes, in an amount not less than 10% of the original aggregate principal amount of the Notes to be prepaid in the case of a partial prepayment, at 100% of the principal amount so prepaid, together with accrued and unpaid interest thereon to the date of such prepayment, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount of each Note then outstanding. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 15 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated respective Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes to be prepaid a certificate of a Senior Financial Officer specifying the calculation of each such Make-Whole Amount as of the specified prepayment date.   Section 8.3.  Allocation of Partial Prepayments. In the case of each partial prepayment of the Notes pursuant to the provisions of Section 8.2, the principal amount of the Notes shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof.   Section 8.4.  Rejectable Offer of Prepayment Following Certain Asset Sales. If the Company uses a portion of the net proceeds received from a sale of a “substantial part” of its assets to prepay or retire Senior Debt of the Company and/or its Restricted Subsidiaries in accordance with the terms of Section 10.4(2) hereof, the Company shall offer to prepay each outstanding Note in a principal amount that equals the Ratable Portion for such Note, and (ii) any such prepayment of the Notes shall be made at par, together with accrued interest thereon to the date of such prepayment, but without the payment of the Make-Whole Amount. Any offer of prepayment of the Notes pursuant to this Section 8.4 shall be given to each holder of the Notes by written notice delivered not less than fifteen (15) days and not more than sixty (60) days prior to the proposed prepayment date. Each such notice shall state that it is given pursuant to this Section 8.4 and that the offer set forth in such notice must be accepted by such holder in writing and shall also set forth (i) the prepayment date, (ii) a description of the circumstances which give rise to the proposed prepayment, and (iii) a calculation of the Ratable Portion for such holder’s Notes. Each holder of the Notes which desires to have its Notes prepaid shall notify the Company in writing delivered not less than three (3) Business Days prior to the proposed prepayment date of its acceptance of such offer of prepayment. A failure by a holder of Notes to -18- --------------------------------------------------------------------------------   respond to an offer of prepayment made pursuant to this Section 8.4 shall be deemed to constitute a rejection of such offer by such holder.   Section 8.5.  Maturity; Surrender, Etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note.   Section 8.6.  Purchase of Notes. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except (a) upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes or (b) pursuant to a written offer to purchase any outstanding Notes made by the Company or an Affiliate pro rata to the holders of the Notes upon the same terms and conditions. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes.   Section 8.7.  Make-Whole Amount for the Notes. The term “Make-Whole Amount” means with respect to any Note an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note, minus the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings with respect to the Called Principal of such Note:   “Called Principal” means, the principal of any Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.   “Discounted Value” means, the amount obtained by discounting all Remaining Scheduled Payments from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on such Note is payable) equal to the Reinvestment Yield.   “Reinvestment Yield” means, 0.50% plus the yield to maturity calculated by using (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date on screen “PX-1” on the Bloomberg Financial Market Service (or such other information service as may replace Bloomberg) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury -19- --------------------------------------------------------------------------------   Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. In either case, the yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly on a straight line basis between (1) the actively traded U.S. Treasury security with the maturity closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the maturity closest to and less than the Remaining Average Life.   “Remaining Average Life” means, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date and the scheduled due date of such Remaining Scheduled Payment.   “Remaining Scheduled Payments” means, all payments of such Called Principal and interest thereon that would be due after the Settlement Date if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of such Note, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1.   “Settlement Date” means, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.   Section 9. Affirmative Covenants.   The Company covenants that so long as any of the Notes are outstanding:   Section 9.1.  Compliance with Law. Without limiting Section 10.7, the Company will, and will cause each of its Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, ERISA, the USA Patriot Act and Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. -20- --------------------------------------------------------------------------------     Section 9.2.  Insurance. The Company will, and will cause each of its Restricted Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated except for any non-maintenance that would not reasonably be expected to have a Material Adverse Effect.   Section 9.3.  Maintenance of Properties. The Company will, and will cause each of its Restricted Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.   Section 9.4.  Payment of Taxes and Claims. The Company will, and will cause each of its Subsidiaries to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary not permitted by Section 10.3, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the non-filing or nonpayment, as the case may be, of all such taxes and assessments in the aggregate would not reasonably be expected to have a Material Adverse Effect.   Section 9.5.  Corporate Existence, Etc. Subject to Sections 10.4 and 10.5, the Company will at all times preserve and keep in full force and effect its corporate existence, and will at all times preserve and keep in full force and effect the corporate existence of each of its Restricted Subsidiaries (unless merged into the Company or a Restricted Subsidiary) and all rights and franchises of the Company and its Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.   Section 9.6.  Designation of Subsidiaries. The Company may from time to time cause any Subsidiary (other than a Subsidiary Guarantor) to be designated as an Unrestricted Subsidiary or any Unrestricted Subsidiary to be designated a Restricted Subsidiary; provided, -21- --------------------------------------------------------------------------------   however, that at the time of such designation and immediately after giving effect thereto, (a) no Default or Event of Default exists or would exist under the terms of this Agreement, (b) the Company and its Restricted Subsidiaries would be in compliance with all of the covenants set forth in this Section 9 and Section 10 if tested on the date of such action and (c) in the case of a Restricted Subsidiary being designated as an Unrestricted Subsidiary, such Restricted Subsidiary does not own, directly or indirectly, any Debt or capital stock of the Company or any other Restricted Subsidiary and provided, further, that once a Subsidiary has been designated an Unrestricted Subsidiary, it shall not thereafter be redesignated as a Restricted Subsidiary on more than one occasion and once a Subsidiary has been designated a Restricted Subsidiary, it shall not thereafter be redesignated as an Unrestricted Subsidiary on more than one occasion and provided, further, the designation of a Restricted Subsidiary as an Unrestricted Subsidiary will be considered as a sale of such Subsidiary for purposes of Section 10.4. Within ten (10) days following any designation described above, the Company will deliver to you a notice of such designation accompanied by a certificate signed by a Senior Financial Officer of the Company certifying compliance with all requirements of this Section 9.6 and setting forth all information required in order to establish such compliance.   Section 9.7.  Notes to Rank Pari Passu. The Notes and all other obligations of the Company under this Agreement are and at all times shall remain direct and unsecured obligations of the Company ranking pari passu as against the assets of the Company with all other Notes from time to time issued and outstanding hereunder without any preference among themselves and pari passu with all other present and future unsecured Debt (actual or contingent) of the Company which is not expressed to be subordinate or junior in rank to any other unsecured Debt of the Company.   Section 9.8.  Additional Subsidiary Guarantors.  The Company will cause any Subsidiary which is required by the terms of the Bank Credit Agreement (which requirement has not been waived by the lenders thereunder) to become a party to, or otherwise guarantee, Debt in respect of the Bank Credit Agreement, to enter into the Subsidiary Guaranty and deliver to each of the holders of the Notes (concurrently with the incurrence of any such obligation pursuant to the Bank Credit Agreement) the following items:   (a) a joinder agreement in respect of the Subsidiary Guaranty;   (b) a certificate signed by an authorized Responsible Officer of the Company making representations and warranties to the effect of those contained in Sections 5.4, 5.6 and 5.7, with respect to such Subsidiary and the Subsidiary Guaranty, as applicable; and   (c) an opinion of counsel (who may be in-house counsel for the Company) addressed to each of the holders of the Notes satisfactory to the Required Holders, to the effect that the Subsidiary Guaranty by such Person has been duly authorized, executed and delivered and that the Subsidiary Guaranty constitutes the legal, valid and binding contract and agreement of such Person enforceable in accordance with its terms, except as an enforcement of such terms may be limited by bankruptcy, insolvency, fraudulent conveyance and similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles. -22- --------------------------------------------------------------------------------     Section 9.9.  Books and Records. The Company will, and will cause each of its Restricted Subsidiaries to, maintain proper books of record and account in conformity with GAAP and all applicable requirements of any Governmental Authority having legal or regulatory jurisdiction over the Company or such Restricted Subsidiary, as the case may be.   Section 10. Negative Covenants.   The Company covenants that so long as any of the Notes are outstanding:   Section 10.1.  Consolidated Debt to Consolidated EBITDA. The Company will not permit the ratio of Consolidated Debt to Consolidated EBITDA (Consolidated EBITDA to be calculated as at the end of each fiscal quarter for the four consecutive fiscal quarters then ended) to exceed 3.5 to 1.00; provided, however, that the ratio of Consolidated Debt to Consolidated EBITDA may exceed 3.5 to 1.00 at any time during the Transition Period if such ratio of Consolidated Debt to Consolidated EBITDA exceeded 3.5 to 1.00 as a direct result of the Company or any Restricted Subsidiary creating, assuming, incurring, guaranteeing or otherwise becoming liable in respect of Acquisition Debt so long as the ratio of Consolidated Debt to Consolidated EBITDA at all times during the Transition Period shall not exceed 4.0 to 1.00.   Section 10.2.  Priority Debt. The Company will not at any time permit the aggregate amount of all Priority Debt to exceed 20% of Consolidated Net Worth (Consolidated Net Worth to be determined as of the end of the then most recently ended fiscal quarter of the Company).   Section 10.3.  Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Restricted Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive income or profits (unless it makes, or causes to be made, effective provision whereby the Notes will be equally and ratably secured with any and all other obligations thereby secured, such security to be pursuant to an agreement reasonably satisfactory to the Required Holders and, in any such case, the Notes shall have the benefit, to the fullest extent that, and with such priority as, the holders of the Notes may be entitled under applicable law, of an equitable Lien on such property), except:   (a) Liens for taxes, assessments or other governmental charges that are not yet due and payable or the payment of which is not at the time required by Section 9.4;   (b) any attachment or judgment Lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay;   (c) Liens incidental to the conduct of business or the ownership of properties and assets (including landlords’, carriers’, warehousemen’s, mechanics’, materialmen’s -23- --------------------------------------------------------------------------------   and other similar Liens for sums not yet due and payable) and Liens to secure the performance of bids, tenders, leases, or trade contracts, or to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or other Liens incurred in the ordinary course of business and not in connection with the borrowing of money;   (d) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to the ownership of property or assets or the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries, or Liens incidental to minor survey exceptions and the like, provided that such Liens do not, in the aggregate, materially detract from the value of such property;   (e) Liens securing Debt of a Restricted Subsidiary to the Company or to a Restricted Subsidiary;   (f) Liens existing as of the date of Closing and reflected in Schedule 10.3;   (g) Liens incurred after the date of Closing given to secure the payment of the purchase price incurred in connection with the acquisition, construction or improvement of property (other than accounts receivable or inventory) useful and intended to be used in carrying on the business of the Company or a Restricted Subsidiary, including Liens existing on such property at the time of acquisition or construction thereof or Liens incurred within 365 days of such acquisition or completion of such construction or improvement, provided that (i) the Lien shall attach solely to the property acquired, purchased, constructed or improved; (ii) at the time of acquisition, construction or improvement of such property (or, in the case of any Lien incurred within three hundred sixty-five (365) days of such acquisition or completion of such construction or improvement, at the time of the incurrence of the Debt secured by such Lien), the aggregate amount remaining unpaid on all Debt secured by Liens on such property, whether or not assumed by the Company or a Restricted Subsidiary, shall not exceed the lesser of (y) the cost of such acquisition, construction or improvement or (z) the Fair Market Value of such property (as determined in good faith by one or more officers of the Company); and (iii) at the time of such incurrence and after giving effect thereto, no Default or Event of Default would exist;   (h) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Restricted Subsidiary or its becoming a Restricted Subsidiary, or any Lien existing on any property acquired by the Company or any Restricted Subsidiary at the time such property is so acquired (whether or not the Debt secured thereby shall have been assumed), provided that (i) no such Lien shall have been created or assumed in contemplation of such consolidation or merger or such Person’s becoming a Restricted Subsidiary or such acquisition of property, (ii) each such Lien shall extend solely to the item or items of property so acquired and, if required by the terms of the instrument originally creating such Lien, other property which is an improvement to or is acquired for specific use in connection with such acquired property, -24- --------------------------------------------------------------------------------   and (iii) at the time of such incurrence and after giving effect thereto, no Default or Event of Default would exist;   (i) any extensions, renewals or replacements of any Lien permitted by the preceding subparagraphs (f), (g) and (h) of this Section 10.3, provided that (i) no additional property shall be encumbered by such Liens, (ii) the unpaid principal amount of the Debt or other obligations secured thereby shall not be increased on or after the date of any extension, renewal or replacement, and (iii) at such time and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing;   (j) Liens on accounts receivable of the Company and its Restricted Subsidiaries to the extent such Liens arise solely by reason of a Permitted Securitization Transaction; provided that no such Lien shall extend to or cover any property of the Company or any Restricted Subsidiary other than such accounts receivable subject to such Permitted Securitization Transaction; and   (k) Liens securing Priority Debt of the Company or any Restricted Subsidiary, provided that the aggregate principal amount of any such Priority Debt shall be permitted by Section 10.2.   Section 10.4.  Sales of Assets. The Company will not, and will not permit any Restricted Subsidiary to, sell, lease or otherwise dispose of any substantial part (as defined below) of the assets of the Company and its Restricted Subsidiaries; provided, however, that the Company or any Restricted Subsidiary may sell, lease or otherwise dispose of assets constituting a substantial part of the assets of the Company and its Restricted Subsidiaries if such assets are sold in an arms length transaction and, at such time and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and an amount equal to the net proceeds received from such sale, lease or other disposition (but only with respect to that portion of such assets that exceeds the definition of “substantial part” set forth below) shall be used within 365 days of such sale, lease or disposition, in any combination:   (1) to acquire productive assets used or useful in carrying on the business of the Company and its Restricted Subsidiaries and having a value at least equal to the value of such assets sold, leased or otherwise disposed of; and/or   (2) to prepay or retire Senior Debt of the Company and/or its Restricted Subsidiaries, provided that the Company shall offer to prepay a portion of the Notes on a pro rata basis in accordance with Section 8.4 hereof.   As used in this Section 10.4, a sale, lease or other disposition of assets shall be deemed to be a “substantial part” of the assets of the Company and its Restricted Subsidiaries if the book value of such assets, when added to the book value of all other assets sold, leased or otherwise disposed of by the Company and its Restricted Subsidiaries during the period of 12 consecutive months ending on the date of such sale, lease or other disposition, exceeds 10% of the book value of Consolidated Total Assets, determined as of the end of the fiscal quarter immediately -25- --------------------------------------------------------------------------------   preceding such sale, lease or other disposition; provided that there shall be excluded from any determination of a “substantial part” any (i) sale or disposition of assets in the ordinary course of business of the Company and its Restricted Subsidiaries, (ii) any transfer of assets from the Company to any Restricted Subsidiary or from any Restricted Subsidiary to the Company or a Restricted Subsidiary and (iii) any sale or transfer of property acquired by the Company or any Restricted Subsidiary after the date of this Agreement to any Person within 365 days following the acquisition or construction of such property by the Company or any Restricted Subsidiary if the Company or a Restricted Subsidiary shall concurrently with such sale or transfer, lease such property, as lessee. For purposes of clarification, the sale by the Company or any Restricted Subsidiary of accounts receivable to any Person (other than the Company or any Restricted Subsidiary) pursuant to a Permitted Securitization Transaction shall be included in the determination of a “substantial part.”   Section 10.5.  Merger and Consolidation. The Company will not, and will not permit any of its Restricted Subsidiaries to, consolidate with or merge with any other Person or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any Person; provided that:   (1) any Restricted Subsidiary of the Company may (x) consolidate with or merge with, or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to, (i) the Company or a Restricted Subsidiary so long as in any merger or consolidation involving the Company, the Company shall be the surviving or continuing corporation or (ii) any other Person so long as the survivor is the Restricted Subsidiary, or (y) convey, transfer or lease all of its assets in compliance with the provisions of Section 10.4; and   (2) the foregoing restriction does not apply to the consolidation or merger of the Company with, or the conveyance, transfer or lease of substantially all of the assets of the Company in a single transaction or series of transactions to, any Person so long as:   (a) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease substantially all of the assets of the Company as an entirety, as the case may be (the “Successor Corporation”), shall be a solvent entity organized and existing under the laws of the United States of America, any State thereof or the District of Columbia;   (b) if the Company is not the Successor Corporation, such Successor Corporation shall have executed and delivered to each holder of Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes (pursuant to an assumption agreement substantially in the form attached hereto as Exhibit 10.5), and the Successor Corporation shall have caused to be delivered to each holder of Notes (A) an opinion of nationally recognized independent counsel, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and (B) an acknowledgment from each Subsidiary Guarantor that the Subsidiary Guaranty continues in full force and effect; and -26- --------------------------------------------------------------------------------     (c) immediately after giving effect to such transaction no Default or Event of Default would exist.   Section 10.6.  Transactions with Affiliates. The Company will not and will not permit any Restricted Subsidiary to enter into directly or indirectly any Material transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or a Restricted Subsidiary), except in the ordinary course and upon fair and reasonable terms that are not materially less favorable to the Company or such Restricted Subsidiary, taken as a whole, than would be obtainable in a comparable arm’s-length transaction with a Person not an Affiliate.   Section 10.7.  Terrorism Sanctions Regulations. The Company will not and will not permit any Subsidiary to (a) become a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or (b) knowingly engage in any dealings or transactions with any such Person.   Section 10.8.  Line of Business. The Company will not and will not permit any Restricted Subsidiary to engage in any business if, as a result, the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, would then be engaged would be substantially changed from the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, are engaged on the date of this Agreement.   Section 11. Events of Default.   An “Event of Default” shall exist if any of the following conditions or events shall occur and be continuing:   (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or   (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or   (c) the Company defaults in the performance of or compliance with any term contained in Section 10 or any Subsidiary Guarantor defaults in the performance of or compliance with any term of the Subsidiary Guaranty in each case beyond any period of grace or cure period provided with respect thereto; or   (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default or (ii) the Company receiving written notice of such default from any holder of a Note (any such written -27- --------------------------------------------------------------------------------   notice to be identified as a “notice of default” and to refer specifically to this paragraph (d) of Section 11); or   (e) any Subsidiary Guaranty ceases to be a legally valid, binding and enforceable obligation or contract of a Subsidiary Guarantor (other than upon a release of any Subsidiary Guarantor from a Subsidiary Guaranty in accordance with the terms of Section 2.2(b) hereof), or any Subsidiary Guarantor or any party by, through or on account of any such Person, challenges the validity, binding nature or enforceability of any such Subsidiary Guaranty; or   (f) any representation or warranty made in writing by or on behalf of the Company or any Subsidiary Guarantor in this Agreement or any Subsidiary Guaranty or by any officer of the Company or any Subsidiary Guarantor in any writing furnished in connection with the transactions contemplated hereby or by any Subsidiary Guaranty proves to have been false or incorrect in any material respect on the date as of which made; or   (g) (i) the Company or any Restricted Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest (in the payment amount of at least $100,000) on any Debt other than the Notes that is outstanding in an aggregate principal amount of at least $15,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Restricted Subsidiary is in default in the performance of or compliance with any term of any instrument, mortgage, indenture or other agreement relating to any Debt other than the Notes in an aggregate principal amount of at least $15,000,000 or any other condition exists, and as a consequence of such default or condition such Debt has become, or has been declared, due and payable, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Debt to convert such Debt into equity interests), the Company or any Restricted Subsidiary has become obligated to purchase or repay Debt other than the Notes before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $15,000,000; provided that no Default or Event of Default shall exist under this Section 11(g) if any Target Company defaults in the payment of Due On Sale Debt on the date such Target Company is acquired by the Company or any Restricted Subsidiary if such Due On Sale Debt is repaid in full within 1 Business Day of the date such Target Company is acquired by the Company or any Restricted Subsidiary; or   (h) the Company, any Material Subsidiary or any Subsidiary Guarantor (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, -28- --------------------------------------------------------------------------------   (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or   (i) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company, any of its Material Subsidiaries or any Subsidiary Guarantor, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company, any of its Material Subsidiaries or any Subsidiary Guarantor, or any such petition shall be filed against the Company, any of its Material Subsidiaries or any Subsidiary Guarantor and such petition shall not be dismissed within 60 days; or   (j) a final judgment or judgments at any one time outstanding for the payment of money aggregating in excess of $15,000,000 are rendered against one or more of the Company, its Restricted Subsidiaries or any Subsidiary Guarantor and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or   (k) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under Section 412 of the Code, (ii) a notice of intent to terminate any Plan in an involuntary or distress termination shall have been filed with the PBGC or the PBGC shall have instituted proceedings under Section 4042 of ERISA to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate “amount of unfunded benefit liabilities” (within the meaning of Section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $15,000,000, (iv) the Company or in the case of any ERISA controlled group liability, any ERISA Affiliate, shall have incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that could increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect.   As used in Section 11(k), the terms “employee benefit plan” and “employee welfare benefit plan” shall have the respective meanings assigned to such terms in Section 3 of ERISA. -29- --------------------------------------------------------------------------------     Section 12. Remedies on Default, Etc.   Section 12.1.  Acceleration. (a) If an Event of Default with respect to the Company described in paragraph (h) or (i) of Section 11 (other than an Event of Default described in clause (i) of paragraph (h) or described in clause (vi) of paragraph (h) by virtue of the fact that such clause encompasses clause (i) of paragraph (h)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable.   (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 50% in aggregate principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable.   (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing with respect to any Notes, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by such holder or holders to be immediately due and payable.   Upon any Note’s becoming due and payable under this Section 12.1, whether automatically or by declaration, such Note will forthwith mature and the entire unpaid principal amount of such Note, plus (i) all accrued and unpaid interest thereon (including, but not limited to, interest accrued thereon at the Default Rate) and (ii) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances.   Section 12.2.  Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.   Section 12.3.  Rescission. At any time after the Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of more than 50% in aggregate principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and -30- --------------------------------------------------------------------------------   Make-Whole Amount and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) neither the Company nor any other Person shall have paid any amounts which have become due solely by reason of such declaration, (c) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (d) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to any Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.   Section 12.4.  No Waivers or Election of Remedies, Expenses, Etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys’ fees, expenses and disbursements.   Section 13.          Registration; Exchange; Substitution of Notes.   Section 13.1.  Registration of Notes. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes.   Section 13.2.  Transfer and Exchange of Notes. Subject to the limitation in Section 13.3, upon surrender of any Note to the Company at the address and to the attention of the designated officer (all as specified in Section 18(iii)), for registration of transfer or exchange (and in the case of a surrender for registration of transfer accompanied by a written instrument of transfer duly executed by the registered holder of such Note or such holder’s attorney duly authorized in writing and accompanied by the relevant name, address and other information for notices of each transferee of such Note or part thereof), within ten Business Days thereafter, the Company shall execute and deliver, at the Company’s expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of the Note originally issued hereunder. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require -31- --------------------------------------------------------------------------------   payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $500,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $500,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have (i) agreed to the confidentiality provisions set forth in Section 20 hereof, (ii) made the representation set forth in Sections 6.2 and 6.3, provided, that in lieu thereof such holder may (in reliance upon information provided by the Company, which shall not be unreasonably withheld) make a representation to the effect that the purchase by any holder of any Note will not constitute a non-exempt prohibited transaction under section 406(a) of ERISA and (iii) submitted to jurisdiction and service of process as provided in Section 22.8 hereof.   The Notes have not been registered under the Securities Act or under the securities laws of any state and the holders agree that the Notes may not be transferred or resold unless registered under the Securities Act and all applicable state securities laws or unless an exemption from the requirement for such registration is available.   Section 13.3.  Transfer Restrictions. Each Purchaser agrees that so long as no Default or Event of Default exists, without the prior written consent of the Company, such Purchaser (and each transferee by its acceptance of a Note shall be deemed to have agreed that it) will not knowingly transfer or assign the Notes to any Person which is, or is known by such Purchaser to be controlled by, a Person who has a line of business that involves consumer packaged food products or personal care products with sales equal to or greater than $25,000,000 during the 12 months prior to such transfer or assignment.   Section 13.4.  Replacement of Notes. Upon receipt by the Company at the address and to the attention of the designated officer (all as specified in Section 18(iii)) of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and   (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $50,000,000 or a Qualified Institutional Buyer, such Person’s own unsecured agreement of indemnity shall be deemed to be satisfactory), or   (b) in the case of mutilation, upon surrender and cancellation thereof,   the Company at its own expense shall execute and deliver not more than five Business Days following satisfaction of such conditions, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. -32- --------------------------------------------------------------------------------     Section 14. Payments on Notes.   Section 14.1.  Place of Payment. Subject to Section 14.2, payments of principal, Make-Whole Amount and interest becoming due and payable on the Notes shall be made in New York, New York at the principal office of Bank of America, N.A. in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction.   Section 14.2.  Home Office Payment. So long as any Purchaser or such Purchaser’s nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount and interest by the method and at the address specified for such purpose for such Purchaser on Schedule A hereto, or by such other method or at such other address as such Purchaser shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, such Purchaser shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by any Purchaser or such Purchaser’s nominee, such Person will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note.   Section 15. Expenses, Etc.   Section 15.1.  Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Company will pay all reasonable costs and expenses (including reasonable attorneys’ fees of a special counsel for the Purchasers and, if reasonably required by the Required Holders, local or other counsel) incurred by each Purchaser and each other holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation the reasonable: (a) costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) costs and expenses, including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save each Purchaser and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those, if any, retained by a Purchaser or other holder in connection with its purchase of the Notes). -33- --------------------------------------------------------------------------------     Section 15.2.  Survival. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement.   Section 16. Survival of Representations and Warranties; Entire Agreement.   All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by any Purchaser of any such Note or portion thereof or interest therein and the payment of any Note may be relied upon by any subsequent holder of any such Note, regardless of any investigation made at any time by or on behalf of any Purchaser or any other holder of any such Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the Purchasers and the Company and supersede all prior agreements and understandings relating to the subject matter hereof.   Section 17. Amendment and Waiver.   Section 17.1.  Requirements. (a) This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (i) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used in any such Section), will be effective as to any holder of Notes unless consented to by such holder of Notes in writing, and (ii) no such amendment or waiver may, without the written consent of all of the holders of Notes at the time outstanding affected thereby, (A) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest (if such change results in a decrease in the interest rate) or of the Make-Whole Amount on, the Notes, (B) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (C) amend any of Section 8, 11(a), 11(b), 12, 17 or 20.   Section 17.2.  Solicitation of Holders of Notes.   (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes.   (b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security or provide other credit support, to any holder of Notes as consideration for or as an -34- --------------------------------------------------------------------------------   inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted or other credit support is concurrently provided, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment.   (c) Consent in Contemplation of Transfer. Any consent made pursuant to this Section 17 by a holder of Notes that has transferred or has agreed to transfer its Notes to the Company, any Subsidiary or any Affiliate of the Company and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force or effect except solely as to such holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consents of all other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force or effect except solely as to such holder.   Section 17.3.  Binding Effect, Etc. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term “this Agreement” and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.   Section 17.4.  Notes Held by Company, Etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.   Section 18. Notices.   All notices and communications provided for hereunder shall be in writing and shall be effective (a) when delivered, (b) when transmitted by telecopy (or other facsimile device) if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), (c) the day following the day on which the same has been delivered to a recognized overnight delivery service (with charges prepaid) or (d) the third Business Day following the day on which the same is sent by certified mail or registered mail (with charges prepaid). Any such notice must be sent:   (i) if to a Purchaser or such Purchaser’s nominee, to such Purchaser or such Purchaser’s nominee at the address specified for such communications in Schedule A to -35- --------------------------------------------------------------------------------   this Agreement, or at such other address as such Purchaser or such Purchaser’s nominee shall have specified to the Company in writing pursuant to this Section 18;   (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing pursuant to this Section 18, or   (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of the Chief Financial Officer, with a copy to the General Counsel and a copy (which shall not constitute notice) to Cahill Gordon & Reindel LLP, 80 Pine St., New York, New York 10005, Attn: Geoffrey E. Liebmann (facsimile: 212-269-5420), or at such other address as the Company shall have specified to the holder of each Note in writing.   Section 19. Reproduction of Documents.   This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by any Purchaser at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to any Purchaser, may be reproduced by such Purchaser by any photographic, photostatic, electronic, digital, or other similar process and such Purchaser may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such Purchaser in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.   Section 20. Confidential Information.   For the purposes of this Section 20, “Confidential Information” means information delivered to any Purchaser by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Purchaser or any Person acting on such Purchaser’s behalf, (c) otherwise becomes known to such Purchaser other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to such Purchaser under Section 7.1 that are otherwise publicly available. Each Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to such -36- --------------------------------------------------------------------------------   Purchaser, provided that such Purchaser may deliver or disclose Confidential Information to (i) such Purchaser’s directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by such Purchaser’s Notes), such Purchaser’s financial advisors and other professional advisors, in each case, who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (ii) any other holder of any Note, (iii) any Institutional Investor to which such Purchaser sells or offers to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (iv) any federal or state regulatory authority having jurisdiction over such Purchaser, (v) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about such Purchaser’s investment portfolio, or (vi) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to such Purchaser, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which such Purchaser is a party or (z) if an Event of Default has occurred and is continuing, to the extent such Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Purchaser’s Notes, the Subsidiary Guaranty and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20.   Section 21. Substitution of Purchaser.   Each Purchaser shall have the right to substitute any one of its Affiliates as the purchaser of the Notes that it has agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both such Purchaser and such Affiliate, shall contain such Affiliate’s agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, any reference to such Purchaser in this Agreement (other than in this Section 21), shall be deemed to refer to such Affiliate in lieu of such original Purchaser. In the event that such Affiliate is so substituted as a Purchaser hereunder and such Affiliate thereafter transfers to such original Purchaser all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, any reference to such Affiliate as a “Purchaser” in this Agreement (other than in this Section 21), shall no longer be deemed to refer to such Affiliate, but shall refer to such original Purchaser, and such original Purchaser shall again have all the rights of an original holder of the Notes under this Agreement.   Section 22. Miscellaneous.   Section 22.1.  Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their -37- --------------------------------------------------------------------------------   respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not.   Section 22.2.  Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding (but without limiting the requirement in Section 8.5 that the notice of any optional prepayment specify a Business Day as the date fixed for such prepayment), any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day; provided that if the maturity date of any Note is a date other than a Business Day, the payment otherwise due on such maturity date shall be made on the next succeeding Business Day and shall include the additional days elapsed in the computation of interest payable on such next succeeding Business Day.   Section 22.3.  Accounting Terms. All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, (i) all computations made pursuant to this Agreement shall be made in accordance with GAAP, and (ii) all financial statements shall be prepared in accordance with GAAP.   Section 22.4.  Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.   Section 22.5.  Construction. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.   For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be deemed to be a part hereof.   Section 22.6.  Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.   Section 22.7.  Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State. -38- --------------------------------------------------------------------------------     Section 22.8.  Jurisdiction and Process; Waiver of Jury Trial.  (a) The Company and each Purchaser irrevocably submits to the non-exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement or the Notes. To the fullest extent permitted by applicable law, the Company irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.   (b) The Company and each Purchaser consent to process being served on it by the Company or any Purchaser in any suit, action or proceeding of the nature referred to in Section 22.8(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Section 18 or at such other address of which such Person shall then have been notified pursuant to said Section. The Company and each Purchaser agree that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service.   (c) Nothing in this Section 22.8 shall affect the right of the Company or any holder of a Note to serve process in any manner permitted by law, or limit any right that the holders of any of the Notes may have to bring proceedings against the Company in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.   (d) The parties hereto hereby waive trial by jury in any action brought on or with respect to this Agreement, the Notes or any other document executed in connection herewith or therewith.   (e) Each holder of a Note, by its acceptance of a Note, will be deemed to be bound by and to be entitled to the benefits of this Section 22.8 as though it were a party to this Agreement.   * * * * * -39- --------------------------------------------------------------------------------   The execution hereof by the Purchasers shall constitute a contract among the Company and the Purchasers for the uses and purposes hereinabove set forth. This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement.   Very truly yours, The Hain Celestial Group, Inc. By  /s/ Ira J. Lamel        Name:  Ira J. Lamel        Title:    Executive Vice President and Chief                     Financial Officer -------------------------------------------------------------------------------- Accepted as of the first date written above. ING Life Insurance and Annuity Company ING USA Annuity and Life Insurance Company ReliaStar Life Insurance Company ReliaStar Life Insurance Company of New York By: ING Investment Management LLC, as Agent By   /s/ James V. Wittich Name:  James V. Wittich Title:    Senior Vice President -------------------------------------------------------------------------------- Accepted as of the first date written above. The Guardian Life Insurance Company of America By  /s/ Brian Keating        Name:  Brian Keating        Title:    Director, Fixed Income Berkshire Life Insurance Company of America By  /s/ Brian Keating        Name:  Brian Keating        Title:    Director, Fixed Income -------------------------------------------------------------------------------- Accepted as of the first date written above. United of Omaha Life Insurance Company By  /s/ Curtis R. Caldwell        Name:  Curtis R. Caldwell        Title:    Vice President Companion Life Insurance Company By  /s/ Curtis R. Caldwell        Name: Curtis R. Caldwell        Title:   Authorized Signer -------------------------------------------------------------------------------- Accepted as of the first date written above. Modern Woodmen of America By  /s/ W. Kenny Massey        Name:  W. Kenny Massey        Title:    President & CEO -------------------------------------------------------------------------------- Accepted as of the first date written above. Life Insurance Company of the Southwest By  /s/ J. Michael Mancini, Jr.        Name: J. Michael Mancini, Jr.        Title:   Vice President -------------------------------------------------------------------------------- Accepted as of the first date written above. The Travelers Indemnity Company By  /s/ David D. Rowland        Name: David D. Rowland        Title:   Senior Vice President -------------------------------------------------------------------------------- Accepted as of the first date written above. American International Life Assurance Company of New York First SunAmerica Life Insurance Company Merit Life Insurance Co. The United States Life Insurance Company in the City of New York The Variable Annuity Life Insurance Company By: AIG Global Investment Corp., investment adviser By  /s/ Peter DeFazio        Name: Peter DeFazio        Title:   Vice President -------------------------------------------------------------------------------- Accepted as of the first date written above. AgFirst Farm Credit Bank By  /s/ R. Scott Higgins        Name:  R. Scott Higgins        Title:    Vice President                     Sentinel Asset Management -------------------------------------------------------------------------------- Defined Terms   As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:   “Acquisition Debt” means any Debt incurred in connection with the acquisition by the Company or any Restricted Subsidiary of any Person or line of business, provided, that, at such time and after giving effect to such acquisition, the Company and its Restricted Subsidiaries are in compliance with Section 10.8.   “Affiliate” means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any Person of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, “Control” means the possession, directly or indirectly, 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. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of the Company.   “Anti-Terrorism Order” means Executive Order No. 13,224 of September 24, 2001, Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism, 66 U.S. Fed. Reg. 49, 079 (2001), as amended.   “Applicable Interest Rate” means either (a) 5.98% per annum, or (b) 6.23% per annum during the applicable period in which the Consolidated Debt to Consolidated EBITDA ratio exceeds 3.50 to 1.0 in accordance with the terms of Section 1.2(b).   “Bank Credit Agreement” means the Amended and Restated Credit Agreement dated as of May 2, 2006 by and among the Company, certain Subsidiaries of the Company named therein, Bank of America, N.A., as administrative agent, and the other financial institutions party thereto, as amended, restated, joined, supplemented or otherwise modified from time to time, and any renewals, extensions or replacements thereof, which constitute the primary bank credit facility of the Company and its Subsidiaries.   “Business Day” means any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed.   “Capital Lease” means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.   “Capital Lease Obligation” means, with respect to any Person and a Capital Lease, the amount of the obligation of such Person as the lessee under such Capital Lease which would, in accordance with GAAP, appear as a liability on a balance sheet of such Person.   “Closing” is defined in Section 3.   “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.   “Company” means The Hain Celestial Group, Inc., a Delaware corporation.   “Confidential Information” is defined in Section 20.   “Consolidated Debt” means as of any date of determination the total amount of all Debt of the Company and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP.   “Consolidated EBITDA” shall mean, for any period, Consolidated Net Income for such period, plus, to the extent deducted in computing such Consolidated Net Income and without duplication, (a) depreciation, depletion, if any, and amortization expense for such period, (b) Consolidated Interest Expense for such period, (c) income tax expense for such period, (d) other non cash charges for such period, (e) reasonable and customary acquisition or merger charges, restructuring charges that are both non cash and non-recurring and impairment of assets write-offs that are both non cash and non-recurring, (f) reasonable and customary charges which arise from the existence and subsequent write-off of duplicative facilities related directly an acquisition consummated by the Company or any Restricted Subsidiaries, and (g) cumulative non cash change in accounting effects or non cash extraordinary items, and minus the sum of (y) all extraordinary or unusual gains, and (z) all interest income all as determined in accordance with GAAP. For purposes of calculating Consolidated EBITDA for any period of four consecutive quarters, if during such period the Company or any Restricted Subsidiary shall have acquired or disposed of any Person or acquired or disposed of all or substantially all of the operating assets of any Person, Consolidated EBITDA for such period shall be calculated after giving pro forma effect thereto as if such transaction occurred on the first day of such period.   “Consolidated Interest Expense” shall mean, for any period, the gross interest expense of the Company and its Restricted Subsidiaries deducted in the calculation of Consolidated Net Income for such period, determined on a consolidated basis in accordance with GAAP.   “Consolidated Net Income” shall mean, for any period, the consolidated net income (or loss) of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.   “Consolidated Net Worth” shall mean the consolidated stockholder’s equity of the Company and its Restricted Subsidiaries, as defined according to GAAP.   “Consolidated Total Assets” means, as of any date of determination, the total amount of all assets of the Company and its Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP.   “Debt” means, with respect to any Person, without duplication,   (a) its liabilities for borrowed money;   (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable and other accrued liabilities arising in the ordinary course of business but including, without limitation, all liabilities created or aris-ing under any conditional sale or other title retention agreement with respect to any such property);   (c) its Capital Lease Obligations;   (d) its liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); and   (e) Guarantees by such Person with respect to liabilities of a type described in any of clauses (a) through (d) hereof.   Debt of any Person shall include all obligations of such Person of the character described in clauses (a) through (e) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP.   “Default” means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.   “Default Rate” means with respect to the Notes that rate of interest that is 2% per annum above the Applicable Interest Rate.   “Due On Sale Debt” means any Debt of a Person being acquired by the Company or a Restricted Subsidiary that becomes due as a result of the consummation of such acquisition by the Company or a Restricted Subsidiary.   “Environmental Law” shall mean any applicable law, ordinance, rule, regulation, or policy having the force of law of any Governmental Authority relating to pollution or protection of the environment or to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.), and the rules and regulations promulgated pursuant thereto.   “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.   “ERISA Affiliate” means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code.   “Event of Default” is defined in Section 11.   “Exchange Act” means the Securities Exchange Act of 1934, as amended.   “Fair Market Value” means, at any time and with respect to any property, the sale value of such property that would be realized in an arm’s-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell), as reasonably determined in the good faith opinion of the Company’s board of directors.   “GAAP” means those generally accepted accounting principles as in effect from time to time in the United States of America; provided that, if the Company notifies the Required Holders that the Company wishes to amend any negative covenants (or any definition hereof) to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant or definition, then the Company's compliance with such covenant or the meaning of such definition shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Company and the Required Holders.   “Governmental Authority” means   (a) the government of   (i) the United States of America or any state or other political subdivision thereof, or   (ii) any jurisdiction in which the Company or any Restricted Subsidiary conducts all or any part of its business, or which has jurisdiction over any properties of the Company or any Restricted Subsidiary, or   (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.   “Government Obligations” shall mean direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America.   “Guaranty” means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Debt, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person:   (a) to purchase such Debt or obligation or any property constituting security therefor primarily for the purpose of assuring the owner of such Debt or obligation of the ability of any other Person to make payment of the Debt or obligation;   (b) to advance or supply funds (i) for the purchase or payment of such Debt or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such Debt or obligation;   (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such Debt or obligation of the ability of any other Person to make payment of the Debt or obligation; or   (d) otherwise to assure the owner of such Debt or obligation against loss in respect thereof.   In any computation of the Debt or other liabilities of the obligor under any Guaranty, the Debt or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor, provided that the amount of such Debt outstanding for purposes of this Agreement shall not exceed the maximum amount of Debt that is the subject of such Guaranty.   “Hazardous Materials” shall mean any explosives, radioactive materials, or other materials, wastes, substances, or chemicals regulated as toxic or hazardous or as a pollutant, contaminant or waste under any applicable Environmental Law.   “holder” means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1.   “Institutional Investor” means (a) any original purchaser of a Note, (b) any holder of more than $2,000,000 of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form.   “Intellectual Property” is defined in Section 5.11.   “Investments” shall mean all investments, in cash or by delivery of property made, directly or indirectly in any Person, whether by acquisition of shares of capital stock, Debt or other obligations or securities or by loan, advance, capital contribution or otherwise.   ÒLienÓ means any mortgage, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Capital Lease and any financing lease having substantially the same economic effect as any of the foregoing).   “Make-Whole Amount” shall have the meaning set forth in Section 8.7 with respect to any Note.   “Material” means material in relation to the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole.   “Material Adverse Effect” means a material adverse effect on (a) the business, operations, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, (c) the ability of any Subsidiary Guarantor to perform its obligations under the Subsidiary Guaranty or (d) the validity or enforceability of this Agreement, the Notes or the Subsidiary Guaranty.   “Material Subsidiary” means, at any time, any Restricted Subsidiary of the Company which, together with all other Restricted Subsidiaries of such Restricted Subsidiary, accounts for more than (i) 5% of the consolidated assets of the Company and its Restricted Subsidiaries or (ii) 5% of consolidated revenue of the Company and its Restricted Subsidiaries.   “Memorandum” is defined in Section 5.3.   “Moody’s” shall mean Moody Investors Service, Inc.   “Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such term is defined in Section 4001(a)(3) of ERISA).   “Notes” is defined in Section 1 of this Agreement.   “Officer’s Certificate” means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate.   “PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.   “Permitted Securitization Transaction” means any transaction or group of transactions typically referred to as a securitization in which the Company or any Restricted Subsidiary sells, directly or indirectly through another Person, its accounts receivable on a limited recourse basis (i.e., other than for recourse relating to, e.g., certain bad acts or breaches of representations or warranties) provided that (i) each such transaction is treated as a legal true sale to a special purpose bankruptcy remote entity that obtains debt financing to finance the purchase price, and (ii) each such transaction qualifies as a sale under GAAP.   “Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof.   “Plan” means an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.   “Priority Debt” means (without duplication), as of the date of any determination thereof, the sum of (i) all unsecured Debt of Restricted Subsidiaries (including all Guaranties of Debt of the Company but excluding (x) Debt owing to the Company or any Restricted Subsidiary, (y) Debt outstanding at the time such Person became a Restricted Subsidiary (other than an Unrestricted Subsidiary which is designated as a Restricted Subsidiary pursuant to Section 9.6 hereof), provided that such Debt shall have not been incurred in contemplation of such person becoming a Restricted Subsidiary, and (z) all Guaranties of Debt of the Company by any Restricted Subsidiary which has also guaranteed the Notes and (ii) all Debt of the Company and its Restricted Subsidiaries secured by Liens other than Debt secured by Liens permitted by subparagraphs (a) through (k), inclusive, of Section 10.3.   “property” or “properties” means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.   “Purchasers” means the purchasers of the Notes named in Schedule A hereto.   “QPAM Exemption” means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor.   “Qualified Institutional Buyer” means any Person who is a qualified institutional buyer within the meaning of such term as set forth in Rule 144(a)(1) under the Securities Act.   “Ratable Portion” means, with respect to any Note, an amount equal to the product of (x) the amount equal to the net proceeds being so applied to the prepayment of Senior Debt in accordance with Section 10.4(2), multiplied by (y) a fraction the numerator of which is the outstanding principal amount of such Note and the denominator of which is the aggregate principal amount of Senior Debt of the Company and its Restricted Subsidiaries being prepaid pursuant to Sections 8.4 and 10.4(2).   “Required Holders” means, at any time, the holders of more than 50% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates and any Notes held by parties who are contractually required to abstain from voting with respect to matters affecting the holders of the Notes).   “Responsible Officer” means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this Agreement.   “Restricted Subsidiary” means any Subsidiary in which: (i) at least a majority of the voting securities are owned by the Company and/or one or more Restricted Subsidiaries and (ii) the Company has not designated an Unrestricted Subsidiary by notice in writing given to the holders of the Notes.   “S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc.   “Securities Act” means the Securities Act of 1933, as amended from time to time.   “Senior Debt” means, as of the date of any determination thereof, all Consolidated Debt, other than Subordinated Debt.   “Senior Financial Officer” means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company.   “Subordinated Debt” means all unsecured Debt of the Company which shall contain or have applicable thereto subordination provisions providing for the subordination thereof to other Debt of the Company (including, without limitation, the obligations of the Company under this Agreement).   “Subsidiary” means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a “Subsidiary” is a reference to a Subsidiary of the Company.   “Subsidiary Guarantor” means each Subsidiary which is party to the Subsidiary Guaranty.   “Subsidiary Guaranty” is defined in Section 2.2 of this Agreement.   “Target Company” means any Person that (i) is acquired by the Company or any Restricted Subsidiary and is designated as a Restricted Subsidiary on the date such Target Company is so acquired, and (ii) is an obligor of any Due On Sale Debt.   “Transition Period” means the period commencing on the date the Company or any Restricted Subsidiary acquires any Person or line of business, provided that at such time and after giving effect thereto the Company and its Restricted Subsidiaries are in compliance with Section 10.8, and ending on the last day of the fourth full fiscal quarter following the date of the consummation of such acquisition.   “Unrestricted Subsidiary” means any Subsidiary so designated by the Company.   “USA Patriot Act” means United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.  

EXHIBIT 10.4 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this “Agreement”) is made and entered into as of June ___, 2006, among WCA Waste Corporation, a Delaware corporation (the “Company”), and Ares Corporate Opportunities Fund II, L.P. (the “Purchaser”). WHEREAS, the parties have agreed to enter into this Agreement in connection with, and as a condition to the Closing under, the Preferred Stock Purchase Agreement, dated as of June ___, 2006, between the Company and the Purchaser (the “Purchase Agreement”) and the related documents entered into in connection therewith (the “Transaction Documents”); and WHEREAS, pursuant to the Purchase Agreement and concurrently with the execution of this Agreement, the Purchaser is acquiring from the Company shares of the Company’s Series A Convertible Preferred Stock, par value $0.01 per share (“Preferred Stock”), that are convertible into shares of the Company’s common stock, par value $0.01 per share (“Common Stock”). 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: 1.     Definitions. In addition to the terms defined elsewhere in this Agreement, (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Purchase Agreement, and (b) the following terms have the meanings indicated: “Demand Registration Statement” means a Registration Statement filed or to be filed pursuant to a written Purchaser Request pursuant to either Section 2 or Section 3. “Holder” means a holder of Registrable Securities acquired in accordance with the Stockholder’s Agreement; provided that with respect to the inclusion of Registrable Securities in a Registration Statement, “Holders” shall only include those holders of Registrable Securities designated by the Purchaser. “Piggy-Back Registration Statement” means a Registration Statement filed or to be filed pursuant to which the Company has received one or more written requests to participate pursuant to Section 4. “Purchaser Request” means a request from the Purchaser, either on its behalf or on behalf of Holders that in the aggregate possess a majority of the Registrable Securities outstanding as of the date of such request. “Prospectus” means the prospectus included in a 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 Rules 430A, 430B or 430C promulgated under the Securities Act of 1933, as amended (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 a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. “Registrable Securities” means any Common Stock into which the Preferred Stock issued pursuant to the Transaction Documents has been converted, together with any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided that such shares will cease to be “Registrable Securities” (i) when they have been sold to or through a broker or dealer or underwriter in a distribution to the public or otherwise on or through the facilities of the national securities exchange, national securities association or automated quotation system on which the Company’s capital stock is listed, (ii) when a registration statement with respect to the sale of such shares has become effective under the Securities Act , and such shares have been disposed of in accordance with such registration statement, or (iii) at such time as the Holder of Registrable Securities is entitled to sell all of its Registrable Securities within three (3) months under Rule 144(k) of the Securities Act without restriction. “Registration Statement” shall mean any registration statement to be filed under the Exchange Act, which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus included therein, all amendments and supplements to such Registration Statement, including pre- and post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such Registration Statement. “Rule 144,” “Rule 415,” “Rule 424” and “Rule 461” means Rule 144, Rule 415, Rule 424 and Rule 461, respectively, promulgated by the Commission pursuant to the Securities Act, as such Rules 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. “Shelf Registration Statement” means a Registration Statement filed or to be filed pursuant to a written Purchaser Request pursuant to Section 2. “Stockholder’s Agreement” means the Stockholder’s Agreement of even date herewith by and between the Company and the Purchaser. 2.     Shelf Registration. If the Preferred Stock shall have previously been converted into Registrable Securities, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and, subject to the limitations of Section 2(b) below, shall prepare and file (as expeditiously as practicable, and in any event within thirty (30) days of the receipt of any other such request) with the Commission a “Shelf” Registration Statement covering the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. Such Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith as the Designated Holders may consent) and shall contain (except if otherwise directed   2   -------------------------------------------------------------------------------- by the Designated Holders) the “Plan of Distribution” attached hereto as Annex A. The Company shall use its commercially reasonable efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, and in any event within sixty (60) days of the Purchaser Request (or one hundred twenty (120) days in the event the SEC has determined to review the applicable Registration Statement) and shall, subject to notice from the Company under Section 9(f), use its commercially reasonable efforts to keep such Registration Statement continuously effective under the Securities Act for the period that such Registration Statement may be kept effective under applicable SEC regulations until the earlier of (i) the date on which all Registrable Securities are eligible for sale under paragraph (k) of Rule 144 without any volume, manner of sale or other restrictions and (ii) when all Registrable Securities covered by such Registration Statement have been sold (the “Effectiveness Period”). The Company shall notify each Holder in writing promptly (and in any event within one Trading Day) after receiving notification from the Commission that a Registration Statement has been declared effective. Notwithstanding the foregoing, the Company shall not be obligated to file a Registration Statement pursuant to this Section 2 (i) during the 90 day period commencing on the effective date of any other registration statement filed by the Company relating to the public offering of its Common Stock or securities convertible into Common Stock (other than on Forms S-4 or S-8 or any successor thereto) or (ii) if the Company shall furnish to the Holders a certificate signed by the chief executive officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, the Board has determined to file a registration statement relating to the public offering of its Common Stock or securities convertible into Common Stock (other than on Forms S-4 or S-8 or any successor thereto) within 30 days of the Purchaser Request, during the period commencing on the date of such notice and ending upon the earliest of (i) effectiveness of such registration statement , (ii) a decision by the Company not to pursue effectiveness of such registration statement or (iii) 90 days after the filing of such registration statement; provided, however, that in the case of clause (ii) the Company may not utilize this right more than once in any twelve (12) month period; provided, further, that, for the avoidance of doubt, this clause (ii) shall be incremental to, and not in lieu of, the Company’s relief from its shelf registration obligation under clause (i) above. Notwithstanding the foregoing, if the Company shall furnish to the Holders a certificate signed by the chief executive officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, maintaining a Registration Statement’s effectiveness would be materially detrimental to the Company and its stockholders for such Registration Statement to remain effective by reason of a material pending or imminently prospective transaction or development and it is therefore essential to suspend such Registration Statement’s effectiveness, the Company shall have the right to suspend such effectiveness for a period of not more than sixty (60) days in aggregate after receipt of the Purchaser Request; provided, however, that the Company may not utilize this right more than twice in any twelve (12) month period.   3. Demand Registration. (a)      If at any time the Company shall receive a written Purchaser Request that the Company file a Registration Statement under the Securities Act, then the Company shall,   3   -------------------------------------------------------------------------------- within ten (10) days of the receipt thereof, give written notice of such request to all Holders and, subject to the limitations of Section 3(b) below, shall file (as expeditiously as practicable, and in any event within thirty (30) days of the receipt of such request) and use its commercially reasonable commercially reasonable efforts to have declared effective, a Registration Statement under the Securities Act with respect to all Registrable Securities which the Holders request to be registered within ten (10) days of the mailing of such notice by the Company in accordance with Section 8(g) below. (b)      If the Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 3 and the Company shall include such information in the written notice referred to in Section 3(a). In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Holders participating in the underwriting and such Holder) to the extent provided herein. A majority in interest of the Holders of Registrable Securities participating in the underwriting, in consultation with the Company, shall select the managing underwriter or underwriters in such underwriting. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 5(l)) enter into an underwriting agreement in customary form with the underwriter or underwriters so selected for such underwriting by a majority in interest of such Holders; provided, however, that no Holder (or any of their assignees) shall be required to make any representations, warranties or indemnities except as they relate to such Holder’s ownership of shares and authority to enter into the underwriting agreement and to such Holder’s intended method of distribution, and the liability of such Holder shall be limited to an amount equal to the net proceeds from the offering received by such Holder. Notwithstanding any other provision of this Section 3, if the underwriter advises a Holder that marketing factors require a limitation of the number of shares to be underwritten, then the Holder shall so advise the Company and the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated as follows: (i) first, among holders of Registrable Securities that have elected to participate in such underwritten offering, in proportion (as nearly as practicable) to the aggregate amount of Registrable Securities held by all such holders, until such holders have included in the underwriting all shares requested by such holders to be included, and (ii) thereafter, among all other holders of Common Stock, if any, that have the right and have elected to participate in such underwritten offering, in proportion (as nearly as practicable) to the amount of shares of Common Stock owned by such holders. Without the consent of a majority in interest of the Holders of Registrable Securities participating in a registration referred to in Section 3(a), no securities other than Registrable Securities shall be covered by such registration if the inclusion of such other securities would result in a reduction of the number of Registrable Securities covered by such registration or included in any underwriting or if, in the opinion of the managing underwriter, the inclusion of such other securities would adversely impact the marketing of such offering. (c)      The Company shall be obligated to effect only two (2) registrations (and only if such registration would include Registrable Securities with an aggregate value of at least ten million dollars ($10,000,000), calculated using the closing price of the Company’s Common   4   -------------------------------------------------------------------------------- Shares on the Trading Market on the date preceding the date of the Purchaser Request) pursuant to Purchaser Requests under this Section 3 (an offering which is not consummated shall not be counted for this purpose). (d)      Notwithstanding the foregoing, the Company shall not be obligated to file a Registration Statement pursuant to this Section 3 (i) during the 90 day period commencing on the effective date of any other registration statement filed by the Company relating to the public offering of its Common Stock or securities convertible into Common Stock (other than on Forms S-4 or S-8 or any successor thereto) or (ii) if the Company shall furnish to the Holders a certificate signed by the chief executive officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, the Board has determined to file a registration statement relating to the public offering of its Common Stock or securities convertible into Common Stock (other than on Forms S-4 or S-8 or any successor thereto) within 30 days of the Purchaser Request, during the period commencing on the date of such notice and ending upon the earliest of (i) effectiveness of such registration statement , (ii) a decision by the Company not to pursue effectiveness of such registration statement or (iii) 90 days after the filing of such registration statement; provided, however, that in the case of clause (ii) the Company may not utilize this right more than once in any twelve (12) month period; provided, further, that, for the avoidance of doubt, this clause (ii) shall be incremental to, and not in lieu of, the Company’s relief from its demand registration obligation under clause (i) above. (e)       Notwithstanding the foregoing, if the Company shall furnish to the Holders a certificate signed by the chief executive officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, maintaining a Registration Statement’s effectiveness would be materially detrimental to the Company and its stockholders for such Registration Statement to remain effective by reason of a material pending or imminently prospective transaction or development and it is therefore essential to suspend such Registration Statement’s effectiveness, the Company shall have the right to suspend such effectiveness for a period of not more than sixty (60) days in aggregate after receipt of the Purchaser Request; provided, however, that the Company may not utilize this right more than twice in any twelve (12) month period.   4. Piggy-Back Registrations. (a)   If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Purchaser and its affiliates) any of its Common Shares under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration on Form S-8 (or similar or successor form) relating solely to the sale of securities to participants in a Company stock plan or to other compensatory arrangements to the extent includable on Form S-8 (or similar or successor form), or a registration on Form S-4 (or similar or successor form)), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder received by the Company within ten (10) Trading Days after mailing of such notice by the Company in accordance with Section 9(f), the Company shall use its commercially reasonable efforts to cause to be registered under the Securities Act all of the Registrable Securities that each such Holder (the “Electing Holders”) has requested to be registered ; provided that (i) if such registration involves an underwritten offering to the public,   5   -------------------------------------------------------------------------------- all holders of Registrable Securities requesting to be included in the Company’s registration must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company or other selling stockholders; and (ii) if, at any time after giving notice of the Company’s intention to register any securities pursuant to this Section 4 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 such securities, the Company shall give written notice to all holders of Registrable Securities and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from any obligation of the Company to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of holders under Section 3. The Company shall have no obligation under this Section 4 to make any offering of its securities, or to complete an offering of its securities that it proposes to make. (b)   If such registration involves an underwritten offering to the public, if the managing underwriter of the underwritten offering shall inform the Company by letter of the underwriter’s opinion that the number of Registrable Securities requested to be included in such registration would, in its opinion, materially adversely affect such offering, including the price at which such securities can be sold, and the Company has so advised the requesting Holders in writing, then the Company shall include in such registration, to the extent of the number that the Company is so advised can be sold in (or during the time of) such offering, (i) first, all securities proposed by the Company to be sold for its own account, then (ii) to the extent that the number of shares of Common Stock proposed to be sold by the Company or the other holders pursuant to Section 4(a) is less than the number of shares of Common Stock that the Company has been advised can be sold in such offering without having the material adverse effect referred to above, such Registrable Securities requested to be included in such registration pursuant to this Section 4 and such other securities covered by registration rights, allocated pro rata among such requesting Holders and the holders of such other rights in proportion, as nearly as practicable, to the respective amounts of such securities requested to be included in such registration. All other stockholders of the Company shall be excluded from the proposed offering before any requesting Holder or holder of other registration rights is required to reduce his, hers or its shares being offered under the registration statement. 5.     Demand Registration Procedures. In connection with the Company’s registration obligations hereunder with respect to a Demand Registration Statement, the Company shall: (a)       Not less than three Trading Days prior to the filing of each Demand Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall (i) furnish to the Holders and to one counsel to the Holders (“Purchaser Counsel”) copies of all such documents proposed to be filed, which documents will be subject to the review of such Holders and Purchaser 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 respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file such Demand Registration Statement or any related Prospectus, amendments or supplements thereto to which the Holders of a majority of the Registrable Securities and Purchaser Counsel shall reasonably object.   6   --------------------------------------------------------------------------------   (b)      (i) Prepare and file with the Commission such amendments, including post-effective amendments, to each Demand Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Demand Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period in the case of a Shelf Registration Statement, and until the end of the related offering in the case of any other Demand Registration Statement, and prepare and file with the Commission such additional Registration Statements 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; (iii) respond as promptly as reasonably possible, and in any event within ten (10) Trading Days, to any comments received from the Commission with respect to any Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders and Purchaser Counsel true and complete copies of all correspondence from and to the Commission relating to a Registration Statement; and (iv) 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 a Demand Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the applicable Demand Registration Statement as so amended or in such Prospectus as so supplemented. (c)       Notify the Holders of Registrable Securities to be sold pursuant to a Demand Registration Statement and Purchaser Counsel as promptly as reasonably possible, and (if requested by any such Person) confirm such notice in writing no later than one Trading Day thereafter, of any of the following events: (i) the Commission notifies the Company whether there will be a “review” of any Demand Registration Statement; (ii) the Commission comments in writing on any Demand Registration Statement (in which case the Company shall deliver to each Holder a copy of such comments and of all written responses thereto); (iii) any Demand Registration Statement or any post-effective amendment thereto is declared effective; (iv) the Commission or any other Federal or state governmental authority requests any amendment or supplement to a Demand Registration Statement or Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Demand Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included in any Demand Registration Statement become ineligible for inclusion therein or any statement made in any Demand Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue in any material respect or any revision to a Demand Registration Statement, related Prospectus or other document is required so that it will not contain any untrue statement of a material fact or omit to state any 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. (d)      Use its commercially reasonable efforts to avoid the issuance of or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of any Demand Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.   7   --------------------------------------------------------------------------------   (e)       Furnish to each Holder and Purchaser Counsel, without charge, at least one conformed copy of each Demand Registration Statement and each amendment thereto, including financial statements and schedules, and all exhibits to the extent requested by such Person (excluding those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. (f)       Promptly deliver to each Holder and Purchaser Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) related to a Demand Registration Statement and each amendment or supplement thereto as such Persons may reasonably request. 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. (g)      In the time and manner required by each Trading Market, if at all, prepare and file with such Trading Market an additional shares listing application covering all of the Registrable Securities; (ii) take all steps necessary to cause such Registrable Securities to be approved for listing on each Trading Market as soon as reasonably practicable thereafter; (iii) to the extent available to the Company, provide to the Purchaser evidence of such listing; and (iv) maintain the listing of such Registrable Securities on each such Trading Market. (h)      Prior to any public offering of Registrable Securities pursuant to a Demand Registration Statement, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders and Purchaser 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 in the case of a Shelf Registration Statement, and until the offering is completed in the case of any other Demand Registration Statement, 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 Demand Registration Statement. (i)       Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Demand Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request. (j)       Upon the occurrence of any event described in Section 5(c)(vii), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to such a Demand 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 such Demand Registration Statement nor its related 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 light of the circumstances under which they were made, not misleading.   8   --------------------------------------------------------------------------------   (k)      Cooperate with any due diligence investigation undertaken by the Holders in connection with the sale of Registrable Securities pursuant to a Demand Registration Statement, including without limitation by making available any documents and information. (l)       If Holders of a majority of the Registrable Securities being offered pursuant to a Demand Registration Statement select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, by providing customary legal opinions, comfort letters and indemnification and contribution obligations. (m) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering.   (n) Comply with all applicable rules and regulations of the Commission. (o)      The Company shall not be required to deliver any document pursuant to any provision of this Section 5 to any Holder that is not selling Registrable Securities under the applicable Demand Registration Statement. The Company shall also not be required to deliver any document pursuant to any provision of this Section 5, other than Section 5(f), to any Holder that proposes to sell Registrable Securities with less than $500,000 in aggregate offering price to the public under the Demand Registration Statement (based on the last sale price per Common Share on the Trading Market on the Trading Day preceding the date of the Purchaser Request). 6.     Piggy-Back Registration Procedures. In connection with the Company’s registration obligations hereunder with respect to a Piggy-Back Registration Statement, the Company shall: (a)       Not less than three Trading Days prior to the filing of each Piggy-Back Registration Statement or any related Prospectus or any amendment or supplement thereto (i) furnish to the Electing Holders and Purchaser Counsel copies of all such documents proposed to be filed, 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 respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. (b)      (i) 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; (ii) as promptly as reasonably possible provide the Electing Holders and Purchaser Counsel true and complete copies of all correspondence from and to the Commission relating to a Piggy-Back Registration Statement; and (iii) 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 a Piggy-Back Registration Statement during the offering. (c)       Notify the Electing Holders and Purchaser Counsel as promptly as reasonably possible, and (if requested by any such Person) confirm such notice in writing no later than one Trading Day thereafter, of any of the following events: (i) the Commission notifies the Company whether there will be a “review” of any Piggy-Back Registration Statement; (ii) the   9   -------------------------------------------------------------------------------- Commission comments in writing on any Piggy-Back Registration Statement (in which case the Company shall deliver to each Electing Holder a copy of such comments and of all written responses thereto); (iii) any Piggy-Back Registration Statement or any post-effective amendment is declared effective; (iv) the Commission or any other Federal or state governmental authority requests any amendment or supplement to a Piggy-Back Registration Statement or related Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Piggy-Back Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included in any Piggy-Back Registration Statement become ineligible for inclusion therein or any statement made in any Piggy-Back Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue in any material respect or any revision to a Piggy-Back Registration Statement, related Prospectus or other document is required so that it will not contain any untrue statement of a material fact or omit to state any 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. (d)      Furnish to each Electing Holder and Purchaser Counsel, without charge, at least one conformed copy of each Piggy-Back Registration Statement and each amendment thereto, including financial statements and schedules, and all exhibits to the extent requested by such Person (excluding those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. (e)       Promptly deliver to each Electing Holder and Purchaser 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. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Electing Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (f)       Cooperate with the Electing Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Piggy-Back Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Electing Holders may request.   (g) Comply with all applicable rules and regulations of the Commission. (h)      The Company shall not be required to deliver any document pursuant to any provision of this Section 6, other than Section 6(e), to any Electing Holder that proposes to sell Registrable Securities with less than $500,000 in aggregate offering price to the public under the Piggy-Back Registration Statement (based on the last sale price per Common Share on the Trading Market on the Trading Day preceding the date of the written request sent by such Electing Holder under Section 4).   10   --------------------------------------------------------------------------------   (i)       Upon the occurrence of any event described in Section 6(c)(vii), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to such a Piggy-Back 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 such Piggy-Back Registration Statement nor its related 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 light of the circumstances under which they were made, not misleading. 7.     Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include (a) all registration and filing fees (including, without limitation, fees and expenses (i) with respect to filings required to be made with any Trading Market, and (ii) in compliance with applicable state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders )), (b) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses requested by the Holders), (c) messenger, telephone and delivery expenses incurred by the Company, (d) fees and disbursements of counsel for the Company, and (e) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. The fees and expenses referred to in the first sentence shall exclude (x) all underwriting discounts, selling commissions and stock transfer or documentary stamp taxes, if any, applicable to any Registrable Securities registered and sold by such holder, (y) all fees and disbursements of any counsel for such holder, including Purchaser Counsel and (z) all expenses incurred by the Purchaser or Holders without first receiving the consent of the Company.   8. Indemnification (a)      Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, partners, members, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), 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, partners, members, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all Losses, as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a 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 light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such   11   -------------------------------------------------------------------------------- Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Section 5(c)(v)-(vii), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 9(f). 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 or 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) arising solely out of any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of any omission of a material fact required to be stated therein or necessary to make the statements therein 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 to the Company specifically for inclusion in such Registration Statement or such Prospectus. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (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 shall promptly 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 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: (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (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   12   -------------------------------------------------------------------------------- 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. 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. 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 Trading 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 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). (d)      Contribution. If a claim for indemnification under Section 7(a) or 7(b) is unavailable to an Indemnified Party (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 fault 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 8(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. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(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. Notwithstanding the provisions of this Section 8(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged   13   -------------------------------------------------------------------------------- omission. 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. (e)   Other. To the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with an underwritten public offering are in conflict with the indemnification provisions of this Agreement, the provisions of the underwriting agreement will control. 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.   9. Miscellaneous (a)      Remedies. In the event of a breach by the Company or by a Holder of any of their obligations under this Agreement, each 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)      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 at least two-thirds of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (c)       No Inconsistent Agreements. Neither the Company nor any of its subsidiaries has entered, as of the date hereof, 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 would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as and to the extent specified in the applicable schedule to the Purchase Agreement, neither the Company nor any Subsidiary has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full. (d)      No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in a Demand Registration Statement other than the Registrable Securities unless   14   -------------------------------------------------------------------------------- required to do so by currently existing agreements, and the Company shall not after the date hereof enter into any agreement providing any such right to any of its security holders. (e)       Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement. (f)       Discontinued Disposition. 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 Sections 5(c)(v), 5(c)(vi), or 5(c)(vii), or Sections 6(c)(v), 6(c)(vi), or 6(c)(vii), as applicable, which notice may be given by the Company regardless of whether a registration has been effected pursuant to Section 2, 3, or 4, such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until such Holder’s receipt of the copies of any supplemented Prospectus and/or amended Registration Statement (if required pursuant to Section 5(j) or 6(i)), 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. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. (g)      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 telephone number specified in this Section prior to 4:30 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 telephone number specified in this Agreement on a day that is not a Trading Day or later than 4:30 p.m. (New York City time) and earlier than 11:59 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, 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 set forth in the Purchase Agreement. (h)      Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. A Holder that is a Stockholder (as defined in the Stockholder’s Agreement) may assign its rights and obligations hereunder to a Related Transferee (as defined in the Stockholder’s Agreement) in the manner and to the extent permitted under the Transaction Documents. (i)       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. 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.   15   --------------------------------------------------------------------------------   (j)       GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. 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 CONFLICTS OF LAWS PRINCIPLES. EACH PARTY AGREES THAT ALL LEGAL PROCEEDINGS CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (WHETHER BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS, STOCKHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN THE STATE AND U.S. FEDERAL COURTS SITTING IN THE STATE OF DELAWARE. EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND U.S. FEDERAL COURTS SITTING IN THE STATE OF DELAWARE 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 THIS AGREEMENT), 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. 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 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 EITHER 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 OTHER PARTY FOR ITS REASONABLE ATTORNEYS FEES AND OTHER REASONABLE COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH ACTION OR PROCEEDING. (k)      Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. (l)       Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, 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   16   -------------------------------------------------------------------------------- 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. (m) Market Standoff. Each of the Purchaser and each other holder of Registrable Securities shall, if requested by the managing underwriter or underwriters in an underwritten offering, agree not to effect any public sale or distribution of securities of the Company of the same class as the securities included in a Registration Statement relating to such offering, including a sale pursuant to Rule 144 under the Securities Act, except as part of such underwritten registration, during the 15-day period prior to, and during a period (“Lock-Up Period”) ending on the earlier of (a) such time as the Company and the managing underwriter shall agree and (b) 90 days after the effective date of, each underwritten offering made pursuant to such Registration Statement. (n)      Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES TO FOLLOW]   17   --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.   WCA WASTE CORPORATION   By:                                                                                Name: Title:   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES OF PURCHASERS TO FOLLOW]   18   --------------------------------------------------------------------------------   ARES CORPORATE OPPORTUNITIES FUND II, L.P.     By: ACOF MANAGEMENT II, L.P.,   Its General Partner       By: ACOF OPERATING MANAGER II, L.P.,   Its General Partner       By: ARES MANAGEMENT, INC.,   Its General Partner     By: ______________________________   Name:   Title:       Address for Notice:   Ares Corporate Opportunities Fund II, L.P. C/O Ares Management, Inc. 1999 Avenue of the Stars Suite 1900 Los Angeles, California 90067 Phone: (310) 201.4100 Fax: (310) 201.4157 Attention: Jeffrey Serota   With a copy to:   Cahill Gordon & Reindel LLP 80 Pine Street New York, NY 10005 Facsimile No.: (212) 269-5420 Attn: Jonathan A. Schaffzin, Esq. and Gary A. Brooks, Esq.   19   --------------------------------------------------------------------------------   Annex A   Plan of Distribution The selling stockholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling 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 resale by the broker-dealer for its account; • an exchange distribution in accordance with the rules of the applicable exchange; • privately negotiated transactions; • short sales; • broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; • a combination of any such methods of sale; and • any other method permitted pursuant to applicable law. The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. The selling stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades. Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of common stock by a broker-dealer acting as principal might   -------------------------------------------------------------------------------- be deemed to be underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act. The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. We are required to pay all fees and expenses incident to the registration of the shares of common stock, including the fees and disbursements of counsel to the selling stockholders. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus. If the selling stockholders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act. The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may apply to sales of our common stock and activities of the selling stockholders.        

SECURITY AGREEMENT   THIS SECURITY AGREEMENT (the “Agreement”), is entered into and made effective as of July 21, 2006, by and between COROWARE TECHNOLOGIES, INC., a Florida corporation with its principal place of business at Seattle, Washington (the “Company”), and Cornell Capital Partners, LP (the “Secured Party”).   WHEREAS, the Company is a wholly owned subsidiary of Innova Holdings, Inc. (the “Parent”);   WHEREAS, on the date hereof, the Parent shall issue and sell to the Secured Party, as provided in the Securities Purchase Agreement dated the date hereof, and the Secured Party shall purchase up to Two Million Eight Hundred Twenty Five Thousand Dollars ($2,825,000) of secured convertible debentures (the “Convertible Debentures”), which shall be convertible into shares of common stock of the Parent, par value $0.001 (the “Common Stock”) (as converted, the “Conversion Shares”), in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached to the Securities Purchase Agreement;   WHEREAS, the Company shall benefit from the sale of the Convertible Debentures by the Parent to the Secured Party;   WHEREAS, to induce the Secured Party to enter into the transaction contemplated by the Securities Purchase Agreement, the Secured Convertible Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Instructions, and the Escrow Agreement (collectively referred to as the “Transaction Documents”), the Company hereby grants to the Secured Party a security interest in and to the Pledged Property (as defined below) until the satisfaction of the Obligations, as defined herein below.   NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:   ARTICLE 1.   DEFINITIONS AND INTERPRETATIONS   Section 1.1. Recitals.   The above recitals are true and correct and are incorporated herein, in their entirety, by this reference.   Section 1.2. Interpretations.   Nothing herein expressed or implied is intended or shall be construed to confer upon any person other than the Secured Party any right, remedy or claim under or by reason hereof. --------------------------------------------------------------------------------   Section 1.3. Obligations Secured.   The obligations secured hereby are any and all obligations of the Company or the Parent now existing or hereinafter incurred to the Secured Party, whether oral or written and whether arising before, on or after the date hereof including, without limitation, those obligations of the Parent to the Secured Party under the Transaction Documents, and any other amounts now or hereafter owed to the Secured Party by the Parent thereunder or hereunder (collectively, the “Obligations”).   ARTICLE 2.   PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL AND TERMINATION OF SECURITY INTEREST   Section 2.1. Pledged Property.   (a) The Company hereby pledges to the Secured Party, and creates in the Secured Party for its benefit, a security interest for such time until the Obligations are paid in full, in and to all of the property of the Company as set forth in Exhibit “A” attached hereto and the products thereof and the proceeds of all such items (collectively, the “Pledged Property”):   (b) Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably requested by the Secured Party to perfect its security interest in the Pledged Property. Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge and deliver to the Secured Party such documents and instruments, including, without limitation, financing statements, certificates, affidavits and forms as may, in the Secured Party’s reasonable judgment, be necessary to effectuate, complete or perfect, or to continue and preserve, the security interest of the Secured Party in the Pledged Property, and the Secured Party shall hold such documents and instruments as secured party, subject to the terms and conditions contained herein.   Section 2.2. Rights; Interests; Etc.   (a) So long as no Event of Default (as hereinafter defined) shall have occurred and be continuing:   (i) the Company shall be entitled to exercise any and all rights pertaining to the Pledged Property or any part thereof for any purpose not inconsistent with the terms hereof; and   (ii) the Company shall be entitled to receive and retain any and all payments paid or made in respect of the Pledged Property.   (b) Upon the occurrence and during the continuance of an Event of Default:   (i) All rights of the Company to exercise the rights which it would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to receive payments which it would otherwise be authorized to receive and retain pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights shall thereupon become vested in the Secured Party who shall thereupon have the sole right to exercise such rights and to receive and hold as Pledged Property such payments; provided, however, that if the Secured Party shall become entitled and shall elect to exercise its right to realize on the Pledged Property pursuant to Article 5 hereof, then all cash sums received by the Secured Party, or held by Company for the benefit of the Secured Party and paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any outstanding Obligations; and 2 --------------------------------------------------------------------------------   (ii) All interest, dividends, income and other payments and distributions which are received by the Company contrary to the provisions of Section 2.2(b)(i) hereof shall be received in trust for the benefit of the Secured Party, shall be segregated from other property of the Company and shall be forthwith paid over to the Secured Party; or   (iii) The Secured Party in its sole discretion shall be authorized to sell any or all of the Pledged Property at public or private sale in order to recoup all of the outstanding principal plus accrued interest owed pursuant to the Convertible Debenture as described herein   (c) An “Event of Default” shall be deemed to have occurred under this Agreement upon an Event of Default under the Convertible Debentures.   ARTICLE 3.   ATTORNEY-IN-FACT; PERFORMANCE   Section 3.1. Secured Party Appointed Attorney-In-Fact.   Upon the occurrence of an Event of Default, the Company hereby appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Secured Party’s discretion to take any action and to execute any instrument which the Secured Party may reasonably deem necessary to accomplish the purposes of this Agreement, including, without limitation, to receive and collect all instruments made payable to the Company representing any payments in respect of the Pledged Property or any part thereof and to give full discharge for the same. The Secured Party may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Pledged Property as and when the Secured Party may determine. To facilitate collection, the Secured Party may notify account debtors and obligors on any Pledged Property to make payments directly to the Secured Party.   Section 3.2. Secured Party May Perform.   If the Company fails to perform any agreement contained herein, the Secured Party, at its option, may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be included in the Obligations secured hereby and payable by the Company under Section 8.3.   3 --------------------------------------------------------------------------------   ARTICLE 4.   REPRESENTATIONS AND WARRANTIES   Section 4.1. Authorization; Enforceability.   Each of the parties hereto represents and warrants that it has taken all action necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and binding obligation of the respective party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights or by the principles governing the availability of equitable remedies.   Section 4.2. Ownership of Pledged Property.   The Company warrants and represents that it is the legal and beneficial owner of the Pledged Property free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement.   ARTICLE 5.   DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL   Section 5.1. Default and Remedies.   (a) If an Event of Default occurs, then in each such case the Secured Party may declare the Obligations to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration, the Obligations shall become immediately due and payable.   (b) Upon the occurrence of an Event of Default, the Secured Party shall: (i) be entitled to receive all distributions with respect to the Pledged Property, (ii) to cause the Pledged Property to be transferred into the name of the Secured Party or its nominee, (iii) to dispose of the Pledged Property, and (iv) to realize upon any and all rights in the Pledged Property then held by the Secured Party.   Section 5.2. Method of Realizing Upon the Pledged Property; Other Remedies.   Upon the occurrence of an Event of Default, in addition to any rights and remedies available at law or in equity, the following provisions shall govern the Secured Party’s right to realize upon the Pledged Property:   (a) Any item of the Pledged Property may be sold for cash or other value in any number of lots at brokers board, public auction or private sale and may be sold without demand, advertisement or notice (except that the Secured Party shall give the Company ten (10) days’ prior written notice of the time and place or of the time after which a private sale may be made (the “Sale Notice”)), which notice period shall in any event is hereby agreed to be commercially reasonable. At any sale or sales of the Pledged Property, the Company may bid for and purchase the whole or any part of the Pledged Property and, upon compliance with the terms of such sale, may hold, exploit and dispose of the same without further accountability to the Secured Party. The Company will execute and deliver, or cause to be executed and delivered, such instruments, documents, assignments, waivers, certificates, and affidavits and supply or cause to be supplied such further information and take such further action as the Secured Party reasonably shall require in connection with any such sale. 4 --------------------------------------------------------------------------------   (b) Any cash being held by the Secured Party as Pledged Property and all cash proceeds received by the Secured Party in respect of, sale of, collection from, or other realization upon all or any part of the Pledged Property shall be applied as follows:   (i) to the payment of all amounts due the Secured Party for the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3 hereof;   (ii) to the payment of the Obligations then due and unpaid.   (iii) the balance, if any, to the person or persons entitled thereto, including, without limitation, the Company.   (c) In addition to all of the rights and remedies which the Secured Party may have pursuant to this Agreement, the Secured Party shall have all of the rights and remedies provided by law, including, without limitation, those under the Uniform Commercial Code.   (i) If the Company fails to pay such amounts due upon the occurrence of an Event of Default which is continuing, then the Secured Party may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of Company, wherever situated. The Secured Party may proceed against the Company without proceeding first against any other party, including, without limitation, the Parent.   (ii) The Company agrees that it shall be liable for any reasonable fees, expenses and costs incurred by the Secured Party in connection with enforcement, collection and preservation of the Transaction Documents, including, without limitation, reasonable legal fees and expenses, and such amounts shall be deemed included as Obligations secured hereby and payable as set forth in Section 8.3 hereof.   Section 5.3. Proofs of Claim.   In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relating to the Company or the property of the Company or of such other obligor or its creditors, the Secured Party (irrespective of whether the Obligations shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Secured Party shall have made any demand on the Company for the payment of the Obligations), subject to the rights of Previous Security Holders, shall be entitled and empowered, by intervention in such proceeding or otherwise:   5 --------------------------------------------------------------------------------   (i) to file and prove a claim for the whole amount of the Obligations and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Secured Party (including any claim for the reasonable legal fees and expenses and other expenses paid or incurred by the Secured Party permitted hereunder and of the Secured Party allowed in such judicial proceeding), and   (ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by the Secured Party to make such payments to the Secured Party and, in the event that the Secured Party shall consent to the making of such payments directed to the Secured Party, to pay to the Secured Party any amounts for expenses due it hereunder.   Section 5.4. Duties Regarding Pledged Property.   The Secured Party shall have no duty as to the collection or protection of the Pledged Property or any income thereon or as to the preservation of any rights pertaining thereto, beyond the safe custody and reasonable care of any of the Pledged Property actually in the Secured Party’s possession.   ARTICLE 6.   AFFIRMATIVE COVENANTS   The Company covenants and agrees that, from the date hereof and until the Obligations have been fully paid and satisfied, unless the Secured Party shall consent otherwise in writing (as provided in Section 8.4 hereof):   Section 6.1. Existence, Properties, Etc.   (a) The Company shall do, or cause to be done, all things, or proceed with due diligence with any actions or courses of action, that may be reasonably necessary (i) to maintain Company’s due organization, valid existence and good standing under the laws of its state of incorporation, and (ii) to preserve and keep in full force and effect all qualifications, licenses and registrations in those jurisdictions in which the failure to do so could have a Material Adverse Effect (as defined below); and (b) the Company shall not do, or cause to be done, any act impairing the Company’s corporate power or authority (i) to carry on the Company’s business as now conducted, and (ii) to execute or deliver this Agreement or any other document delivered in connection herewith, including, without limitation, any UCC-1 Financing Statements required by the Secured Party (which other loan instruments collectively shall be referred to as the “Loan Instruments”) to which it is or will be a party, or perform any of its obligations hereunder or thereunder. For purpose of this Agreement, the term “Material Adverse Effect” shall mean any material and adverse affect as determined by Secured Party in its reasonable discretion, whether individually or in the aggregate, upon (a) the Company’s assets, business, operations, properties or condition, financial or otherwise; (b) the Company’s to make payment as and when due of all or any part of the Obligations; or (c) the Pledged Property. 6 --------------------------------------------------------------------------------   Section 6.2. Financial Statements and Reports.   The Company shall provide the Security Party with such financial data as the Secured Party may reasonably request, within a reasonable time after any such request, including, without limitation the following financial data:   (a) The balance sheet of the Company as of the close of each fiscal year, the statement of earnings and retained earnings of the Company as of the close of such fiscal year, and statement of cash flows for the Company for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct and accompanied by a certificate of the chief executive and chief financial officers of the Company, stating that the Company has kept, observed, performed and fulfilled each covenant, term and condition of this Agreement and the other Loan Instruments during such fiscal year and that no Event of Default hereunder has occurred and is continuing, or if an Event of Default has occurred and is continuing, specifying the nature of same, the period of existence of same and the action the Company proposes to take in connection therewith;   (b) A balance sheet of the Company as of the close of each month, and statement of earnings and retained earnings of the Company as of the close of such month, all in reasonable detail, and prepared substantially in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct; and   (c) Copies of all accountants' reports and accompanying financial reports submitted to the Company by independent accountants in connection with each annual examination of the Company.   Section 6.3. Accounts and Reports.   The Company shall maintain a standard system of accounting in accordance with generally accepted accounting principles consistently applied and provide, at its sole expense, to the Secured Party the following:   (a) as soon as available, a copy of any notice or other communication alleging any nonpayment or other material breach or default, or any foreclosure or other action respecting any material portion of its assets and properties, received respecting any of the indebtedness of the Company in excess of $50,000 (other than the Obligations), or any demand or other request for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement respecting the indebtedness or obligations of others in excess of $50,000, including any received from any person acting on behalf of the Secured Party or beneficiary thereof; and   (b) within fifteen (15) days after the making of each submission or filing, a copy of any report, financial statement, notice or other document, whether periodic or otherwise, submitted to the shareholders of the Company, or submitted to or filed by the Company with any governmental authority involving or affecting (i) the Company that could have a Material Adverse Effect; (ii) the Obligations; (iii) any part of the Pledged Property; or (iv) any of the transactions contemplated in this Agreement or the Loan Instruments.   7 --------------------------------------------------------------------------------   Section 6.4. Maintenance of Books and Records; Inspection.   The Company shall maintain its books, accounts and records in accordance with generally accepted accounting principles consistently applied, and permit the Secured Party, its officers and employees and any professionals designated by the Secured Party in writing, at any time to visit and inspect any of its properties (including but not limited to the collateral security described in the Transaction Documents and/or the Loan Instruments), corporate books and financial records, and to discuss its accounts, affairs and finances with any employee, officer or director thereof.   Section 6.5. Maintenance and Insurance.   (a) The Company shall maintain or cause to be maintained, at its own expense, all of its assets and properties in good working order and condition, subject to ordinary wear and tear, making all necessary repairs thereto and renewals and replacements thereof.   (b) The Company shall maintain or cause to be maintained, at its own expense, insurance in form, substance and amounts (including deductibles), which the Company deems reasonably necessary to the Company’s business, (i) adequate to insure all assets and properties of the Company, which assets and properties are of a character usually insured by persons engaged in the same or similar business against loss or damage resulting from fire or other risks included in an extended coverage policy; (ii) against public liability and other tort claims that may be incurred by the Company; (iii) as may be required by the Transaction Documents and/or the Loan Instruments or applicable law and (iv) as may be reasonably requested by Secured Party, all with adequate, financially sound and reputable insurers.   Section 6.6. Contracts and Other Collateral.   The Company shall perform all of its obligations under or with respect to each instrument, receivable, contract and other intangible included in the Pledged Property to which the Company is now or hereafter will be party on a timely basis and in the manner therein required, including, without limitation, this Agreement.   Section 6.7. Defense of Collateral, Etc.   The Company shall defend and enforce its right, title and interest in and to any part of: (a) the Pledged Property; and (b) if not included within the Pledged Property, those assets and properties whose loss could have a Material Adverse Effect, the Company shall defend the Secured Party’s right, title and interest in and to each and every part of the Pledged Property, each against all manner of claims and demands on a timely basis to the full extent permitted by applicable law. 8 --------------------------------------------------------------------------------   Section 6.8. Payment of Debts, Taxes, Etc.   The Company shall pay, or cause to be paid, all of its indebtedness and other liabilities and perform, or cause to be performed, all of its obligations in accordance with the respective terms thereof, and pay and discharge, or cause to be paid or discharged, all taxes, assessments and other governmental charges and levies imposed upon it, upon any of its assets and properties on or before the last day on which the same may be paid without penalty, as well as pay all other lawful claims (whether for services, labor, materials, supplies or otherwise) as and when due.   Section 6.9. Taxes and Assessments; Tax Indemnity.   The Company shall (a) file all tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency, (b) pay and discharge all taxes, assessments and governmental charges or levies imposed upon the Company, upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; provided, however, that the Company in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and (c) so long as appropriate reserves are maintained with respect thereto.   Section 6.10. Compliance with Law and Other Agreements.   The Company shall maintain its business operations and property owned or used in connection therewith in compliance with (a) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (b) all agreements, licenses, franchises, indentures and mortgages to which the Company is a party or by which the Company or any of its properties is bound. Without limiting the foregoing, the Company shall pay all of its indebtedness promptly in accordance with the terms thereof.   Section 6.11. Notice of Default.   The Company shall give written notice to the Secured Party of the occurrence of any default or Event of Default under this Agreement, the Transaction Documents or any other Loan Instrument or any other agreement of Company for the payment of money, promptly upon the occurrence thereof.   Section 6.12. Notice of Litigation.   The Company shall give notice, in writing, to the Secured Party of (a) any actions, suits or proceedings wherein the amount at issue is in excess of $50,000, instituted by any persons against the Company, or affecting any of the assets of the Company, and (b) any dispute, not resolved within fifteen (15) days of the commencement thereof, between the Company on the one hand and any governmental or regulatory body on the other hand, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of the Company. 9 --------------------------------------------------------------------------------   ARTICLE 7.   NEGATIVE COVENANTS   The Company covenants and agrees that, from the date hereof until the Obligations have been fully paid and satisfied, the Company shall not, unless the Secured Party shall consent otherwise in writing:   Section 7.1. Liens and Encumbrances.   The Company shall not directly or indirectly make, create, incur, assume or permit to exist any assignment, transfer, pledge, mortgage, security interest or other lien or encumbrance of any nature in, to or against any part of the Pledged Property or of the Company’s capital stock, or offer or agree to do so, or own or acquire or agree to acquire any asset or property of any character subject to any of the foregoing encumbrances (including any conditional sale contract or other title retention agreement), or assign, pledge or in any way transfer or encumber its right to receive any income or other distribution or proceeds from any part of the Pledged Property or the Company’s capital stock; or enter into any sale-leaseback financing respecting any part of the Pledged Property as lessee, or cause or assist the inception or continuation of any of the foregoing.   Section 7.2. Articles, By-Laws, Mergers, Consolidations, Acquisitions and Sales.   Without the prior express written consent of the Secured Party, which consent shall not be unreasonably withheld, the Company shall not: (a) Amend its Articles of Incorporation or By-Laws; (b) be a party to any merger, consolidation or corporate reorganization, (c) purchase or otherwise acquire all or substantially all of the assets or stock of, or any partnership or joint venture interest in, any other person, firm or entity, (d) sell, transfer, convey, grant a security interest in or lease all or any substantial part of its assets, nor (e) create any subsidiaries nor convey any of its assets to any subsidiary in excess of $200,000 in the aggregate.   Section 7.3. Management, Ownership.   Except for reasons beyond the Company’s control, the Company shall not materially change its ownership, executive staff or management without the prior written consent of the Secured Party. The ownership, executive staff and management of the Company are material factors in the Secured Party's willingness to institute and maintain a lending relationship with the Company.   Section 7.4. Dividends, Etc.   Except for dividends payable to the Parent, the Company shall not declare or pay any dividend of any kind, in cash or in property, on any class of its capital stock, nor purchase, redeem, retire or otherwise acquire for value any shares of such stock, nor make any distribution of any kind in respect thereof, nor make any return of capital to shareholders, nor make any payments in respect of any pension, profit sharing, retirement, stock option, stock bonus, incentive compensation or similar plan (except as required or permitted hereunder), without the prior written consent of the Secured Party, which consent shall not be unreasonably withheld. 10 --------------------------------------------------------------------------------   Section 7.5. Conduct of Business.   The Company will continue to engage, in an efficient and economical manner, in a business of the same general type as conducted by it on the date of this Agreement.   Section 7.6. Places of Business. The location of the Company’s chief place of business is Seattle, Washington. The Company shall not change the location of its chief place of business, chief executive office or any place of business disclosed to the Secured Party or move any of the Pledged Property from its current location without thirty (30) days prior written notice to the Secured Party in each instance.   ARTICLE 8.   MISCELLANEOUS   Section 8.1. Notices.   All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as duly given on: (a) the date of delivery, if delivered in person, by nationally recognized overnight delivery service or (b) five (5) days after mailing if mailed from within the continental United States by certified mail, return receipt requested to the party entitled to receive the same:   If to the Secured Party: Cornell Capital Partners, LP   101 Hudson Street, Suite 3700   Jersey City, New Jersey 07302   Attention: Mark Angelo   Portfolio Manager   Telephone: (201) 986-8300   Facsimile: (201) 985-8266     With copy to: Troy Rillo, Esq.   101 Hudson Street, Suite 3700   Jersey City, NJ 07302   Telephone: (201) 985-8300   Facsimile: (201) 985-8266     And if to the Company: CoroWare Technologies       11 -------------------------------------------------------------------------------- With a copy to: Sichenzia Ross Friedman Ference LLP   1065 Avenue of the Americas   New York, NY 10018   Attention: Gregory Sichenzia   Telephone: (212) 930-9700   Facsimile: (212) 930-9725 Any party may change its address by giving notice to the other party stating its new address. Commencing on the tenth (10th) day after the giving of such notice, such newly designated address shall be such party’s address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement.   Section 8.2. Severability.   If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein.   Section 8.3. Expenses.   In the event of an Event of Default, the Company will pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel, which the Secured Party may incur in connection with: (i) the custody or preservation of, or the sale, collection from, or other realization upon, any of the Pledged Property; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by the Company to perform or observe any of the provisions hereof.   Section 8.4. Waivers, Amendments, Etc.   The Secured Party’s delay or failure at any time or times hereafter to require strict performance by Company of any undertakings, agreements or covenants shall not waiver, affect, or diminish any right of the Secured Party under this Agreement to demand strict compliance and performance herewith. Any waiver by the Secured Party of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of the Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Secured Party, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Secured Party. 12 --------------------------------------------------------------------------------   Section 8.5. Continuing Security Interest.   This Agreement shall create a continuing security interest in the Pledged Property and shall: (i) remain in full force and effect until payment in full of the Obligations; and (ii) be binding upon the Company and its successors and heirs and (iii) inure to the benefit of the Secured Party and its successors and assigns. Upon the payment or satisfaction in full of the Obligations, the Company shall be entitled to the return, at its expense, of such of the Pledged Property as shall not have been sold in accordance with Section 5.2 hereof or otherwise applied pursuant to the terms hereof.   Section 8.6. Independent Representation.   Each party hereto acknowledges and agrees that it has received or has had the opportunity to receive independent legal counsel of its own choice and that it has been sufficiently apprised of its rights and responsibilities with regard to the substance of this Agreement.   Section 8.7. Applicable Law: Jurisdiction.   This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph.   Section 8.8. Waiver of Jury Trial.   AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.   Section 8.9. Entire Agreement.   This Agreement constitutes the entire agreement among the parties and supersedes any prior agreement or understanding among them with respect to the subject matter hereof.   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 13 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.           COMPANY:   COROWARE TECHNOLOGIES, INC.               By:   /s/ Walter K. Weisel   -------------------------------------------------------------------------------- Name: Walter K. Weisel   Title: Chief Executive Officer             SECURED PARTY:   CORNELL CAPITAL PARTNERS, LP           By: Yorkville Advisors, LLC    Its: General Partner                By:   /s/ Mark Angelo   -------------------------------------------------------------------------------- Name: Mark Angelo   Title: Portfolio Manager   14 --------------------------------------------------------------------------------   EXHIBIT A DEFINITION OF PLEDGED PROPERTY   For the purpose of securing prompt and complete payment and performance by the Company of all of the Obligations, the Company unconditionally and irrevocably hereby grants to the Secured Party a continuing security interest in and to, and lien upon, the following Pledged Property of the Company:   (a) all goods of the Company, including, without limitation, machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles of every kind and description, now or hereafter owned by the Company or in which the Company may have or may hereafter acquire any interest, and all replacements, additions, accessions, substitutions and proceeds thereof, arising from the sale or disposition thereof, and where applicable, the proceeds of insurance and of any tort claims involving any of the foregoing;   (b) all inventory of the Company, including, but not limited to, all goods, wares, merchandise, parts, supplies, finished products, other tangible personal property, including such inventory as is temporarily out of Company’s custody or possession and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing;   (c) all contract rights and general intangibles of the Company, including, without limitation, goodwill, trademarks, trade styles, trade names, leasehold interests, partnership or joint venture interests, patents and patent applications, copyrights, deposit accounts whether now owned or hereafter created;   (d) all documents, warehouse receipts, instruments and chattel paper of the Company whether now owned or hereafter created;   (e) all accounts and other receivables, instruments or other forms of obligations and rights to payment of the Company (herein collectively referred to as “Accounts”), together with the proceeds thereof, all goods represented by such Accounts and all such goods that may be returned by the Company’s customers, and all proceeds of any insurance thereon, and all guarantees, securities and liens which the Company may hold for the payment of any such Accounts including, without limitation, all rights of stoppage in transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of which the Company represents and warrants will be bona fide and existing obligations of its respective customers, arising out of the sale of goods by the Company in the ordinary course of business;   (f) to the extent assignable, all of the Company’s rights under all present and future authorizations, permits, licenses and franchises issued or granted in connection with the operations of any of its facilities;   (g) all equity interests, securities or other instruments in other companies, including, without limitation, any subsidiaries, investments or other entities (whether or not controlled); and   (h) all products and proceeds (including, without limitation, insurance proceeds) from the above-described Pledged Property. A-1 --------------------------------------------------------------------------------  

[brunswick_logo.jpg]                                                           Exhibit 10.1   2006 Performance Share Grant Terms and Conditions Pursuant to the Brunswick Corporation 2003 Stock Incentive Plan (the “Plan”)   Performance Shares Shares of Brunswick Corporation common stock where the number of shares distributed is based on attainment of certain corporate performance criteria.   Grant Date   February 14, 2006 Performance Period Three year period including 2006, 2007 and 2008.   Target Award 20,000 Shares is the target against which payout criteria will apply.   Payout Criteria Number of performance shares earned is to be based on average Brunswick Performance Plan (BPP) payout percent for Corporate Headquarters employees for each of 2006, 2007 and 2008 multiplied by 20,000 (the target award level) to a maximum of 130% of target. For example, if BPP payout percent is 110% in 2006, 0% in 2007 and 100% in 2008 that average payout percent is 70% and 14,000 performance shares will be earned.   Termination of Employment If terminating before the end of the performance period shares will be forfeited, except prorata distribution at end of performance period in the event of death or disability.   Timing of Distribution All earned shares to be distributed as soon as administratively practical after performance certification and resulting distribution percent by the Human Resources and Compensation Committee.   Tax Withholding Tax withholding liability must be paid via share reduction upon distribution.   Additional Terms and Conditions Grant is subject to terms of the Plan. To the extent any provision herein conflicts with the Plan, the Plan shall govern. The Human Resources and Compensation Committee of the Board administers the Plan. The Committee may interpret the Plan and adopt, amend and rescind administrative guidelines and other rules as deemed appropriate. Committee determinations are binding.   Permanent disability means the inability, by reason of a medically determinable physical or mental impairment, to engage in any substantial gainful activity, which condition, in the opinion of a physician selected by the Committee, is expected to have a duration of not less than 120 days.   The Plan may be amended, suspended or terminated at any time. The Plan will be governed by the laws of the State of Illinois, without regard to the conflict of law provisions of any jurisdiction.   Nothing contained in these Terms and Conditions or the Plan constitutes or is intended to create a contract of continued employment. Employment is at-will and may be terminated by either the employee or Brunswick (including affiliates) for any reason at any time.   Questions should be directed to Shareholder Services Brunswick Corporation 1 N. Field Court Lake Forest, Illinois 60045-4811

  EXHIBIT 10.2 INCENTIVE BONUS AGREEMENT      This Incentive Bonus Agreement (“Agreement”) is effective as of the ___ day of October 2005 (the “Effective Date”), by and between Metrocorp, Inc., an Illinois corporation (the “Company”) and                                          (“Employee”).      WHEREAS, Employee is employed by the Company;      WHEREAS, as part of the Board’s recent decision to explore all of the strategic alternatives available to the Company, the Company is in the process of exploring opportunities for the sale of the Company;      WHEREAS, the Board of Directors of the Company (the “Board”) has determined that Employee is a “key employee” of the Company and that it is in the best interests of the Company and its stockholders to assure that the Employee will remain employed by the Company and that the Company will have the continued dedication of Employee, notwithstanding the possibility or occurrence of a sale of the Company;      WHEREAS, the Board believes it is imperative (i) to diminish the inevitable and significant distractions of Employee and dilution of the time of Employee, by virtue of the personal uncertainties and risks created by a planned or pending sale of the Company; (ii) to encourage Employee’s full attention and dedication to the Company currently and in the event of any planned or pending sale of the Company; and (iii) to provide Employee with compensation arrangements in the event of a sale of the Company; and      WHEREAS, in order to accomplish the objectives described in the preceding recitals, the Board desires to cause the Company to enter into this Agreement as set forth herein.      NOW, THEREFORE, in consideration of the premises, the mutual covenants and agreements contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Employee hereby agree as follows:      1. Term. Except as otherwise set forth herein, the term of this Agreement (“Term”) shall commence on the Effective Date and shall continue for an initial period ending on the first anniversary of the Effective Date, provided however, if a Bonus Event (as defined herein) is pending prior to the end of the Term, the Term shall continue until the Bonus Event occurs or there is no Bonus Event pending. For purposes of this Agreement, a Bonus Event shall be considered pending only if there is a signed letter of intent or definitive agreement in place, with respect to such Bonus Event.      2. Obligations of Company in the Event of a Bonus Event.      (a) Retention Bonus. Upon the occurrence of a Bonus Event during the Term, if Employee has remained in continuous employment with the Company during the Term, then the Company shall pay to Employee a “Retention Bonus” in the amount of twenty percent (20%) of Employee’s annual base salary in effect on the Effective Date, less applicable taxes.   --------------------------------------------------------------------------------        (b) Company Obligation to Pay Bonuses. Any bonus payable pursuant to this Section 2 shall be in addition to all other salary, benefits and other amounts accrued to, vested in or earned by Employee upon the occurrence of the Bonus Event. No such bonus under to this Section 2 shall be paid if a Bonus Event does not occur, or upon the voluntary termination by Employee of Employee’s employment with the Company, Employee’s death or disability, or the termination by the Company of Employee’s employment for unsatisfactory job performance, whether or not a Bonus Event is then pending.     3. Definitions. The term “Bonus Event” shall mean (i) merger or consolidation of the Company with another corporation where, as a result of such merger or consolidation, less than 75% of the outstanding voting securities of the surviving or resulting corporation shall then be owned by the stockholders of the Company immediately prior to such merger or consolidation; or (ii) a transfer of all or substantially all of the Company’s assets to another entity that is not a wholly-owned subsidiary of the Company.     4. Time of Payment. Any payment due under this Agreement shall be made within ten (10) days following the date of the Bonus Event.     5. At Will-Employment. Nothing in this Agreement is intended to change or affect Employee’s status as an at-will employee or is intended to guaranty employment to Employee either before or after a Bonus Event. The Company shall continue to have the right to terminate Employee’s employment with or without cause subject to its obligation to make certain payments to Employee on the terms and conditions otherwise provided for in this Agreement, and to applicable law.     6. Confidentiality. As a material inducement to Company to enter this Agreement, Employee covenants and agrees that Employee will not disclose to any third-party (including employees of the Company other than the President of the Company) the nature, character, content or existence of this Agreement, without the prior written consent of the Company, which consent may be withheld in its sole discretion. Notwithstanding the foregoing, Employee may disclose the nature, character, content or existence of this Agreement or its terms (a) to the Employee’s spouse; or (b) to the Employee’s legal and financial advisors, so long as such third parties agree to keep confidential and not disclose the existence or terms of this Agreement. Additionally, Employee may disclose the nature, character, content or existence of this Agreement or its terms to the extent required by process of law. If Employee shall breach this Section 6, Company shall have the right to immediately terminate this Agreement by giving written notice of such termination to Employee and to further pursue all rights and remedies available to the Company at law or equity with respect to such breach.     7. General Terms. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Illinois.      (b) Assignability. This Agreement is personal to Employee and without the prior written consent of the Company shall not be assignable by Employee other than by 2 --------------------------------------------------------------------------------   will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Employee’s legal representatives and heirs. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.      (c) Withholding. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.      (d) Amendment. Except as may be otherwise provided herein, this Agreement may not be amended or modified except by subsequent written agreement executed by both parties hereto.      (e) Multiple Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which together shall constitute one Agreement.      (f) Notices. Any notice provided for in this Agreement shall be deemed delivered upon deposit in the United States mails, registered or certified mail, addressed to the party to whom directed at the addresses set forth below or at such other addresses as may be substituted therefore by notice given hereunder. Notice given by any other means must be in writing and shall be deemed delivered only upon actual receipt.           If to the Company:           Metrocorp, Inc.     1523 8th Street     East Moline, Illinois 61244     Attention: General Counsel           If to Employee:           To the last address reflected on the records of the Company, unless     otherwise provided in writing to the Company pursuant to this Section.      (g) Waiver. The waiver of any breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any breach of the same or any other term or condition of this Agreement.      (h) Severability. In the event any provision of this Agreement is found to be unenforceable or invalid, such provision shall be severable from this Agreement and shall not affect the enforceability or validity of any other provision of this Agreement. If any provision of this Agreement is capable to two constructions, one of which would render the provision void and the other that would render the provision valid, then the provision shall have the construction that renders it valid.      (i) Arbitration of Disputes. Except for disputes and controversies involving equitable or injunctive relief, any dispute or controversy arising under or in connection 3 --------------------------------------------------------------------------------   with this Agreement shall be conducted in accordance with the rules set forth by the American Arbitration Association. The decision of the arbitrator shall be binding on Employee and the Company. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.      (j) Legal Fees and Expenses. If Employee shall prevail in any contest by the Company or others contesting the validity or enforcement of, or liability under, any term or provision of this Agreement, the Company shall pay any and all reasonable attorney, accounts’ and experts’ fees and expenses and court costs, incurred by Employee as a result of any such contest. Otherwise, each party shall bear his, her or its own expenses in connection with any such contest. [Signature page follows] 4 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.                                 COMPANY:                       Metrocorp, Inc.                       By:                          Name:         Title:                       EMPLOYEE:                                 Name:     5

Exhibit 10.26   -------------------------------------------------------------------------------- JUNIOR SUBORDINATED INDENTURE between VALLEY FINANCIAL CORPORATION and WILMINGTON TRUST COMPANY, as Trustee   -------------------------------------------------------------------------------- Dated as of December 15, 2006   --------------------------------------------------------------------------------   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS             Page ARTICLE I Definitions and Other Provisions of General Application SECTION 1.1.    Definitions.    1 SECTION 1.2.    Compliance Certificate and Opinions.    11 SECTION 1.3.    Forms of Documents Delivered to Trustee.    12 SECTION 1.4.    Acts of Holders.    12 SECTION 1.5.    Notices, Etc.    15 SECTION 1.6.    Notice to Holders; Waiver.    15 SECTION 1.7.    Effect of Headings and Table of Contents.    15 SECTION 1.8.    Successors and Assigns.    16 SECTION 1.9.    Separability Clause.    16 SECTION 1.10.    Benefits of Indenture.    16 SECTION 1.11.    Governing Law.    16 SECTION 1.12.    Submission to Jurisdiction.    16 SECTION 1.13.    Non-Business Days.    16 ARTICLE II Security Forms SECTION 2.1.    Form of Security.    17 SECTION 2.2.    Restricted Legend.    17 SECTION 2.3.    Form of Trustee’s Certificate of Authentication.    17 SECTION 2.4.    Temporary Securities.    17 SECTION 2.5.    Definitive Securities.    18 ARTICLE III The Securities SECTION 3.1.    Payment of Principal and Interest.    18 SECTION 3.2.    Denominations.    20 SECTION 3.3.    Execution, Authentication, Delivery and Dating.    20 SECTION 3.4.    Global Securities.    21 SECTION 3.5.    Registration, Transfer and Exchange Generally.    23 SECTION 3.6.    Mutilated, Destroyed, Lost and Stolen Securities.    25 SECTION 3.7.    Persons Deemed Owners.    25 SECTION 3.8.    Cancellation.    26 SECTION 3.9.    Deferrals of Interest Payment Dates.    26 SECTION 3.10.    Right of Set-Off.    27 SECTION 3.11.    Agreed Tax Treatment.    27 SECTION 3.12.    CUSIP Numbers.    27   -i- -------------------------------------------------------------------------------- ARTICLE IV Satisfaction and Discharge SECTION 4.1.    Satisfaction and Discharge of Indenture.    28 SECTION 4.2.    Application of Trust Money.    29 ARTICLE V Remedies SECTION 5.1.    Events of Default.    29 SECTION 5.2.    Acceleration of Maturity; Rescission and Annulment.    31 SECTION 5.3.    Collection of Indebtedness and Suits for Enforcement by Trustee.    32 SECTION 5.4.    Trustee May File Proofs of Claim.    33 SECTION 5.5.    Trustee May Enforce Claim Without Possession of Securities.    33 SECTION 5.6.    Application of Money Collected.    33 SECTION 5.7.    Limitation on Suits.    34 SECTION 5.8.    Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities.    34 SECTION 5.9.    Restoration of Rights and Remedies.    35 SECTION 5.10.    Rights and Remedies Cumulative.    35 SECTION 5.11.    Delay or Omission Not Waiver.    35 SECTION 5.12.    Control by Holders.    35 SECTION 5.13.    Waiver of Past Defaults.    36 SECTION 5.14.    Undertaking for Costs.    36 SECTION 5.15.    Waiver of Usury, Stay or Extension Laws.    37 ARTICLE VI The Trustee SECTION 6.1.    Corporate Trustee Required.    37 SECTION 6.2.    Certain Duties and Responsibilities.    37 SECTION 6.3.    Notice of Defaults.    39 SECTION 6.4.    Certain Rights of Trustee.    39 SECTION 6.5.    May Hold Securities.    41 SECTION 6.6.    Compensation; Reimbursement; Indemnity.    41 SECTION 6.7.    Resignation and Removal; Appointment of Successor.    42 SECTION 6.8.    Acceptance of Appointment by Successor.    43 SECTION 6.9.    Merger, Conversion, Consolidation or Succession to Business.    44 SECTION 6.10.    Not Responsible for Recitals or Issuance of Securities.    44 SECTION 6.11.    Appointment of Authenticating Agent.    44   -ii- -------------------------------------------------------------------------------- ARTICLE VII Holders’ Lists and Reports by Trustee and Company SECTION 7.1.    Company to Furnish Trustee Names and Addresses of Holders.    46 SECTION 7.2.    Preservation of Information, Communications to Holders.    46 SECTION 7.3.    Reports by Company and Trustee.    46 ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease SECTION 8.1.    Company May Consolidate, Etc., Only on Certain Terms.    47 SECTION 8.2.    Successor Company Substituted.    48 ARTICLE IX Supplemental Indentures SECTION 9.1.    Supplemental Indentures without Consent of Holders.    49 SECTION 9.2.    Supplemental Indentures with Consent of Holders.    49 SECTION 9.3.    Execution of Supplemental Indentures.    50 SECTION 9.4.    Effect of Supplemental Indentures.    51 SECTION 9.5.    Reference in Securities to Supplemental Indentures.    51 ARTICLE X Covenants SECTION 10.1.    Payment of Principal, Premium and Interest.    51 SECTION 10.2.    Money for Security Payments to be Held in Trust.    51 SECTION 10.3.    Statement as to Compliance.    52 SECTION 10.4.    Calculation Agent.    53 SECTION 10.5.    Additional Tax Sums.    53 SECTION 10.6.    Additional Covenants.    54 SECTION 10.7.    Waiver of Covenants.    55 SECTION 10.8.    Treatment of Securities.    55 ARTICLE XI Redemption of Securities SECTION 11.1.    Optional Redemption.    55 SECTION 11.2.    Special Event Redemption.    56 SECTION 11.3.    Election to Redeem; Notice to Trustee.    56 SECTION 11.4.    Selection of Securities to be Redeemed.    57 SECTION 11.5.    Notice of Redemption.    57 SECTION 11.6.    Deposit of Redemption Price.    58 SECTION 11.7.    Payment of Securities Called for Redemption.    58   -iii- -------------------------------------------------------------------------------- ARTICLE XII Subordination of Securities SECTION 12.1.    Securities Subordinate to Senior Debt.    59 SECTION 12.2.    No Payment When Senior Debt in Default; Payment Over of Proceeds Upon Dissolution, Etc.    59 SECTION 12.3.    Payment Permitted If No Default.    60 SECTION 12.4.    Subrogation to Rights of Holders of Senior Debt.    61 SECTION 12.5.    Provisions Solely to Define Relative Rights.    61 SECTION 12.6.    Trustee to Effectuate Subordination.    62 SECTION 12.7.    No Waiver of Subordination Provisions.    62 SECTION 12.8.    Notice to Trustee.    62 SECTION 12.9.    Reliance on Judicial Order or Certificate of Liquidating Agent.    63 SECTION 12.10.    Trustee Not Fiduciary for Holders of Senior Debt.    63 SECTION 12.11.    Rights of Trustee as Holder of Senior Debt; Preservation of Trustee’s Rights    63 SECTION 12.12.    Article Applicable to Paying Agents.    64 SCHEDULES   Schedule A    Determination of LIBOR Exhibit A    Form of Junior Subordinated Note Exhibit B    Form of Financial Officer’s Certificate Exhibit C    Form of Officers’ Certificate pursuant to Section 10.3   -iv- -------------------------------------------------------------------------------- JUNIOR SUBORDINATED INDENTURE, dated as of December 15, 2006, between VALLEY FINANCIAL CORPORATION, a Virginia corporation (the “Company”), and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Trustee (in such capacity, the “Trustee”). RECITALS OF THE COMPANY WHEREAS, the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its unsecured junior subordinated deferrable interest notes (the “Securities”) issued to evidence loans made to the Company of the proceeds from the issuance by Valley Financial Statutory Trust III, a Delaware statutory trust (the “Trust”), of undivided preferred beneficial interests in the assets of the Trust (the “Preferred Securities”) and undivided common beneficial interests in the assets of the Trust (the “Common Securities” and, collectively with the Preferred Securities, the “Trust Securities”), and to provide the terms and conditions upon which the Securities are to be authenticated, issued and delivered; and WHEREAS, all things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. Now, therefore, this Indenture Witnesseth: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: Definitions and Other Provisions of General Application Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: the terms defined in this Article I have the meanings assigned to them in this Article I; the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; unless the context otherwise requires, any reference to an “Article” or a “Section” refers to an Article or a Section, as the case may be, of this Indenture;   1 -------------------------------------------------------------------------------- the words “hereby”, “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; a reference to the singular includes the plural and vice versa; and the masculine, feminine or neuter genders used herein shall include the masculine, feminine and neuter genders. “Act” when used with respect to any Holder, has the meaning specified in Section 1.4. “Additional Interest” means the interest, if any, that shall accrue on any amounts payable on the Securities, the payment of which has not been made on the applicable Interest Payment Date and which shall accrue at the rate per annum, compounded quarterly, specified or determined as specified in such Security. “Additional Tax Sums” has the meaning specified in Section 10.5. “Additional Taxes” means taxes, duties or other governmental charges imposed on the Trust as a result of a Tax Event (which, for the sake of clarity, does not include amounts required to be deducted or withheld by the Trust from payments made by the Trust to or for the benefit of the Holder of, or any Person that acquires a beneficial interest in, the Securities). “Administrative Trustee” means, with respect to the Trust, a Person identified as an “Administrative Trustee” in the Trust Agreement, solely in its capacity as Administrative Trustee of the Trust under the Trust Agreement and not in its individual capacity, or its successor in interest in such capacity, or any successor Administrative Trustee appointed as therein provided. “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. “Applicable Depositary Procedures” means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Security, in each case to the extent applicable to such transaction and as in effect from time to time. “Authenticating Agent” means any Person authorized by the Trustee pursuant to Section 6.11 to act on behalf of the Trustee to authenticate the Securities. “Bankruptcy Code” means Title 11 of the United States Code or any successor statute thereto, in each case as amended from time to time.   2 -------------------------------------------------------------------------------- “Board of Directors” means the board of directors of the Company or any duly authorized committee of that board. “Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification. “Business Day” means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in the City of New York are authorized or required by law or executive order to remain closed or (iii) a day on which the Corporate Trust Office of the Trustee is closed for business. “Calculation Agent” has the meaning specified in Section 10.4. “Capital Disqualification Event” means the receipt by the Company of an Opinion of Counsel experienced in such matters that, as a result of an amendment to or a change in law, rule or regulation (including any announced prospective change) or a change in interpretation or application of law, rule or regulation by any legislative body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that within ninety (90) days of the date of such opinion, the aggregate liquidation amount of the Preferred Securities will not be eligible to be treated by the Company as “Tier 1 Capital” (or the then equivalent) for purposes of the capital adequacy guidelines of the Federal Reserve or other “appropriate Federal banking agency” as such term is defined in 12 U.S.C. 1813(q), which amendment, change or prospective change becomes effective or would become effective, as the case may be, on or after the date of issuance of the Securities; provided, however, that the inability of the Company to treat all or any portion of the liquidation amount of the Preferred Securities as Tier 1 Capital shall not constitute the basis for a Capital Disqualification Event if such inability results from the Company having such Preferred Securities outstanding in an amount that for any reason is in excess of the amount which may now or hereafter qualify for treatment as Tier 1 Capital under applicable capital adequacy guidelines. By way of example, the inability of the Company to treat all or any portion of the liquidation amount of the Preferred Securities as Tier 1 Capital as a result of the Final Rule on Risk-Based Capital Standards: Trust Preferred Securities and the Definition of Capital, adopted on March 1, 2005, by the Federal Reserve, shall not constitute the basis for a Capital Disqualification Event. “Common Securities” has the meaning specified in the first recital of this Indenture. “Common Stock” means the common stock, no par value, of the Company. “Company” means the Person named as the “Company” in the first paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor corporation. “Company Request” and “Company Order” mean, respectively, the written request or order signed in the name of the Company by its Chairman of the Board of Directors, its Vice Chairman of the Board of Directors, its Chief Executive Officer, President or a Vice President, and by its Chief Financial Officer, Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.   3 -------------------------------------------------------------------------------- “Corporate Trust Office” means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of this Indenture is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Capital Markets. “Debt” means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person, whether currently existing or hereafter incurred and whether or not contingent and without duplication, (i) every obligation of such Person for money borrowed; (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such Person; (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or other accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such Person; (vi) all indebtedness of such Person, whether incurred on or prior to the date of this Indenture or thereafter incurred, for claims in respect of derivative products, including interest rate, foreign exchange rate and commodity forward contracts, options and swaps and similar arrangements; (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor or otherwise; and (viii) any renewals, extensions, refundings, amendments or modifications of any obligation of the type referred to in clauses (i) through (vii). “Defaulted Interest” has the meaning specified in Section 3.1. “Delaware Trustee” means, with respect to the Trust, the Person identified as the “Delaware Trustee” in the Trust Agreement, solely in its capacity as Delaware Trustee of the Trust under the Trust Agreement and not in its individual capacity, or its successor in interest in such capacity, or any successor Delaware Trustee appointed as therein provided. “Depositary” means an organization registered as a clearing agency under the Exchange Act that is designated as Depositary by the Company or any successor thereto. DTC will be the initial Depositary. “Depositary Participant” means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Depositary effects book-entry transfers and pledges of securities deposited with the Depositary. “Distributions” means amounts payable in respect of the Trust Securities as provided in the Trust Agreement and referred to therein as “Distributions.”   4 -------------------------------------------------------------------------------- “Dollar” or “$” means the currency of the United States of America that, as at the time of payment, is legal tender for the payment of public and private debts. “DTC” means The Depository Trust Company, a New York corporation. “Equity Interests” means any of (a) the partnership interests (general or limited) in a partnership, (b) the membership interests in a limited liability company or (c) the shares or stock interests (both common stock and preferred stock) in a corporation. “Event of Default” has the meaning specified in Section 5.1. “Exchange Act” means the Securities Exchange Act of 1934 or any statute successor thereto, in each case as amended from time to time. “Expiration Date” has the meaning specified in Section 1.4. “Extension Period” has the meaning specified in Section 3.9. “Federal Reserve” means the Board of Governors of the Federal Reserve System, the staff thereof, or a Federal Reserve Bank, acting through delegated authority, in each case under the rules, regulations and policies of the Federal Reserve System, or if at any time after the execution of this Indenture any such entity is not existing and performing the duties now assigned to it, any successor body performing similar duties or functions. “GAAP” means United States generally accepted accounting principles, consistently applied, from time to time in effect. “Global Security” means a Security that evidences all or part of the Securities, the ownership and transfers of which shall be made through book entries by a Depositary. “Government Obligation” means (a) any security that is (i) a direct obligation of the United States of America of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (b) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any Government Obligation that is specified in clause (a) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any Government Obligation that is so specified and held, provided, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. “Guarantee Agreement” means the Guarantee Agreement executed by the Company and Wilmington Trust Company, as Guarantee Trustee, contemporaneously with the execution and delivery of this Indenture, for the benefit of the holders of the Preferred Securities, as modified, amended or supplemented from time to time.   5 -------------------------------------------------------------------------------- “Holder” means a Person in whose name a Security is registered in the Securities Register. “Indenture” means this instrument as originally executed or as it may from time to time be amended or supplemented by one or more amendments or indentures supplemental hereto entered into pursuant to the applicable provisions hereof. “Interest Payment Date” means January 30, April 30, July 30 and October 30 of each year, commencing on January 30, 2007, during the term of this Indenture. “Investment Company Act” means the Investment Company Act of 1940 or any successor statute thereto, in each case as amended from time to time. “Investment Company Event” means the receipt by the Company of an Opinion of Counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation (including any announced prospective change) or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that the Trust is or, within ninety (90) days of the date of such opinion will be, considered an “investment company” that is required to be registered under the Investment Company Act, which change or prospective change becomes effective or would become effective, as the case may be, on or after the date of the issuance of the Securities. “LIBOR” has the meaning specified in Schedule A. “LIBOR Business Day” has the meaning specified in Schedule A. “LIBOR Determination Date” has the meaning specified in Schedule A. “Liquidation Amount” has the meaning specified in the Trust Agreement. “Maturity,” when used with respect to any Security, means the date on which the principal of such Security or any installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. “Major Bank Subsidiary,” means any subsidiary of the Company that is a “major bank subsidiary” as such term is used in the Adopting Release accompanying the Final Rule on Risk-Based Capital Standards: Trust Preferred Securities and the Definition of Capital, adopted on March 1, 2005, by the Federal Reserve, and as such term may subsequently be defined or interpreted in any rule, regulation, written interpretation or other public issuance of the Federal Reserve. For purposes of this definition, any “depository institution” subsidiary of the Company within the meaning of Section 3(c) of the Federal Deposit Insurance Act that would be considered a Major Bank Subsidiary except for the fact that such subsidiary is not a “bank” within the meaning of Section 3(a) of the Bank Holding Company Act of 1956, shall be deemed to be a Major Bank Subsidiary.   6 -------------------------------------------------------------------------------- “Notice of Default” means a written notice of the kind specified in Section 5.1(d). “Officers’ Certificate” means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, President or a Vice President, and by the Chief Financial Officer, Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and delivered to the Trustee. “Opinion of Counsel” means a written opinion of counsel, who may be counsel for or an employee of the Company or any Affiliate of the Company. “Original Issue Date” means the date of original issuance of each Security. “Outstanding” means, when used in reference to any Securities, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided, that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and Securities that have been paid, or in substitution for or in lieu of which other Securities have been authenticated and delivered pursuant to the provisions of this Indenture, unless proof satisfactory to the Trustee is presented that any such Securities are held by Holders in whose hands such Securities are valid, binding and legal obligations of the Company; provided, that, in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities that a   7 -------------------------------------------------------------------------------- Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. Notwithstanding anything herein to the contrary, Securities initially issued to the Trust that are owned by the Trust shall be deemed to be Outstanding notwithstanding the ownership by the Company or an Affiliate of any beneficial interest in the Trust. “Paying Agent” means the Trustee or any Person authorized by the Company to pay the principal of or any premium or interest on, or other amounts in respect of, any Securities on behalf of the Company. “Person” means a legal person, including any individual, corporation, company, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, government or any agency or political subdivision thereof, or any other entity of whatever nature. “Place of Payment” means, with respect to the Securities, the Corporate Trust Office of the Trustee. “Preferred Securities” has the meaning specified in the first recital of this Indenture. “Predecessor Security” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security. For the purposes of this definition, any security authenticated and delivered under Section 3.6 in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. “Proceeding” has the meaning specified in Section 12.2. “Property Trustee” means the Person identified as the “Property Trustee” in the Trust Agreement, solely in its capacity as Property Trustee of the Trust under the Trust Agreement and not in its individual capacity, or its successor in interest in such capacity, or any successor Property Trustee appointed as therein provided. “Purchase Agreement” means the Purchase Agreement, dated as of December 15, 2006, executed and delivered by the Trust, the Depositor and the Purchaser. “Purchaser” means TWE, Ltd., as purchaser of the Preferred Securities pursuant to the Purchase Agreement.   8 -------------------------------------------------------------------------------- “Redemption Date” means, when used with respect to any Security to be redeemed, the date fixed for such redemption by or pursuant to this Indenture. “Redemption Price” means, when used with respect to any Security to be redeemed, in whole or in part, the price at which such Security or portion thereof is to be redeemed as fixed by or pursuant to this Indenture. “Reference Banks” has the meaning specified in Schedule A. “Regular Record Date” for the interest payable on any Interest Payment Date with respect to the Securities means the date that is fifteen (15) days preceding such Interest Payment Date (whether or not a Business Day). “Responsible Officer” means, with respect to the Trustee, any Senior Vice President, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, any Financial Services Officer or Assistant Financial Services Officer, or any other officer in the Corporate Trust Office of the Trustee with direct responsibility for the administration of this Indenture 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. “Rights Plan” means a plan of the Company providing for the issuance by the Company to all holders of its Equity Interests of rights entitling the holders thereof to subscribe for or purchase Equity Interests of the Company which rights (i) are deemed to be transferred with such Equity Interests and (ii) are also issued in respect of future issuances of such Equity Interests, in each case until the occurrence of a specified event or events. “Securities” or “Security” means any debt securities or debt security, as the case may be, authenticated and delivered under this Indenture. “Securities Act” means the Securities Act of 1933 or any successor statute thereto, in each case as amended from time to time. “Securities Register” and “Securities Registrar” have the respective meanings specified in Section 3.5. “Senior Debt” means the principal of and any premium and interest on (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company, whether or not such claim for post-petition interest is allowed in such proceeding) all Debt of the Company, whether incurred on or prior to the date of this Indenture or thereafter incurred, unless it is provided in the instrument creating or evidencing the same or pursuant to which the same is outstanding, that such obligations are not superior in right of payment to the Securities; provided, however, that if the Company is subject to the regulation and supervision of an “appropriate Federal banking agency” within the meaning of 12 U.S.C. 1813(q), the Company shall have received the approval of such appropriate Federal banking agency prior to issuing any such obligation if not otherwise generally approved; provided further, that Senior Debt shall not   9 -------------------------------------------------------------------------------- include any other debt securities, and guarantees in respect of such debt securities, issued to any trust other than the Trust (or a trustee of such trust), partnership or other entity affiliated with the Company that is a financing vehicle of the Company (a “financing entity”), in connection with the issuance by such financing entity of equity securities or other securities that are treated as equity capital for regulatory capital purposes guaranteed by the Company pursuant to an instrument that ranks pari passu with or junior in right of payment to the Securities, including, without limitation, (1) the debt securities of the Company issued under the Indenture, dated September 26, 2005, between the Company and U.S. Bank National Association, as trustee, and (2) the debt securities of the Company issued under the Indenture, dated June 26, 2003, between the Company and U.S. Bank National Association, as Trustee. “Special Event” means the occurrence of a Capital Disqualification Event, an Investment Company Event or a Tax Event. “Special Event Redemption Price” has the meaning specified in Section 11.2. “Special Record Date” for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.1. “Stated Maturity” means January 30, 2037. “Subsidiary” means a Person more than fifty percent (50%) of the outstanding voting stock or other voting interests of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For purposes of this definition, “voting stock” means stock that ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. “Tax Event” means the receipt by the Company of an Opinion of Counsel experienced in such matters to the effect that, as a result of (a) 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 (b) any judicial decision or any official administrative pronouncement (including any private letter ruling, technical advice memorandum or field service advice) or regulatory procedure, including any notice or announcement of intent to adopt any such pronouncement or procedure (an “Administrative Action”), regardless of whether such judicial decision or Administrative Action is issued to or in connection with a proceeding involving the Company or the Trust and whether or not subject to review or appeal, which amendment, change, judicial decision or Administrative Action is enacted, promulgated or announced, in each case, on or after the date of issuance of the Securities, there is more than an insubstantial risk that (i) the Trust is, or will be within ninety (90) days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Securities, (ii) interest payable by the Company on the Securities is not, or within ninety (90) days of the date of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes, or (iii) the Trust is, or will be within ninety (90) days of the date of such opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges.   10 -------------------------------------------------------------------------------- “Trust” has the meaning specified in the first recital of this Indenture. “Trust Agreement” means the Amended and Restated Trust Agreement executed and delivered by the Company, the Property Trustee, the Delaware Trustee and the Administrative Trustees named therein, contemporaneously with the execution and delivery of this Indenture, for the benefit of the holders of the Trust Securities, as amended or supplemented from time to time. “Trustee” means the Person named as the “Trustee” in the first paragraph of this instrument, solely in its capacity as such and not in its individual capacity, until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and, thereafter, “Trustee” shall mean or include each Person who is then a Trustee hereunder. “Trust Indenture Act” means the Trust Indenture Act of 1939, as amended and as in effect on the date as of this Indenture. “Trust Securities” has the meaning specified in the first recital of this Indenture. Compliance Certificate and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent (including covenants compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent (including covenants compliance with which constitutes a condition precedent), if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture (other than the certificate provided pursuant to Section 10.3) shall include: a statement by each individual signing such certificate or opinion that such individual has read such covenant or condition and the definitions herein relating thereto; a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions of such individual contained in such certificate or opinion are based; a statement that, in the opinion of such individual, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and a statement as to whether, in the opinion of such individual, such condition or covenant has been complied with.   11 -------------------------------------------------------------------------------- Forms of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or after reasonable inquiry should know, that the certificate or opinion or representations with respect to matters upon which his or her certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or after reasonable inquiry should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Whenever, subsequent to the receipt by the Trustee of any Board Resolution, Officers’ Certificate, Opinion of Counsel or other document or instrument, a clerical, typographical or other inadvertent or unintentional error or omission shall be discovered therein, a new document or instrument may be substituted therefor in corrected form with the same force and effect as if originally received in the corrected form and, irrespective of the date or dates of the actual execution and/or delivery thereof, such substitute document or instrument shall be deemed to have been executed and/or delivered as of the date or dates required with respect to the document or instrument for which it is substituted. Without limiting the generality of the foregoing, any Securities issued under the authority of such defective document or instrument shall nevertheless be the valid obligations of the Company entitled to the benefits of this Indenture equally and ratably with all other Outstanding Securities. Acts of Holders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given to or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent thereof duly appointed in writing; and, except as herein   12 -------------------------------------------------------------------------------- otherwise expressly provided, such action shall become effective when such instrument or instruments (including any appointment of an agent) is or are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 1.4. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him or her the execution thereof. Where such execution is by a Person acting in other than his or her individual capacity, such certificate or affidavit shall also constitute sufficient proof of his or her authority. The fact and date of the execution by any Person of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine. The ownership of Securities shall be proved by the Securities Register. Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. Without limiting the foregoing, a Holder entitled to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. Except as set forth in paragraph (g) of this Section 1.4, the Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided, that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date (as defined below) by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph   13 -------------------------------------------------------------------------------- (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect). Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities in the manner set forth in Section 1.6. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration or rescission or annulment thereof referred to in Section 5.2, (iii) any request to institute proceedings referred to in Section 5.7(b) or (iv) any direction referred to in Section 5.12. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided, that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect). Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company’s expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities in the manner set forth in Section 1.6. With respect to any record date set pursuant to paragraph (f) or (g) of this Section 1.4, the party hereto that sets such record date may designate any day as the “Expiration Date” and from time to time may change the Expiration Date to any earlier or later day; provided, that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities in the manner set forth in Section 1.6, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section 1.4, the party hereto that set such record date shall be deemed to have initially designated the ninetieth (90th) day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the one hundred and eightieth (180th) day after the applicable record date.   14 -------------------------------------------------------------------------------- Notices, Etc. Any request, demand, authorization, direction, notice, consent, waiver, Act of Holders, or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: the Trustee by any Holder, any holder of Preferred Securities or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, the Company by the Trustee, any Holder or any holder of Preferred Securities shall be sufficient for every purpose hereunder if in writing and mailed, first class, postage prepaid, to the Company addressed to it at 36 Church Avenue, SW, Roanoke, Virginia 24011, Attn: Chief Financial Officer, or at any other address previously furnished in writing to the Trustee by the Company, or (c) the Purchaser by the Trustee, the Company, any Holder or any holder or beneficial owner of the Preferred Securities, shall be sufficient for every purpose hereunder if in writing and mailed first-class postage prepaid to the Purchaser at TWE, Ltd. c/o Maples Finance Limited, P.O. Box 1093 GT, Queensgate House, South Church Street, George Town, Grand Cayman, or any other address previously furnished by the Purchaser. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class, postage prepaid, to each Holder affected by such event to the address of such Holder as it appears in the Securities Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. If, by reason of the suspension of or irregularities in regular mail service or for any other reason, it shall be impossible or impracticable to mail notice of any event to Holders when said notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction of this Indenture.   15 -------------------------------------------------------------------------------- Successors and Assigns. This Indenture shall be binding upon and shall inure to the benefit of any successor to the Company and the Trustee, including any successor by operation of law. Except in connection with a transaction involving the Company that is permitted under Article VIII and pursuant to which the assignee agrees in writing to perform the Company’s obligations hereunder, the Company shall not assign its obligations hereunder. Separability Clause. If any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and there shall be deemed substituted for the provision at issue a valid, legal and enforceable provision as similar as possible to the provision at issue. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors and assigns, the holders of Senior Debt, the Holders of the Securities and, to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.2 and 10.7, the holders of Preferred Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. Governing Law. This Indenture and the rights and obligations of each of the Holders, the Company and the Trustee shall be construed and enforced in accordance with and governed by the laws of the State of New York without reference to its conflict of laws provisions (other than Section 5-1401 of the General Obligations Law). Submission to Jurisdiction. ANY LEGAL ACTION OR PROCEEDING BY OR AGAINST ANY PARTY HERETO OR WITH RESPECT TO OR ARISING OUT OF THIS INDENTURE MAY BE BROUGHT IN OR REMOVED TO THE COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW YORK, OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK (IN EACH CASE SITTING IN THE BOROUGH OF MANHATTAN). BY EXECUTION AND DELIVERY OF THIS INDENTURE, EACH PARTY ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS (AND COURTS OF APPEALS THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS INDENTURE. Non-Business Days. If any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or the   16 -------------------------------------------------------------------------------- Securities) payment of interest, premium, if any, or principal or other amounts in respect of such Security shall not be made on such date, but shall be made on the next succeeding Business Day (and no interest shall accrue in respect of the amounts whose payment is so delayed for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, until such next succeeding Business Day) except that, if such Business Day falls in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity. Security Forms Form of Security. Any Security issued hereunder shall be in substantially the form attached hereto as Exhibit A. Restricted Legend. (a) Any Security issued hereunder shall bear a legend in substantially the form attached hereto as Exhibit A. (b) Such legend shall not be removed from any Security unless there is delivered to the Company satisfactory evidence, which may include an Opinion of Counsel, as may be reasonably required to ensure that any future transfers thereof may be made without restriction under or violation of the provisions of the Securities Act and other applicable law. Upon provision of such satisfactory evidence, the Company shall execute and deliver to the Trustee, and the Trustee shall deliver, at the written direction of the Company, a Security that does not bear the legend. Form of Trustee’s Certificate of Authentication. The Trustee’s certificates of authentication shall be in substantially the form contained in Exhibit A attached hereto. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities that are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.   17 -------------------------------------------------------------------------------- If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for that purpose without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of any authorized denominations having the same Original Issue Date and Stated Maturity and having the same terms as such temporary Securities. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. Definitive Securities. The Securities issued on the Original Issue Date shall be in definitive form. The definitive Securities shall be printed, lithographed or engraved, or produced by any combination of these methods, if required by any securities exchange on which the Securities may be listed, on a steel engraved border or steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. The Securities Payment of Principal and Interest. The unpaid principal amount of the Securities shall bear interest at a variable rate per annum, reset quarterly, equal to LIBOR plus 1.73% until paid or duly provided for, such interest to accrue from the Original Issue Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for, and any overdue principal, premium or Additional Tax Sums and any overdue installment of interest shall bear Additional Interest (to the extent payment of such interest would be legally enforceable) at a variable rate per annum, reset quarterly, equal to LIBOR plus 1.73% compounded quarterly, from the dates such amounts are due until they are paid or funds for the payment thereof are made available for payment. Interest and Additional Interest on any Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, except that interest and any Additional Interest payable on the Stated Maturity (or any date of principal repayment upon early maturity) of the principal of a Security or on a Redemption Date shall be paid to the Person to whom principal is paid. The initial payment of interest on any Security that is issued between a Regular Record Date and the related Interest Payment Date shall be payable as provided in such Security.   18 -------------------------------------------------------------------------------- Any interest on any Security that is due and payable, but is not timely paid or duly provided for, on any Interest Payment Date for Securities (herein called “Defaulted Interest”) shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in paragraph (i) or (ii) below: The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a special record date for the payment of such Defaulted Interest (a “Special Record Date”), which shall be fixed in the following manner. At least thirty (30) days prior to the date of the proposed payment, the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, 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 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. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest, which shall be not more than fifteen (15) days and not less than ten (10) days prior to the date of the proposed payment and not less than ten (10) days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class, postage prepaid, to each Holder of a Security at the address of such Holder as it appears in the Securities Register not less than ten (10) days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered on such Special Record Date; or The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Securities may be listed, traded or quoted and, upon such notice as may be required by such exchange or automated quotation system (or by the Trustee if the Securities are not listed), if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such payment shall be deemed practicable by the Trustee.   19 -------------------------------------------------------------------------------- Payments of interest on the Securities shall include interest accrued to but excluding the respective Interest Payment Dates. The amount of interest payable for any interest period shall be computed and paid on the basis of a 360-day year and the actual number of days elapsed in the relevant interest period. Payment of principal of, premium, if any, and interest on the Securities shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of principal, premium, if any, and interest due at the Maturity of such Securities shall be made at the Place of Payment upon surrender of such Securities to the Paying Agent and payments of interest shall be made subject to such surrender where applicable, by wire transfer at such place and to such account at a banking institution in the United States as may be designated in writing to the Paying Agent at least ten (10) Business Days prior to the date for payment by the Person entitled thereto unless proper written transfer instructions have not been received by the relevant record date, in which case such payments shall be made by check mailed to the address of such Person as such address shall appear in the Security Register. Notwithstanding the foregoing, so long as the holder of the Security is the Property Trustee, the payment of the principal of (and premium if any) and interest (including any overdue installment of interest and Additional Tax Sums, if any) on the Security will be made at such place and to such account as may be designated by the Property Trustee. Subject to the foregoing provisions of this Section 3.1, each Security delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, that were carried by such other Security. Denominations. The Securities shall be in registered form without coupons and shall be issuable in minimum denominations of $100,000 and any integral multiple of $1,000 in excess thereof. Execution, Authentication, Delivery and Dating. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities in an aggregate principal amount (including all then Outstanding Securities) not in excess of $5,155,000 executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and shall be fully protected in relying upon: a copy of any Board Resolution relating thereto; and   20 -------------------------------------------------------------------------------- an Opinion of Counsel stating that (1) such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles; (2) the Securities have been duly authorized and executed by the Company and have been delivered to the Trustee for authentication in accordance with this Indenture; and (3) the Securities are not required to be registered under the Securities Act. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President or one of its Vice Presidents. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by the manual signature of one of its authorized officers, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.8, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. Each Security shall be dated the date of its authentication. Global Securities. Upon the election of the Holder after the Original Issue Date, which election need not be in writing, the Securities owned by such Holder shall be issued in the form of one or more Global Securities registered in the name of the Depositary or its nominee. Each Global Security issued under this Indenture shall be registered in the name of the Depositary designated by the Company for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture.   21 -------------------------------------------------------------------------------- Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for registered Securities, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (i) such Depositary advises the Trustee and the Company in writing that such Depositary is no longer willing or able to properly discharge its responsibilities as Depositary with respect to such Global Security, and no qualified successor is appointed by the Company within ninety (90) days of receipt by the Company of such notice, (ii) such Depositary ceases to be a clearing agency registered under the Exchange Act and no successor is appointed by the Company within ninety (90) days after obtaining knowledge of such event, (iii) the Company executes and delivers to the Trustee a Company Order stating that the Company elects to terminate the book-entry system through the Depositary or (iv) an Event of Default shall have occurred and be continuing. Upon the occurrence of any event specified in clause (i), (ii), (iii) or (iv) above, the Trustee shall notify the Depositary and instruct the Depositary to notify all owners of beneficial interests in such Global Security of the occurrence of such event and of the availability of Securities to such owners of beneficial interests requesting the same. Upon the issuance of such Securities and the registration in the Securities Register of such Securities in the names of the Holders of the beneficial interests therein, the Trustees shall recognize such holders of beneficial interests as Holders. If any Global Security is to be exchanged for other Securities or canceled in part, or if another Security is to be exchanged in whole or in part for a beneficial interest in any Global Security, then either (i) such Global Security shall be so surrendered for exchange or cancellation as provided in this Article III or (ii) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or canceled, or equal to the principal amount of such other Security to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate adjustment made on the records of the Securities Registrar, whereupon the 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 or adjustment of a Global Security by the Depositary, accompanied by registration instructions, the Company shall execute and the Trustee shall authenticate and deliver any Securities issuable in exchange for such Global Security (or any portion thereof) in accordance with the instructions of the Depositary. The Trustee shall not 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. Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. Securities distributed to holders of Book-Entry Preferred Securities (as defined in the Trust Agreement) upon the dissolution of the Trust shall be distributed in the form of one or more Global Securities registered in the name of a Depositary or its nominee, and   22 -------------------------------------------------------------------------------- deposited with the Securities Registrar, as custodian for such Depositary, or with such Depositary, for credit by the Depositary to the respective accounts of the beneficial owners of the Securities represented thereby (or such other accounts as they may direct). Securities distributed to holders of Preferred Securities other than Book-Entry Preferred Securities upon the dissolution of the Trust shall not be issued in the form of a Global Security or any other form intended to facilitate book-entry trading in beneficial interests in such Securities. The Depositary or its nominee, as the registered owner of a Global Security, shall be the Holder of such Global Security for all purposes under this Indenture and the Securities, and owners of beneficial interests in a Global Security shall hold such interests pursuant to the Applicable Depositary Procedures. Accordingly, any such owner’s beneficial interest in a Global Security shall be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Depositary Participants. The Securities Registrar and the Trustee shall be entitled to deal with the Depositary for all purposes of this Indenture relating to a Global Security (including the payment of principal and interest thereon and the giving of instructions or directions by owners of beneficial interests therein and the giving of notices) as the sole Holder of the Security and shall have no obligations to the owners of beneficial interests therein. Neither the Trustee nor the Securities Registrar shall have any liability in respect of any transfers effected by the Depositary. The rights of owners of beneficial interests in a Global Security shall be exercised only through the Depositary and shall be limited to those established by law and agreements between such owners and the Depositary and/or its Depositary Participants. No holder of any beneficial interest in any Global Security held on its behalf by a Depositary shall have any rights under this Indenture with respect to such Global Security, and such Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the owner of such Global Security for all purposes whatsoever. None of the Company, the Trustee nor any agent of the Company or the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or maintaining, supervising or reviewing any records relating to such beneficial ownership interests. 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 a Depositary or impair, as between a Depositary and such holders of beneficial interests, the operation of customary practices governing the exercise of the rights of the Depositary (or its nominee) as Holder of any Security. Registration, Transfer and Exchange Generally. The Trustee shall cause to be kept at the Corporate Trust Office a register (the “Securities Register”) in which the registrar and transfer agent with respect to the Securities (the “Securities Registrar”), subject to such reasonable regulations as it may prescribe, shall provide for the registration of Securities and of transfers and exchanges of Securities. The Trustee shall at all times also be the Securities Registrar. The provisions of Article VI shall apply to the Trustee in its role as Securities Registrar.   23 -------------------------------------------------------------------------------- Subject to compliance with Section 2.2(b), upon surrender for registration of transfer of any Security at the offices or agencies of the Company designated for that purpose the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations of like tenor and aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations, of like tenor and aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and upon receipt thereof the Trustee shall authenticate and deliver, the Securities that the Holder making the exchange is entitled to receive. All Securities issued upon any transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. Every Security presented or surrendered for transfer or exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar, duly executed by the Holder thereof or such Holder’s attorney duly authorized in writing. No service charge shall be made to a Holder for any transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Securities. Neither the Company nor the Trustee shall be required pursuant to the provisions of this Section 3.5 (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business fifteen (15) days before the day of selection for redemption of Securities pursuant to Article XI and ending at the close of business on the day of mailing of the notice of redemption or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except, in the case of any such Security to be redeemed in part, any portion thereof not to be redeemed. The Company shall designate an office or offices or agency or agencies where Securities may be surrendered for registration or transfer or exchange. The Company initially designates the Corporate Trust Office as its office and agency for such purposes. The Company shall give prompt written notice to the Trustee and to the Holders of any change in the location of any such office or agency.   24 -------------------------------------------------------------------------------- Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee together with such security or indemnity as may be required by the Company or the Trustee to save each of them harmless, the Company shall execute and upon receipt thereof the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and aggregate principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and aggregate principal amount as such destroyed, lost or stolen Security, and bearing a number not contemporaneously outstanding. If any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section 3.6, the Company 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) connected therewith. Every new Security issued pursuant to this Section 3.6 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Persons Deemed Owners. The Company, the Trustee and any agent of the Company or the Trustee shall treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any interest on such Security and for all other purposes whatsoever, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.   25 -------------------------------------------------------------------------------- Cancellation. All Securities surrendered for payment, redemption, transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and Securities surrendered directly to the Trustee for any such purpose shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder that the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section 3.8, except as expressly permitted by this Indenture. All canceled Securities shall be disposed of by the Trustee in accordance with its customary practices and the Trustee shall deliver to the Company a certificate of such disposition. Deferrals of Interest Payment Dates. So long as no Event of Default pursuant to Sections 5.1(c), (e), (f), (g) or (h) has occurred and is continuing, the Company shall have the right, at any time and from time to time during the term of the Security, to defer the payment of interest on the Securities for a period of up to twenty (20) consecutive quarterly interest payment periods (each such period, an “Extension Period”), during which Extension Period(s), the Company shall have the right to make no payments or partial payments of interest on any Interest Payment Date (except any Additional Tax Sums that otherwise may be due and payable). No Extension Period shall end on a date other than an Interest Payment Date and no Extension Period shall extend beyond the Stated Maturity of the principal of the Securities. No interest shall be due and payable during an Extension Period, except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest (to the extent payment of such interest would be legally enforceable) at a variable rate per annum, reset quarterly, equal to LIBOR plus 1.73%, compounded quarterly, from the dates on which amounts would have otherwise been due and payable until paid or until funds for the payment thereof have been made available for payment. At the end of any such Extension Period, the Company shall pay all interest then accrued and unpaid on the Securities together with such Additional Interest. Prior to the termination of any such Extension Period, the Company may extend such Extension Period and further defer the payment of interest; provided, that (i) all such previous and further extensions comprising such Extension Period do not exceed twenty (20) quarterly interest payment periods, (ii) no Extension Period shall end on a date other than an Interest Payment Date and (iii) no Extension Period shall extend beyond the Stated Maturity of the principal of the Securities. Upon the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due on any Interest Payment Date, the Company may elect to begin a new Extension Period; provided, that (i) such Extension Period does not exceed twenty (20) quarterly interest payment periods, (ii) no Extension Period shall end on a date other than an Interest Payment Date, (iii) no Extension Period shall extend beyond the Stated Maturity of the principal of the Securities and (iv) no Event of Default pursuant to Sections 5.1(c), (e), (f), (g) or (h) has occurred and is continuing. The Company shall give (i) the Holders of the Securities, (ii) the Trustee, (iii) the Property Trustee and (iv) any   26 -------------------------------------------------------------------------------- beneficial owner of the Preferred Securities reasonably identified to the Company (which identification may be made either by such beneficial owner or by the Purchaser) written notice of its election to begin any such Extension Period no later than the close of business on the fifteenth (15th) Business Day prior to the next succeeding Interest Payment Date on which interest on the Securities would be payable but for such deferral. In connection with any such Extension Period, the Company shall be subject to the restrictions set forth in Section 10.6(a). Right of Set-Off. Notwithstanding anything to the contrary herein, the Company shall have the right to set off any payment it is otherwise required to make in respect of any Security to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee Agreement relating to such Security or to a holder of Preferred Securities pursuant to an action undertaken under Section 5.8 of this Indenture. Agreed Tax Treatment. Each Security issued hereunder shall provide that the Company and, by its acceptance or acquisition of a Security or a beneficial interest therein, the Holder of, and any Person that acquires a direct or indirect beneficial interest in, such Security, intend and agree to treat such Security as indebtedness of the Company for United States Federal, state and local tax purposes and to treat the Preferred Securities (including but not limited to all payments and proceeds with respect to the Preferred Securities) as an undivided beneficial ownership interest in the Trust (and payments and proceeds therefrom, respectively) for United States Federal, state and local tax purposes. The provisions of this Indenture shall be interpreted to further this intention and agreement of the parties. CUSIP Numbers. The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption and other similar or related materials as a convenience to Holders; provided, that any such notice or other materials may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of redemption or other materials and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.   27 -------------------------------------------------------------------------------- Satisfaction and Discharge Satisfaction and Discharge of Indenture. This Indenture shall, upon Company Request, cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for and as otherwise provided in this Section 4.1) and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when either all Securities theretofore authenticated and delivered (other than (A) Securities that have been mutilated, destroyed, lost or stolen and that have been replaced or paid as provided in Section 3.6 and (B) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust as provided in Section 10.2) have been delivered to the Trustee for cancellation; or all such Securities not theretofore delivered to the Trustee for cancellation have become due and payable, or will become due and payable at their Stated Maturity within one year of the date of deposit, or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of subclause (ii)(A), (B) or (C) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose (x) an amount in the currency or currencies in which the Securities are payable, (y) Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount or (z) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and any premium and interest (including any Additional Interest) to the date of such deposit (in the case of Securities that have become due and payable) or to the Stated Maturity (or any date of principal repayment upon early maturity) or Redemption Date, as the case may be;   28 -------------------------------------------------------------------------------- the Company has paid or caused to be paid all other sums payable hereunder by the Company; and the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.6, the obligations of the Company to any Authenticating Agent under Section 6.11 and, if money shall have been deposited with the Trustee pursuant to subclause (a)(ii) of this Section 4.1, the obligations of the Trustee under Section 4.2 and Section 10.2(e) shall survive. Application of Trust Money. Subject to the provisions of Section 10.2(e), all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by the Trustee, in accordance with the provisions of the Securities and this Indenture, to the payment in accordance with Section 3.1, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and any premium and interest (including any Additional Interest) for the payment of which such money or obligations have been deposited with or received by the Trustee. Moneys held by the Trustee under this Section 4.2 shall not be subject to the claims of holders of Senior Debt under Article XII. Remedies Events of Default. “Event of Default” means, wherever used herein with respect to the Securities, any one of the following events (whatever the 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): default in the payment of any interest upon any Security, including any Additional Interest in respect thereof, when it becomes due and payable, and continuance of such default for a period of thirty (30) days (subject to the deferral of any due date in the case of an Extension Period); or   29 -------------------------------------------------------------------------------- default in the payment of the principal of or any premium on any Security at its Maturity; or default in the payment of any interest upon any Security, including any Additional Interest in respect thereof, following the nonpayment of any such interest for twenty (20) or more consecutive quarterly interest payment periods; or default in the performance, or breach, of any covenant or warranty of the Company in this Indenture and continuance of such default or breach for a period of thirty (30) days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least twenty five percent (25%) in aggregate principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or the entry by a court having jurisdiction in the premises of a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of sixty (60) consecutive days; or the institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Company to the institution of bankruptcy or insolvency proceedings against it, or the filing by the Company of a petition or answer or consent seeking reorganization or relief under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt or insolvent, or the taking of corporate action by the Company in furtherance of any such action; or either (1) a court or administrative or governmental agency or body shall enter a decree or order for the appointment of a receiver of a Major Bank Subsidiary or all or substantially all of its property in any liquidation, insolvency or similar proceeding, or (2) a Major Bank Subsidiary shall consent to the appointment of a receiver for it or all or substantially all of its property in any liquidation, insolvency or similar proceeding; or the Trust shall have voluntarily or involuntarily liquidated, dissolved, wound-up its business or otherwise terminated its existence, except in connection with (1) the distribution of the Securities to holders of the Preferred Securities in liquidation of their   30 -------------------------------------------------------------------------------- interests in the Trust, (2) the redemption of all of the outstanding Preferred Securities or (3) certain mergers, consolidations or amalgamations, each as and to the extent permitted by the Trust Agreement. Acceleration of Maturity; Rescission and Annulment. If an Event of Default pursuant to Sections 5.1(c), (e), (f), (g) or (h) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than twenty five percent (25%) in principal amount of the Outstanding Securities may declare the principal amount of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided, that if, upon an Event of Default pursuant to Sections 5.1(c), (e), (f), (g) or (h), the Trustee or the Holders of not less than twenty five percent (25%) in principal amount of the Outstanding Securities fail to declare the principal of all the Outstanding Securities to be immediately due and payable, the holders of at least twenty five percent (25%) in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have the right to make such declaration by a notice in writing to the Property Trustee, the Company and the Trustee; and upon any such declaration the principal amount of and the accrued interest (including any Additional Interest) on all the Securities shall become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article V, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Indenture Trustee, or the holders of a majority in aggregate Liquidation Amount of the Preferred Securities, by written notice to the Property Trustee, the Company and the Trustee, may rescind and annul such declaration and its consequences if: the Company has paid or deposited with the Trustee a sum sufficient to pay: all overdue installments of interest on all Securities, any accrued Additional Interest on all Securities, the principal of and any premium on any Securities that have become due otherwise than by such declaration of acceleration and interest (including any Additional Interest) thereon at the rate borne by the Securities, and all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, the Property Trustee and their agents and counsel; and   31 -------------------------------------------------------------------------------- all Events of Default with respect to Securities, other than the non-payment of the principal of Securities that has become due solely by such acceleration, have been cured or waived as provided in Section 5.13; provided, that if the Holders of such Securities fail to annul such declaration and waive such default, the holders of not less than a majority in aggregate Liquidation Amount of the Preferred Securities then outstanding shall also have the right to rescind and annul such declaration and its consequences by written notice to the Property Trustee, the Company and the Trustee, subject to the satisfaction of the conditions set forth in paragraph (b) of this Section 5.2. No such rescission shall affect any subsequent default or impair any right consequent thereon. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: default is made in the payment of any installment of interest (including any Additional Interest) on any Security when such interest becomes due and payable and such default continues for a period of thirty (30) days, or default is made in the payment of the principal of and any premium on any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium and interest (including any Additional Interest) and, in addition thereto, all amounts owing the Trustee under Section 6.6. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default with respect to Securities occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities by such appropriate judicial proceedings as the Trustee shall deem   32 -------------------------------------------------------------------------------- most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. Trustee May File Proofs of Claim. In case of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or similar judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized hereunder in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to first pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts owing the Trustee, any predecessor Trustee and other Persons under Section 6.6. Trustee May Enforce Claim Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, subject to Article XII and after provision for the payment of all the amounts owing the Trustee, any predecessor Trustee and other Persons under Section 6.6, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Application of Money Collected. Any money or property collected or to be applied by the Trustee with respect to the Securities pursuant to this Article V shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money or property on account of principal or any premium or interest (including any Additional Interest), upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee, any predecessor Trustee and other Persons under Section 6.6; SECOND: To the payment of all Senior Debt of the Company if and to the extent required by Article XII.   33 -------------------------------------------------------------------------------- THIRD: Subject to Article XII, to the payment of the amounts then due and unpaid upon the Securities for principal and any premium and interest (including any Additional Interest) in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and any premium and interest (including any Additional Interest), respectively; and FOURTH: The balance, if any, to the Person or Persons entitled thereto. Limitation on Suits. Subject to Section 5.8, no Holder of any Securities shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) or for any other remedy hereunder, unless: such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities; the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; the Trustee after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding for sixty (60) days; and no direction inconsistent with such written request has been given to the Trustee during such sixty (60)-day period by the Holders of a majority in aggregate principal amount of the Outstanding Securities; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing itself of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and   34 -------------------------------------------------------------------------------- any premium on such Security at its Maturity and payment of interest (including any Additional Interest) on such Security when due and payable and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. Any registered holder of the Preferred Securities shall have the right, upon the occurrence of an Event of Default described in Section 5.1(a), Section 5.1(b) or Section 5.1(c), to institute a suit directly against the Company for enforcement of payment to such holder of principal of and any premium and interest (including any Additional Interest) on the Securities having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities held by such holder. Restoration of Rights and Remedies. If the Trustee, any Holder or any holder of Preferred Securities has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee, such Holder or such holder of Preferred Securities, then and in every such case the Company, the Trustee, such Holders and such holder of Preferred Securities 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 Trustee, such Holder and such holder of Preferred Securities shall continue as though no such proceeding had been instituted. Rights and Remedies Cumulative. Except as otherwise provided in Section 3.6(f), no right or remedy herein conferred upon or reserved to the Trustee or the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Delay or Omission Not Waiver. No delay or omission of the Trustee, any Holder of any Securities or any holder of any Preferred Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Trustee or to the Holders and the right and remedy given to the holders of Preferred Securities by Section 5.8 may be exercised from time to time, and as often as may be deemed expedient, by the Trustee, the Holders or the holders of Preferred Securities, as the case may be. Control by Holders. The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities (or, as the case may be, the holders of a majority in aggregate Liquidation Amount of the Preferred Securities) shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, that: such direction shall not be in conflict with any rule of law or with this Indenture,   35 -------------------------------------------------------------------------------- the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction, and subject to the provisions of Section 6.2, the Trustee shall have the right to decline to follow such direction if a Responsible Officer or Officers of the Trustee shall, in good faith, reasonably determine that the proceeding so directed would be unjustly prejudicial to the Holders not joining in any such direction or would involve the Trustee in personal liability. Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities and the holders of not less than a majority in aggregate Liquidation Amount of the Preferred Securities may waive any past Event of Default hereunder and its consequences except an Event of Default: in the payment of the principal of or any premium or interest (including any Additional Interest) on any Security (unless such Event of Default has been cured and the Company has paid to or deposited with the Trustee a sum sufficient to pay all installments of interest (including any Additional Interest) due and past due and all principal of and any premium on all Securities due otherwise than by acceleration), or in respect of a covenant or provision hereof that under Article IX cannot be modified or amended without the consent of each Holder of any Outstanding Security. Any such waiver shall be deemed to be on behalf of the Holders of all the Securities or, in the case of a waiver by holders of Preferred Securities issued by such Trust, by all holders of Preferred Securities. Upon any such waiver, such Event of Default shall cease to exist and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his or her acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, 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, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses   36 -------------------------------------------------------------------------------- made by such party litigant; but the provisions of this Section 5.14 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than ten percent (10%) in aggregate principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or any premium on the Security after the Stated Maturity or any interest (including any Additional Interest) on any Security after it is due and payable. Waiver of Usury, Stay or Extension Laws. The Company covenants (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 or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the 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 covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. The Trustee Corporate Trustee Required. There shall at all times be a Trustee hereunder with respect to the Securities. The Trustee shall be a corporation organized and doing business under the laws of the United States or of any state thereof, authorized to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or state authority and having an office within the United States. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of such supervising or examining authority, then, for the purposes of this Section 6.1, 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. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.1, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VI. Certain Duties and Responsibilities. Except during the continuance of an Event of Default: 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 shall be read into this Indenture against the Trustee; and in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed   37 -------------------------------------------------------------------------------- therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; provided, that in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they substantially conform on their face to the requirements of this Indenture. If an Event of Default known to the Trustee has occurred and is continuing, the Trustee shall, prior to the receipt of directions, if any, from the Holders of at least a majority in aggregate principal amount of the Outstanding Securities (or, if applicable, from the holders of a majority in aggregate Liquidation Amount of the Preferred Securities), exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee 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 against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.2. To the extent that, at law or in equity, the Trustee has duties and liabilities relating to the Holders, the Trustee shall not be liable to any Holder for the Trustee’s good faith reliance on the provisions of this Indenture. The provisions of this Indenture, to the extent that they restrict the duties and liabilities of the Trustee otherwise existing at law or in equity, are agreed by the Company and the Holders to replace such other duties and liabilities of the Trustee. No provisions of this Indenture shall be construed to relieve the Trustee from liability with respect to matters that are within the authority of the Trustee under this Indenture for its own negligent action, negligent failure to act or willful misconduct, except that: the Trustee shall not be liable for any error or judgment made in good faith by an authorized officer of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; the 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 at least a majority in aggregate principal amount of the Outstanding Securities (or, if applicable, from the holders of a majority in aggregate Liquidation Amount of the Preferred Securities), relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee under this Indenture; and   38 -------------------------------------------------------------------------------- the Trustee shall be under no liability for interest on any money received by it hereunder and money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. Notice of Defaults. Within ninety (90) days after the occurrence of any default actually known to the Trustee, the Trustee shall give the Holders notice of such default unless such default shall have been cured or waived; provided, that except in the case of a default in the payment of the principal of or any premium or interest on any Securities, the Trustee shall be fully protected in withholding the notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that withholding the notice is in the interest of holders of Securities; and provided, further, that in the case of any default of the character specified in Section 5.1(d), no such notice to Holders shall be given until at least thirty (30) days after the occurrence thereof. For the purpose of this Section 6.3, the term “default” means any event which is, or after notice or lapse of time or both would become, an Event of Default. Certain Rights of Trustee. Subject to the provisions of Section 6.2: the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting in good faith and in accordance with the terms hereof upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; if (i) in performing its duties under this Indenture the Trustee is required to decide between alternative courses of action, (ii) in construing any of the provisions of this Indenture the Trustee finds ambiguous or inconsistent with any other provisions contained herein or (iii) the Trustee is unsure of the application of any provision of this Indenture, then, except as to any matter as to which the Holders are entitled to decide under the terms of this Indenture, the Trustee shall deliver a notice to the Company requesting the Company’s written instruction as to the course of action to be taken and the Trustee shall take such action, or refrain from taking such action, as the Trustee shall be instructed in writing to take, or to refrain from taking, by the Company; provided, that if the Trustee does not receive such instructions from the Company within ten Business Days after it has delivered such notice or such reasonably shorter period of time set forth in such notice the Trustee may, but shall be under no duty to, take such action, or refrain from taking such action, as the Trustee shall deem advisable and in the best interests of the Holders, in which event the Trustee shall have no liability except for its own negligence, bad faith or willful misconduct;   39 -------------------------------------------------------------------------------- any request or direction of the Company shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; the Trustee may consult with counsel (which counsel may be counsel to the Trustee, the Company or any of its Affiliates, and may include any of its employees) and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders or any holder of Preferred Securities pursuant to this Indenture, unless such Holders (or such holders of Preferred Securities) shall have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses (including reasonable attorneys’ fees and expenses) and liabilities that might be incurred by it in compliance with such request or direction, including reasonable advances as may be requested by the Trustee; 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, direction, consent, order, bond, indenture, note or other paper or document, but the Trustee in its discretion may make such inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent, attorney, custodian or nominee appointed with due care by it hereunder; whenever in the administration of this Indenture the Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action with respect to enforcing any remedy or right hereunder, the Trustees (i) may request instructions from the Holders (which instructions may only be given by the Holders of the same aggregate principal amount of Outstanding Securities as would be entitled to direct the Trustee under this Indenture in respect of such remedy, right or action), (ii) may refrain from enforcing such remedy or right or taking such action until such instructions are received and (iii) shall be protected in acting in accordance with such instructions; except as otherwise expressly provided by this Indenture, the Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Indenture; without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses or renders services in connection with any bankruptcy,   40 -------------------------------------------------------------------------------- insolvency or other proceeding referred to in clauses (e) or (f) of the definition of Event of Default, such expenses (including legal fees and expenses of its agents and counsel) and the compensation for such services are intended to constitute expenses of administration under any bankruptcy laws or law relating to creditors rights generally; whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers’ Certificate addressing such matter, which, upon receipt of such request, shall be promptly delivered by the Company; the Trustee shall not be charged with knowledge of any default or Event of Default unless either (i) a Responsible Officer of the Trustee shall have actual knowledge or (ii) the Trustee shall have received written notice thereof from the Company or a Holder; and in the event that the Trustee is also acting as Paying Agent, Authenticating Agent or Securities Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article VI shall also be afforded such Paying Agent, Authenticating Agent, or Securities Registrar. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Securities Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Securities Registrar or such other agent. Compensation; Reimbursement; Indemnity. The Company agrees to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder in such amounts as the Company and the Trustee shall agree 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); to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence, bad faith or willful misconduct; and   41 -------------------------------------------------------------------------------- to the fullest extent permitted by applicable law, to indemnify the Trustee (including in its individual capacity) and its Affiliates, and their officers, directors, shareholders, agents, representatives and employees for, and to hold them harmless against, any loss, damage, liability, tax (other than income, franchise or other taxes imposed on amounts paid pursuant to (i) or (ii) hereof), penalty, expense or claim of any kind or nature whatsoever incurred without negligence, bad faith or willful misconduct on its part arising out of or in connection with the acceptance or administration of this trust or the performance of the Trustee’s duties hereunder, including the advancement of funds to cover the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. To secure the Company’s payment obligations in this Section 6.6, the Company hereby grants and pledges to the Trustee and the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, other than money or property held in trust to pay principal and interest on particular Securities. Such lien shall survive the satisfaction and discharge of this Indenture or the resignation or removal of the Trustee. The obligations of the Company under this Section 6.6 shall survive the satisfaction and discharge of this Indenture and the earlier resignation or removal of the Trustee. In no event shall the Trustee be liable for any indirect, special, punitive or consequential loss or damage of any kind whatsoever, including, but not limited to, lost profits, even if the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action. In no event shall the Trustee be liable for any failure or delay in the performance of its obligations hereunder because of circumstances beyond its control, including, but not limited to, acts of God, flood, war (whether declared or undeclared), terrorism, fire, riot, embargo, government action, including any laws, ordinances, regulations, governmental action or the like which delay, restrict or prohibit the providing of the services contemplated by this Indenture. Resignation and Removal; Appointment of Successor. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article VI shall become effective until the acceptance of appointment by the successor Trustee under Section 6.8. The Trustee may resign at any time by giving written notice thereof to the Company. Unless an Event of Default shall have occurred and be continuing, the Trustee may be removed at any time by the Company by a Board Resolution. If an Event of Default   42 -------------------------------------------------------------------------------- shall have occurred and be continuing, the Trustee may be removed by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any reason, at a time when no Event of Default shall have occurred and be continuing, the Company, by a Board Resolution, shall promptly appoint a successor Trustee, and such successor Trustee and the retiring Trustee shall comply with the applicable requirements of Section 6.8. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any reason, at a time when an Event of Default shall have occurred and be continuing, the Holders, by Act of the Holders of a majority in aggregate principal amount of the Outstanding Securities, shall promptly appoint a successor Trustee, and such successor Trustee and the retiring Trustee shall comply with the applicable requirements of Section 6.8. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment within sixty (60) days after the giving of a notice of resignation by the Trustee or the removal of the Trustee in the manner required by Section 6.8, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of such Holder and all others similarly situated, and any resigning Trustee may, at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee. The Company shall give notice to all Holders in the manner provided in Section 1.6 of each resignation and each removal of the Trustee and each appointment of a successor Trustee. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Acceptance of Appointment by Successor. In case of the appointment hereunder of a successor Trustee, each successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in paragraph (a) of this Section 6.8. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article VI.   43 -------------------------------------------------------------------------------- Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Trustee 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 Trustee shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided, that such Person shall be otherwise qualified and eligible under this Article VI. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation or as otherwise provided above in this Section 6.9 to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated, and in case any Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor Trustee or in the name of such successor Trustee, and in all cases the certificate of authentication shall have the full force which it is provided anywhere in the Securities or in this Indenture that the certificate of the Trustee shall have. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee’s certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Securities or the proceeds thereof. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents with respect to the Securities, which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.6, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, or of any State or Territory thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or state authority. If such Authenticating Agent publishes reports of condition at least annually pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section 6.11 the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so   44 -------------------------------------------------------------------------------- published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.11, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section 6.11. Any Person into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of an Authenticating Agent shall be the successor Authenticating Agent hereunder, provided such Person shall be otherwise eligible under this Section 6.11, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.11, the Trustee may appoint a successor Authenticating Agent eligible under the provisions of this Section 6.11, which shall be acceptable to the Company, and shall give notice of such appointment to all Holders. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.11 in such amounts as the Company and the Authenticating Agent shall agree from time to time. If an appointment of an Authenticating Agent is made pursuant to this Section 6.11, the Securities may have endorsed thereon, in addition to the Trustee’s certificate of authentication, an alternative certificate of authentication in the following form: This represents Securities designated therein and referred to in the within mentioned Indenture. Dated:   WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Trustee   Authenticating Agent By:       Authorized Officer   45 -------------------------------------------------------------------------------- Holders’ Lists and Reports by Trustee and Company Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: semi-annually, on or before June 30 and December 31 of each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of a date not more than fifteen (15) days prior to the delivery thereof, and at such other times as the Trustee may request in writing, within thirty (30) days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than fifteen (15) days prior to the time such list is furnished, in each case to the extent such information is in the possession or control of the Company and has not otherwise been received by the Trustee in its capacity as Securities Registrar. Preservation of Information, Communications to Holders. The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders received by the Trustee in its capacity as Securities Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished. The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided in the Trust Indenture Act. Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of information as to the names and addresses of the Holders made pursuant to the Trust Indenture Act. Reports by Company and Trustee. The Company shall furnish to the Holders and to prospective purchasers of Securities, upon their request, the information required to be furnished pursuant to Rule 144A(d)(4) under the Securities Act. The Company shall furnish to the Trustee and, so long as the Property Trustee holds any of the Securities, the Company shall furnish to the Property Trustee, (i) reports on Federal Reserve form FR Y-9C, FR Y-9LP and FR Y-6 promptly following their filing with the Federal Reserve, or (ii) if at such time the Company is no longer required to file the reports set forth in (i) above, such other similar reports as the Company may be required to file at such time with the Company’s primary federal banking regulator promptly following their filing with such banking regulator.   46 -------------------------------------------------------------------------------- The Company shall furnish to (i) the Holders and to subsequent holders of Securities, (ii) the Purchaser, (iii) any beneficial owner of the Securities reasonably identified to the Company (which identification may be made either by such beneficial owner or by the Purchaser) and (iv) any designee of (i), (ii) or (iii) above, a duly completed and executed certificate in the form attached hereto as Exhibit B, including the financial statements referenced in such Exhibit, which certificate and financial statements shall be so furnished by the Company not later than forty five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Company and not later than ninety (90) days after the end of each fiscal year of the Company. (c) The Trustee shall receive all reports, certificates and information, which it is entitled to receive under each of the Operative Documents (as defined in the Trust Agreement), and deliver to the Purchaser, or its designee, as identified in writing to the Trustee, all such reports, certificates or information promptly upon receipt thereof. Consolidation, Merger, Conveyance, Transfer or Lease Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: if the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the entity formed by such consolidation or into which the Company is merged or the Person that acquires by conveyance or transfer, or that leases, the properties and assets of the Company substantially as an entirety shall be an entity organized and existing under the laws of the United States of America or any State or Territory thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, the due and punctual payment of the principal of and any premium and interest (including any Additional Interest) on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed;   47 -------------------------------------------------------------------------------- immediately after giving effect to such transaction, no Event of Default, and no event that, after notice or lapse of time, or both, would constitute an Event of Default, shall have happened and be continuing; and the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, any such supplemental indenture comply with this Article VIII and that all conditions precedent herein provided for relating to such transaction have been complied with; and the Trustee may rely upon such Officers’ Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 8.1. Successor Company Substituted. Upon any consolidation or merger by the Company with or into any other Person, or any conveyance, transfer or lease by the Company of its properties and assets substantially as an entirety to any Person in accordance with Section 8.1 and the execution and delivery to the Trustee of the supplemental indenture described in Section 8.1(a), the successor entity formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and in the event of any such conveyance or transfer, following the execution and delivery of such supplemental indenture, the Company shall be discharged from all obligations and covenants under the Indenture and the Securities. Such successor Person may cause to be executed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder that theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor Person instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities that previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Securities that such successor Person thereafter shall cause to be executed and delivered to the Trustee on its behalf. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture. In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form may be made in the Securities thereafter to be issued as may be appropriate to reflect such occurrence.   48 -------------------------------------------------------------------------------- Supplemental Indentures Supplemental Indentures without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form reasonably satisfactory to the Trustee, for any of the following purposes: to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities; or to cure any ambiguity, to correct or supplement any provision herein that may be defective or inconsistent with any other provision herein, or to make or amend any other provisions with respect to matters or questions arising under this Indenture, which shall not be inconsistent with the other provisions of this Indenture, provided, that such action pursuant to this clause (b) shall not adversely affect in any material respect the interests of any Holders or the holders of the Preferred Securities; or to add to the covenants, restrictions or obligations of the Company or to add to the Events of Default, provided, that such action pursuant to this clause (c) shall not adversely affect in any material respect the interests of any Holders or the holders of the Preferred Securities; or to modify, eliminate or add to any provisions of the Indenture or the Securities to such extent as shall be necessary to ensure that the Securities are treated as indebtedness of the Company for United States Federal income tax purposes, provided, that such action pursuant to this clause (d) shall not adversely affect in any material respect the interests of any Holders or the holders of the Preferred Securities. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities under this Indenture; provided, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security, change the Stated Maturity of the principal or any premium of any Security or change the date of payment of any installment of interest (including any Additional Interest) on any Security, or reduce the principal amount thereof   49 -------------------------------------------------------------------------------- or the rate of interest thereon or any premium payable upon the redemption thereof or change the place of payment where, or the coin or currency in which, any Security or interest thereon is payable, or restrict or impair the right to institute suit for the enforcement of any such payment on or after such date, or reduce the percentage in aggregate principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with any provision of this Indenture or of defaults hereunder and their consequences provided for in this Indenture, or modify any of the provisions of this Section 9.2, Section 5.13 or Section 10.7, except to increase any percentage in aggregate principal amount of the Outstanding Securities, the consent of whose Holders is required for any reason, or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Security; provided, further, that, so long as any Preferred Securities remain outstanding, no amendment under this Section 9.2 shall be effective until the holders of a majority in Liquidation Amount of the Trust Securities shall have consented to such amendment; provided, further, that if the consent of the Holder of each Outstanding Security is required for any amendment under this Indenture, such amendment shall not be effective until the holder of each Outstanding Trust Security shall have consented to such amendment. It shall not be necessary for any Act of Holders under this Section 9.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Execution of Supplemental Indentures. In executing or accepting the additional trusts created by any supplemental indenture permitted by this Article IX or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in conclusively relying upon, an Officers’ Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that all conditions precedent herein provided for relating to such action have been complied with. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Trustee’s own rights, duties, indemnities or immunities under this Indenture or otherwise. Copies of the final form of each supplemental indenture shall be delivered by the Trustee at the expense of the Company to each Holder, and, if the Trustee is the Property Trustee, to each holder of Preferred Securities, promptly after the execution thereof.   50 -------------------------------------------------------------------------------- Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article IX, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX may, and shall if required by the Company, bear a notation in form approved by the Company as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. Covenants Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of the Holders of the Securities that it will duly and punctually pay the principal of and any premium and interest (including any Additional Interest) on the Securities in accordance with the terms of the Securities and this Indenture. Money for Security Payments to be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to the Securities, it will, on or before each due date of the principal of and any premium or interest (including any Additional Interest) on the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium or interest (including Additional Interest) so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee in writing of its failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to 10:00 a.m., New York City time, on each due date of the principal of or any premium or interest (including any Additional Interest) on any Securities, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided in the Trust Indenture Act and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its failure so to act.   51 -------------------------------------------------------------------------------- The Company will cause each Paying Agent for the Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 10.2, that such Paying Agent will (i) comply with the provisions of this Indenture and the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Securities) in the making of any payment in respect of the Securities, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company in trust for the payment of the principal of and any premium or interest (including any Additional Interest) on any Security and remaining unclaimed for two years after such principal and any premium or interest has become due and payable shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be paid on Company Request to the Company, or (if then held by the Company) shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than thirty (30) days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. Statement as to Compliance. The Company shall deliver to the Trustee, within one hundred and twenty (120) days after the end of each fiscal year of the Company ending after the date hereof, an Officers’ Certificate (substantially in the form attached hereto as Exhibit C) covering the preceding fiscal year, stating whether or not to the knowledge of the signers thereof the Company is in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder), and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge.   52 -------------------------------------------------------------------------------- Calculation Agent. The Company hereby agrees that for so long as any of the Securities remain Outstanding, there will at all times be an agent appointed to calculate LIBOR in respect of each Interest Payment Date in accordance with the terms of Schedule A (the “Calculation Agent”). The Company has initially appointed the Property Trustee as Calculation Agent for purposes of determining LIBOR for each Interest Payment Date. The Calculation Agent may be removed by the Company at any time. Except as described in the immediately preceding sentence, so long as the Property Trustee holds any of the Securities, the Calculation Agent shall be the Property Trustee. If the Calculation Agent is unable or unwilling to act as such or is removed by the Company, the Company will promptly appoint as a replacement Calculation Agent the London office of a leading bank which is engaged in transactions in Eurodollar deposits in the international Eurodollar market and which does not control or is not controlled by or under common control with the Company or its Affiliates. The Calculation Agent may not resign its duties without a successor having been duly appointed. The Calculation Agent shall be required to agree that, as soon as possible after 11:00 a.m. (London time) on each LIBOR Determination Date (as defined in Schedule A), but in no event later than 11:00 a.m. (London time) on the Business Day immediately following each LIBOR Determination Date, the Calculation Agent will calculate the interest rate and dollar amount (rounded to the nearest cent, with half a cent being rounded upwards) for the related Interest Payment Date, and will communicate such rate and amount to the Company, the Trustee, each Paying Agent and the Depositary. The Calculation Agent will also specify to the Company the quotations upon which the foregoing rates and amounts are based and, in any event, the Calculation Agent shall notify the Company before 5:00 p.m. (London time) on each LIBOR Determination Date that either: (i) it has determined or is in the process of determining the foregoing rates and amounts or (ii) it has not determined and is not in the process of determining the foregoing rates and amounts, together with its reasons therefor. The Calculation Agent’s determination of the foregoing rates and amounts for any Interest Payment Date will (in the absence of manifest error) be final and binding upon all parties. For the sole purpose of calculating the interest rate for the Securities, “Business Day” shall be defined as any day on which dealings in deposits in Dollars are transacted in the London interbank market. Additional Tax Sums. If (a) the Trust is the Holder of all of the Outstanding Securities and (b) a Tax Event described in clause (i) or (iii) in the definition of Tax Event in Section 1.1 hereof has occurred and is continuing, the Company shall pay to the Trust (and its permitted successors or assigns under the related Trust Agreement) for so long as the Trust (or its permitted successor or assignee) is the registered holder of the Outstanding Securities, such amounts as may be necessary in order that the amount of Distributions (including any Additional Interest Amount (as defined in the Trust Agreement)) then due and payable by the Trust on the Preferred Securities and Common Securities that at any time remain outstanding in accordance with the terms thereof   53 -------------------------------------------------------------------------------- shall not be reduced as a result of any Additional Taxes arising from such Tax Event (additional such amounts payable by the Company to the Trust, the “Additional Tax Sums”). Whenever in this Indenture or the Securities there is a reference in any context to the payment of principal of or interest on the Securities, such mention shall be deemed to include mention of the payments of the Additional Tax Sums provided for in this Section 10.5 to the extent that, in such context, Additional Tax Sums are, were or would be payable in respect thereof pursuant to the provisions of this Section 10.5 and express mention of the payment of Additional Tax Sums (if applicable) in any provisions hereof shall not be construed as excluding Additional Tax Sums in those provisions hereof where such express mention is not made; provided, that the deferral of the payment of interest pursuant to Section 3.9 on the Securities shall not defer the payment of any Additional Tax Sums that may be due and payable. Additional Covenants. The Company covenants and agrees with each Holder of Securities that if an Event of Default shall have occurred and be continuing or the Company shall have given notice of its election to begin an Extension Period with respect to the Securities and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing, it shall 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 Company’s Equity Interests, (ii) vote in favor of or permit or otherwise allow any of its Subsidiaries to declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to or otherwise retire, any of such Subsidiary’s Equity Interests entitling the holders thereof to a stated rate of return, other than dividends or distributions on Equity Interests issued by any Subsidiary solely payable to the Company or any Subsidiary thereof (for the avoidance of doubt, whether such Equity Interests are perpetual or otherwise), or (iii) make any payment of principal of or any interest or premium on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to the Securities (other than (A) repurchases, redemptions or other acquisitions of Equity Interests of the Company in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors or consultants, in connection with a dividend reinvestment or stockholder stock purchase or similar plan with respect to any Equity Interests or in connection with the issuance of Equity Interests of the Company (or securities convertible into or exercisable for such Equity Interests) as consideration in an acquisition transaction entered into prior to the applicable Event of Default or Extension Period, (B) as a result of an exchange or conversion of any class or series of the Company’s Equity Interests (or any Equity Interests of a Subsidiary of the Company) for any class or series of the Company’s Equity Interests or of any class or series of the Company’s indebtedness for any class or series of the Company’s Equity Interests, (C) the purchase of fractional interests in Equity Interests of the Company pursuant to the conversion or exchange provisions of such Equity Interests or the security being converted or exchanged, (D) any declaration of a dividend in connection with any Rights Plan, the issuance of rights, Equity Interests or other property under any Rights Plan or the redemption or repurchase of rights pursuant thereto, or (E) any dividend in the form of   54 -------------------------------------------------------------------------------- Equity Interests, warrants, options or other rights where the dividend Equity Interests or the Equity Interests issuable upon exercise of such warrants, options or other rights are the same Equity Interests as those on which the dividend is being paid or rank pari passu with or junior to such Equity Interests). The Company also covenants with each Holder of Securities (i) to hold, directly or indirectly, one hundred percent (100%) of the Common Securities of the Trust, provided, that any permitted successor of the Company hereunder may succeed to the Company’s ownership of such Common Securities, (ii) as holder of such Common Securities, not to voluntarily dissolve, wind-up or liquidate the Trust other than (A) in connection with a distribution of the Securities to the holders of the Preferred Securities in liquidation of the Trust or (B) in connection with certain mergers, consolidations or amalgamations permitted by the Trust Agreement and (iii) to use its reasonable commercial efforts, consistent with the terms and provisions of the Trust Agreement, to cause the Trust to continue to be taxable as a grantor trust and not as a corporation for United States Federal income tax purposes. Waiver of Covenants. The Company may omit in any particular instance to comply with any covenant or condition contained in Section 10.6 if, before or after the time for such compliance, the Holders of at least a majority in aggregate principal amount of the Outstanding Securities shall, by Act of such Holders, and at least a majority of the aggregate Liquidation Amount of the Preferred Securities then outstanding, by consent of such holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company in respect of any such covenant or condition shall remain in full force and effect. Treatment of Securities. The Company will treat the Securities as indebtedness, and the amounts (other than payments of principal) payable in respect of the principal amount of such Securities as interest, for all U.S. federal income tax purposes. All payments in respect of the Securities will be made free and clear of U.S. withholding tax to any beneficial owner thereof that has provided an Internal Revenue Service Form W-9 or W-8BEN (or any substitute or successor form) establishing its U.S. or non-U.S. status for U.S. federal income tax purposes. Redemption of Securities Optional Redemption. The Company may, at its option, on any Interest Payment Date, on or after January 30, 2012, redeem the Securities in whole at any time or in part from time to time, at a Redemption   55 -------------------------------------------------------------------------------- Price equal to one hundred percent (100%) of the principal amount thereof (or of the redeemed portion thereof, as applicable), together, in the case of any such redemption, with accrued interest, including any Additional Interest, to but excluding the date fixed for redemption; provided, that the Company shall have received the prior approval of the Federal Reserve with respect to such redemption if then required. Special Event Redemption. Upon the occurrence and during the continuation of a Special Event, the Company may, at its option, redeem the Securities, in whole but not in part, at a redemption price equal to one hundred three and one half (103.50%) percent of the principal amount thereof, if the redemption occurs prior to January 30, 2008, and thereafter at a redemption price equal to the percentage of the principal amount of the Securities that is specified below, together, in the case of any such redemption, with accrued interest, including any Additional Interest, to but excluding the date fixed for redemption (the “Special Event Redemption Price”):   Special Event Redemption During the 12-Month Period Beginning January 30,   Percentage of Principal Amount   2008   102.80 % 2009   102.10 % 2010   101.40 % 2011   100.70 % 2012 and thereafter   100.00 % ; provided, that the Company shall have received the prior approval of the Federal Reserve with respect to such redemption if then required. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities, in whole or in part, shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company, the Company shall, not less than thirty (30) days and not more than sixty (60) days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee and the Property Trustee under the Trust Agreement in writing of such date and of the principal amount of the Securities to be redeemed and provide the additional information required to be included in the notice or notices contemplated by Section 11.5. In the case of any redemption of Securities, in whole or in part, (a) prior to the expiration of any restriction on such redemption provided in this Indenture or the Securities or (b) pursuant to an election of the Company which is subject to a condition specified in this Indenture or the Securities, the Company shall furnish the Trustee with an Officers’ Certificate and an Opinion of Counsel evidencing compliance with such restriction or condition.   56 -------------------------------------------------------------------------------- Selection of Securities to be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected and redeemed on a pro rata basis not more than sixty (60) days prior to the Redemption Date by the Trustee from the Outstanding Securities not previously called for redemption, provided, that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security that has been or is to be redeemed. The provisions of paragraphs (a) and (b) of this Section 11.4 shall not apply with respect to any redemption affecting only a single Security, whether such Security is to be redeemed in whole or in part. In the case of any such redemption in part, the unredeemed portion of the principal amount of the Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. Notice of Redemption. Notice of redemption shall be given not later than the thirtieth (30th) day, and not earlier than the sixtieth (60th) day, prior to the Redemption Date to each Holder of Securities to be redeemed, in whole or in part (unless a shorter notice shall be satisfactory to the Property Trustee under the related Trust Agreement). With respect to Securities to be redeemed, in whole or in part, each notice of redemption shall state: the Redemption Date; the Redemption Price or, if the Redemption Price cannot be calculated prior to the time the notice is required to be sent, the estimate of the Redemption Price, as calculated by the Company, together with a statement that it is an estimate and that the actual Redemption Price will be calculated on the fifth Business Day prior to the Redemption Date (and if an estimate is provided, a further notice shall be sent of the actual Redemption Price on the date that such Redemption Price is calculated); if less than all Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the particular Securities to be redeemed;   57 -------------------------------------------------------------------------------- that on the Redemption Date, the Redemption Price will become due and payable upon each such Security or portion thereof, and that any interest (including any Additional Interest) on such Security or such portion, as the case may be, shall cease to accrue on and after said date; and the place or places where such Securities are to be surrendered for payment of the Redemption Price. Notice of redemption of Securities to be redeemed, in whole or in part, at the election of the Company shall be given by the Company or, at the Company’s request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. The notice if mailed in the manner provided above shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice. In any case, a failure to give such notice by mail or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security. Deposit of Redemption Price. Prior to 10:00 a.m., New York City time, on the Redemption Date specified in the notice of redemption given as provided in Section 11.5, the Company will deposit with the Trustee or with one or more Paying Agents (or if the Company is acting as its own Paying Agent, the Company will segregate and hold in trust as provided in Section 10.2) an amount of money sufficient to pay the Redemption Price of, and any accrued interest (including any Additional Interest) on, all the Securities (or portions thereof) that are to be redeemed on that date. Payment of Securities Called for Redemption. If any notice of redemption has been given as provided in Section 11.5, the Securities or portion of Securities with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice at the applicable Redemption Price, together with accrued interest (including any Additional Interest) to the Redemption Date. On presentation and surrender of such Securities at a Place of Payment specified in such notice, the Securities or the specified portions thereof shall be paid and redeemed by the Company at the applicable Redemption Price, together with accrued interest (including any Additional Interest) to the Redemption Date. Upon presentation of any Security redeemed in part only, the Company shall execute and upon receipt thereof the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities, of authorized denominations, in aggregate principal amount equal to the unredeemed portion of the Security so presented and having the same Original Issue Date, Stated Maturity and terms. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal of and any premium on such Security shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.   58 -------------------------------------------------------------------------------- Subordination of Securities Securities Subordinate to Senior Debt. The Company covenants and agrees, and each Holder of a Security, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article XII, the payment of the principal of and any premium and interest (including any Additional Interest) on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Debt. No Payment When Senior Debt in Default; Payment Over of Proceeds Upon Dissolution, Etc. In the event and during the continuation of any default by the Company in the payment of any principal of or any premium or interest on any Senior Debt (following any grace period, if applicable) when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration of acceleration or otherwise, then, upon written notice of such default to the Company by the holders of such Senior Debt or any trustee therefor, unless and until such default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment (in cash, property, securities, by set-off or otherwise) shall be made or agreed to be made on account of the principal of or any premium or interest (including any Additional Interest) on any of the Securities, or in respect of any redemption, repayment, retirement, purchase or other acquisition of any of the Securities. In the event of a bankruptcy, insolvency or other proceeding described in clause (e) or (f) of the definition of Event of Default (each such event, if any, herein sometimes referred to as a “Proceeding”), all Senior Debt (including any interest thereon accruing after the commencement of any such proceedings) shall first be paid in full before any payment or distribution, whether in cash, securities or other property, shall be made to any Holder of any of the Securities on account thereof. Any payment or distribution, whether in cash, securities or other property (other than securities of the Company or any other entity provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in these subordination provisions with respect to the indebtedness evidenced by the Securities, to the payment of all Senior Debt at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment), which would otherwise (but for these subordination provisions) be payable or deliverable in respect of the Securities shall be paid or delivered directly to the holders of Senior Debt in accordance with the priorities then existing among such holders until all Senior Debt (including any interest thereon accruing after the commencement of any Proceeding) shall have been paid in full. In the event of any Proceeding, after payment in full of all sums owing with respect to Senior Debt, the Holders of the Securities, together with the holders of any obligations of   59 -------------------------------------------------------------------------------- the Company ranking on a parity with the Securities, shall be entitled to be paid from the remaining assets of the Company the amounts at the time due and owing on account of unpaid principal of and premium, if any, and interest (including any Additional Interest) on the Securities and such other obligations before any payment or other distribution, whether in cash, property or otherwise, shall be made on account of any Equity Interests or any obligations of the Company ranking junior to the Securities and such other obligations. If, notwithstanding the foregoing, any payment or distribution of any character or any security, whether in cash, securities or other property (other than securities of the Company or any other entity provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in these subordination provisions with respect to the indebtedness evidenced by the Securities, to the payment of all Senior Debt at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment) shall be received by the Trustee or any Holder in contravention of any of the terms hereof and before all Senior Debt shall have been paid in full, such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Senior Debt at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay all such Senior Debt (including any interest thereon accruing after the commencement of any Proceeding) in full. In the event of the failure of the Trustee or any Holder to endorse or assign any such payment, distribution or security, each holder of Senior Debt is hereby irrevocably authorized to endorse or assign the same. The Trustee and the Holders, at the expense of the Company, shall take such reasonable action (including the delivery of this Indenture to an agent for any holders of Senior Debt or consent to the filing of a financing statement with respect hereto) as may, in the opinion of counsel designated by the holders of a majority in principal amount of the Senior Debt at the time outstanding, be necessary or appropriate to assure the effectiveness of the subordination effected by these provisions. The provisions of this Section 12.2 shall not impair any rights, interests, remedies or powers of any secured creditor of the Company in respect of any security interest the creation of which is not prohibited by the provisions of this Indenture. The securing of any obligations of the Company, otherwise ranking on a parity with the Securities or ranking junior to the Securities, shall not be deemed to prevent such obligations from constituting, respectively, obligations ranking on a parity with the Securities or ranking junior to the Securities. Payment Permitted If No Default. Nothing contained in this Article XII or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time, except during the pendency of the conditions described in paragraph (a) of Section 12.2 or of any Proceeding referred to in Section 12.2, from making payments at any time of principal of and any premium or interest (including any Additional Interest) on the Securities or (b) the application by the Trustee of any   60 -------------------------------------------------------------------------------- moneys deposited with it hereunder to the payment of or on account of the principal of and any premium or interest (including any Additional Interest) on the Securities or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge (in accordance with Section 12.8) that such payment would have been prohibited by the provisions of this Article XII, except as provided in Section 12.8. Subrogation to Rights of Holders of Senior Debt. Subject to the payment in full of all amounts due or to become due on all Senior Debt, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Debt pursuant to the provisions of this Article XII (equally and ratably with the holders of all indebtedness of the Company that by its express terms is subordinated to Senior Debt of the Company to substantially the same extent as the Securities are subordinated to the Senior Debt and is entitled to like rights of subrogation by reason of any payments or distributions made to holders of such Senior Debt) to the rights of the holders of such Senior Debt to receive payments and distributions of cash, property and securities applicable to the Senior Debt until the principal of and any premium and interest (including any Additional Interest) on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article XII, and no payments made pursuant to the provisions of this Article XII to the holders of Senior Debt by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Debt, and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Debt. Provisions Solely to Define Relative Rights. The provisions of this Article XII are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Debt on the other hand. Nothing contained in this Article XII or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as between the Company and the Holders of the Securities, the obligations of the Company, which are absolute and unconditional, to pay to the Holders of the Securities the principal of and any premium and interest (including any Additional Interest) on the Securities as and when the same shall become due and payable in accordance with their terms, (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than their rights in relation to the holders of Senior Debt or (c) prevent the Trustee or the Holder of any Security (or to the extent expressly provided herein, the holder of any Preferred Security) from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, including filing and voting claims in any Proceeding, subject to the rights, if any, under this Article XII of the holders of Senior Debt to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder.   61 -------------------------------------------------------------------------------- Trustee to Effectuate Subordination. Each Holder of a Security by his or her acceptance thereof authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination provided in this Article XII and appoints the Trustee his or her attorney-in-fact for any and all such purposes. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. Without in any way limiting the generality of paragraph (a) of this Section 12.7, the holders of Senior Debt may, at any time and from to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to such Holders of the Securities and without impairing or releasing the subordination provided in this Article XII or the obligations hereunder of such Holders of the Securities to the holders of Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt, or otherwise amend or supplement in any manner Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding, (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt, (iii) release any Person liable in any manner for the payment of Senior Debt and (iv) exercise or refrain from exercising any rights against the Company and any other Person. Notice to Trustee. The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article XII or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder of Senior Debt or from any trustee, agent or representative therefor; provided, that if the Trustee shall not have received the notice provided for in this Section 12.8 at least two Business Days prior to the date upon which by the terms hereof any monies may become payable for any purpose (including, the payment of the principal of and any premium on or interest (including any Additional Interest) on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date.   62 -------------------------------------------------------------------------------- The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or herself to be a holder of Senior Debt (or a trustee, agent, representative or attorney-in-fact therefor) to establish that such notice has been given by a holder of Senior Debt (or a trustee, agent, representative or attorney-in-fact therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article XII, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XII, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article XII, the Trustee and the Holders of the Securities shall be entitled to conclusively rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XII. Trustee Not Fiduciary for Holders of Senior Debt. The Trustee, in its capacity as trustee under this Indenture, shall not owe or be deemed to owe any fiduciary duty to the holders of Senior Debt and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Debt shall be entitled by virtue of this Article XII or otherwise. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee’s Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XII with respect to any Senior Debt that may at any time be held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Debt of the Company, the Trustee undertakes to perform only such of its obligations as are specifically set forth in this Article XII, and no implied covenants or obligations with respect to the holders of such Senior Debt shall be read into this Indenture against the Trustee. Nothing in this Article XII shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.6.   63 -------------------------------------------------------------------------------- Article Applicable to Paying Agents. If at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term “Trustee” as used in this Article XII shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XII in addition to or in place of the Trustee; provided, that Sections 12.8 and 12.11 shall not apply to the Company or any Affiliate of the Company if the Company or such Affiliate acts as Paying Agent. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Delivery of an executed signature page of this Indenture by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. * * * *   64 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written.   VALLEY FINANCIAL CORPORATION By:     Name:   Title:   WILMINGTON TRUST COMPANY, not in its individual capcity, but soley as Trustee By:     Name:   Title:   -------------------------------------------------------------------------------- Schedule A DETERMINATION OF LIBOR With respect to the Securities, the London interbank offered rate (“LIBOR”) shall be determined by the Calculation Agent in accordance with the following provisions (in each case rounded to the nearest .000001%): (1) On the second LIBOR Business Day (as defined below) prior to an Interest Payment Date, except, with respect to the first interest payment period, on December 13, 2006, (each such day, a “LIBOR Determination Date”), LIBOR for any given security shall, for the following interest payment period, equal the rate, as obtained by the Calculation Agent from Bloomberg Financial Markets Commodities News, for three-month U.S. Dollar deposits in Europe, which appears on Dow Jones Telerate Page 3750 (as defined in the International Swaps and Derivatives Association, Inc. 1991 Interest Rate and Currency Exchange Definitions), or such other page as may replace such Page 3750, as of 11:00 a.m. (London time) on such LIBOR Determination Date. (2) If, on any LIBOR Determination Date, such rate does not appear on Dow Jones Telerate Page 3750 or such other page as may replace such Page 3750, 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 quotations, LIBOR shall equal such arithmetic mean of such quotations. If, on any LIBOR Determination Date, only one or none of the Reference Banks provide such quotations, LIBOR shall be deemed to be the arithmetic mean of the offered quotations that leading banks in the City of New York selected by the Calculation Agent are quoting on the relevant LIBOR Determination Date for three-month U.S. Dollar deposits in Europe in an amount determined by the   Schedule A-1 -------------------------------------------------------------------------------- Calculation Agent by reference to the principal London offices of leading banks in the London interbank market; provided that, 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 shall be LIBOR as determined on the previous LIBOR Determination Date. (3) As used herein: “Reference Banks” means four major banks in the London interbank market selected by the Calculation Agent; and “LIBOR Business Day” means a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in London.   Schedule A-1 -------------------------------------------------------------------------------- Exhibit A [FORM OF JUNIOR SUBORDINATED NOTE DUE 2037] “[IF THIS SECURITY IS A GLOBAL SECURITY INSERT: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (“DTC”) OR A NOMINEE OF DTC. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS 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 SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME 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.] THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND SUCH SECURITIES, AND ANY INTEREST THEREIN, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF ANY SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF THE SECURITIES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITIES MAY BE OFFERED, RESOLD OR OTHERWISE TRANSFERRED ONLY (I) TO THE COMPANY, (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, OR (III) TO AN INSTITUTIONAL “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,” WITHIN THE MEANING OF SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT, 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, IN EACH CASE IN -------------------------------------------------------------------------------- ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND, IN THE CASE OF (III), SUBJECT TO THE RIGHT OF THE COMPANY TO REQUIRE AN OPINION OF COUNSEL ADDRESSING COMPLIANCE WITH THE U.S. SECURITIES LAWS, AND OTHER INFORMATION SATISFACTORY TO IT AND (B) THE HOLDER WILL NOTIFY ANY PURCHASER OF ANY SECURITIES FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. THE SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $100,000. TO THE FULLEST EXTENT PERMITTED BY LAW, ANY ATTEMPTED TRANSFER OF SECURITIES, OR ANY INTEREST THEREIN, IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. TO THE FULLEST EXTENT PERMITTED BY LAW, ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH SECURITIES FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PRINCIPAL OF OR INTEREST ON SUCH SECURITIES, OR ANY INTEREST THEREIN, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH SECURITIES. THE HOLDER OF THIS SECURITY, OR ANY INTEREST THEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT PLAN, 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 SECTION 408(b)(17) OF ERISA, 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, OR ANY INTEREST THEREIN, ARE NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE AND HOLDING. ANY PURCHASER OR HOLDER OF THE SECURITIES 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 OR OTHER PLAN TO WHICH TITLE I OF ERISA OR SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF ANY SUCH EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE “PLAN ASSETS” OF ANY SUCH EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE OR HOLDING WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH FULL EXEMPTIVE RELIEF IS NOT AVAILABLE UNDER AN APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION. THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE UNITED STATES OR ANY AGENCY OR FUND OF THE UNITED STATES, INCLUDING THE FEDERAL DEPOSIT INSURANCE CORPORATION. -------------------------------------------------------------------------------- Valley Financial Corporation Floating Rate Junior Subordinated Note due 2037   No.                        $5,000,000 Valley Financial Corporation, a corporation organized and existing under the laws of Virginia (hereinafter called the “Company,” which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to                      (the “Holder”), or registered assigns, the principal sum of $5,000,000 DOLLARS on January 30, 2037. The Company further promises to pay interest on said principal sum from December 15, 2006, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on January 30, April 30, July 30 and October 30 of each year, commencing on January 30, 2007, or if any such day is not a Business Day, on the next succeeding Business Day (and no interest shall accrue in respect of the amounts whose payment is so delayed for the period from and after such Interest Payment Date until such next succeeding Business Day), except that, if such Business Day falls in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case, with the same force and effect as if made on the Interest Payment Date, at a variable rate per annum, reset quarterly, equal to LIBOR plus 1.73%, together with Additional Tax Sums, if any, as provided in Section 10.5 of the Indenture, until the principal hereof is paid or duly provided for or made available for payment; provided, that any overdue principal, premium, if any, or Additional Tax Sums and any overdue installment of interest shall bear Additional Interest (to the extent that the payment of such interest shall be legally enforceable) at a variable rate per annum, reset quarterly, equal to LIBOR plus 1.73%, compounded quarterly, from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand. The amount of interest payable for any interest period shall be computed and paid on the basis of a 360-day year and the actual number of days elapsed in the relevant interest period. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest installment. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than ten (10) days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Securities may be listed, traded or quoted and upon such notice as may be required by such exchange or automated quotation system, all as more fully provided in the Indenture. So long as no Event of Default pursuant to Sections 5.1(c), (e), (f), (g) or (h) of the Indenture has occurred and is continuing, the Company shall have the right, at any time and from time to time during the term of this Security, to defer the payment of interest on this Security for -------------------------------------------------------------------------------- a period of up to twenty (20) consecutive quarterly interest payment periods (each such period, an “Extension Period”), during which Extension Period(s), no interest shall be due and payable (except any Additional Tax Sums that may be due and payable). No Extension Period shall end on a date other than an Interest Payment Date, and no Extension Period shall extend beyond the Stated Maturity of the principal of this Security. No interest shall be due and payable during an Extension Period (except any Additional Tax Sums that may be due and payable), except at the end thereof, but each installment of interest that would otherwise have been due and payable during such Extension Period shall bear Additional Interest (to the extent payment of such interest would be legally enforceable) at a variable rate per annum, reset quarterly, equal to LIBOR plus 1.73%, compounded quarterly, from the dates on which amounts would have otherwise been due and payable until paid or made available for payment. At the end of any such Extension Period, the Company shall pay all interest then accrued and unpaid on this Security, together with such Additional Interest. Prior to the termination of any such Extension Period, the Company may further defer the payment of interest; provided, that (i) all such previous and further extensions comprising such Extension Period do not exceed twenty (20) quarterly interest payment periods, (ii) no Extension Period shall end on a date other than an Interest Payment Date and (iii) no Extension Period shall extend beyond the Stated Maturity of the principal of this Security. Upon the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due on any Interest Payment Date, the Company may elect to begin a new Extension Period; provided, that (i) such Extension Period does not exceed twenty (20) quarterly interest payment periods, (ii) no Extension Period shall end on a date other than an Interest Payment Date, (iii) no Extension Period shall extend beyond the Stated Maturity of the principal of this Security and (iv) no Event of Default pursuant to Sections 5.1(c), (e), (f), (g) or (h) has occurred and is continuing. The Company shall give (i) the Holder of this Security, (ii) the Trustee, (iii) the Property Trustee and (iv) any beneficial owner of the Preferred Securities reasonably identified to the Company (which identification may be made either by such beneficial owner or by the Purchaser) written notice of its election to begin any such Extension Period no later than the close of business on the fifteenth (15th) Business Day prior to the next succeeding Interest Payment Date on which interest on this Security would be payable but for such deferral. During any such Extension Period, the Company shall 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 Company’s Equity Interests, (ii) vote in favor of or permit or otherwise allow any of its Subsidiaries to declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to or otherwise retire, any of such Subsidiary’s Equity Interests entitling the holders thereof to a stated rate of return, other than dividends or distributions on Equity Interests issued by any Subsidiary solely payable to the Company or any Subsidiary thereof (for the avoidance of doubt, whether such Equity Interests are perpetual or otherwise), or (iii) make any payment of principal of or any interest or premium on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to this Security (other than (a) repurchases, redemptions or other acquisitions of Equity Interests of the Company in connection with (1) any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors or consultants, (2) a dividend reinvestment or stockholder stock -------------------------------------------------------------------------------- purchase or similar plan with respect to any Equity Interests or (3) the issuance of Equity Interests of the Company (or securities convertible into or exercisable for such Equity Interests) as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of an exchange or conversion of any class or series of the Company’s Equity Interests (or any Equity Interests of a Subsidiary of the Company) for any class or series of the Company’s Equity Interests or of any class or series of the Company’s indebtedness for any class or series of the Company’s Equity Interests, (c) the purchase of fractional interests in Equity Interests of the Company pursuant to the conversion or exchange provisions of such Equity Interests or the security being converted or exchanged, (d) any declaration of a dividend in connection with any Rights Plan, the issuance of rights, Equity Interests or other property under any Rights Plan, or the redemption or repurchase of rights pursuant thereto or (e) any dividend in the form of Equity Interests, warrants, options or other rights where the dividend Equity Interests or the Equity Interests issuable upon exercise of such warrants, options or other rights are the same Equity Interests as those on which the dividend is being paid or rank pari passu with or junior to such Equity Interests). Payment of principal of, premium, if any, and interest on this Security shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of principal, premium, if any, and interest due at the Maturity of this Security shall be made at the office or agency of the Company maintained for that purpose in the Place of Payment upon surrender of such Securities to the Paying Agent, and payments of interest shall be made, subject to such surrender where applicable, by wire transfer at such place and to such account at a banking institution in the United States as may be designated in writing to the Paying Agent at least ten (10) Business Days prior to the date for payment by the Person entitled thereto unless proper written wire transfer instructions have not been received by the relevant record date, in which case such payments shall be made by check mailed to the address of such Person as such address shall appear in the Security Register. Notwithstanding the foregoing, so long as the Holder of this Security is the Property Trustee, the payment of the principal of (and premium, if any) and interest (including any overdue installment of interest and Additional Tax Sums, if any) on this Security will be made at such place and to such account as may be designated by the Property Trustee. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Debt, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Debt, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Company has duly executed this certificate this 15th day of December, 2006.   VALLEY FINANCIAL CORPORATION By:   /s/ Ellis L. Gutshall Name:   Ellis L. Gutshall Title:   President and CEO This represents Securities referred to in the within-mentioned Indenture. Dated:   WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Trustee By:       Authorized Officer -------------------------------------------------------------------------------- [FORM OF REVERSE OF SECURITY] This Security is one of a duly authorized issue of securities of the Company (the “Securities”) issued under the Junior Subordinated Indenture, dated as of December 15, 2006 (the “Indenture”), between the Company and Wilmington Trust Company, as Trustee (in such capacity, the “Trustee,” which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Debt and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. All terms used in this Security that are defined in the Indenture or in the Amended and Restated Trust Agreement, dated as of December 15, 2006 (as modified, amended or supplemented from time to time, the “Trust Agreement”), relating to Valley Financial Statutory Trust III (the “Trust”), among the Company, as Depositor, the trustees named therein and the holders from time to time of the Trust Securities issued pursuant thereto, shall have the meanings assigned to them in the Indenture or the Trust Agreement, as the case may be. The Company may, on any Interest Payment Date, at its option, upon not less than thirty (30) days’ nor more than sixty (60) days’ written notice to the Holders of the Securities (unless a shorter notice period shall be satisfactory to the Trustee) on or after January 30, 2012 and subject to the terms and conditions of Article XI of the Indenture, redeem this Security in whole at any time or in part from time to time at a Redemption Price equal to one hundred percent (100%) of the principal amount hereof, together, in the case of any such redemption, with accrued interest, including any Additional Interest, to but excluding the date fixed for redemption; provided, that the Company shall have received the prior approval of the Federal Reserve if then required. In addition, upon the occurrence and during the continuation of a Special Event, the Company may, at its option, upon not less than thirty (30) days’ nor more than sixty (60) days’ written notice to the Holders of the Securities (unless a shorter notice period shall be satisfactory to the Trustee), redeem this Security, in whole but not in part, subject to the terms and conditions of Article XI of the Indenture at the Special Event Redemption Price; provided, that the Company shall have received the prior approval of the Federal Reserve if then required. In the event of redemption of this Security in part only, a new Security or Securities for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than sixty (60) days prior to the Redemption Date by the Trustee from the Outstanding Securities not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security. The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Company and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the -------------------------------------------------------------------------------- Outstanding Securities. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest, including any Additional Interest, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar and duly executed by, the Holder hereof or such Holder’s attorney duly authorized in writing, and thereupon one or more new Securities, of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities are issuable only in registered form without coupons in minimum denominations of $100,000 and any integral multiple of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Company and, by its acceptance of this Security or a beneficial interest herein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree that, for United States federal, state and local tax purposes, it is intended that this Security constitute indebtedness. This Security shall be construed and enforced in accordance with and governed by the laws of the State of New York, without reference to its conflict of laws provisions (other than Section 5-1401 of the General Obligations Law). -------------------------------------------------------------------------------- Exhibit B Form of Financial Officer’s Certificate The undersigned, the [Chief Financial Officer] [Treasurer] [Assistant Treasurer] hereby certifies, pursuant to Section 7.3(b) of the Junior Subordinated Indenture, dated as of December 15, 2006, between Valley Financial Corporation (the “Company”) and Wilmington Trust Company, as trustee, that, as of             , 20    , the Company had the following ratios and balances:   BANK                                                                             HOLDING    COMPANY As of [Quarterly Financial Dates]    Tier 1 Risk Weighted Assets                 % Ratio of Double Leverage                 % Non-Performing Assets to Loans and OREO                 % Tangible Common Equity as a Percentage of Tangible Assets                 % Ratio of Reserves to Non-Performing Loans                 % Ratio of Net Charge-Offs to Loans                 % Return on Average Assets (annualized)                 % Net Interest Margin (annualized)                 % Efficiency Ratio                 % Ratio of Loans to Assets                 % Ratio of Loans to Deposits                 % Double Leverage (exclude trust preferred as equity)                 % Total Assets    $                  Year to Date Income    $                  -------------------------------------------------------------------------------- * A table describing the quarterly report calculation procedures is attached. [FOR FISCAL YEAR END: Attached hereto are the audited consolidated financial statements (including the balance sheet, income statement and statement of cash flows, and notes thereto, together with the report of the independent accountants thereon) of the Company and its consolidated subsidiaries for the three years ended             , 20    .] -------------------------------------------------------------------------------- [FOR FISCAL QUARTER END: Attached hereto are the unaudited consolidated and consolidating financial statements (including the balance sheet and income statement) of the Company and its consolidated subsidiaries for the fiscal quarter and [six/nine] month period ended                     , 20    .] The financial statements fairly present in all material respects, in accordance with U.S. generally accepted accounting principles (“GAAP”), the financial position of the Company and its consolidated subsidiaries, and the results of operations and changes in financial condition as of the date, and for the              [quarter interim] [annual] period ended                     , 20    , and such financial statements have been prepared in accordance with GAAP consistently applied throughout the period involved (except as otherwise noted therein). IN WITNESS WHEREOF, the undersigned has executed this Financial Officer’s Certificate as of this      day of                     , 20       Name: Title: Valley Financial Corporation 36 Church Avenue, SW Roanoke, Virginia 24011 (540) 342-2265 -------------------------------------------------------------------------------- Financial Definitions   Report Item        Corresponding FRY-9C or LP Line Items with Line Item corresponding Schedules        Description of Calculation Tier 1 Risk Weighted Assets      BHCK7206 Schedule HC-R      Tier 1 Risk Ratio: Core Capital (Tier 1)/ Risk-Adjusted Assets Ratio of Double Leverage      (BHCP0365)/(BCHCP3210) Schedule PC in the LP      Total equity investments in subsidiaries divided by the total equity capital. This field is calculated at the parent company level. “Subsidiaries” include bank, bank holding company, and non-bank subsidiaries. Non-Performing Assets to Loans and OREO      (BHCK5525-BHCK3506+BHCK5526-BHCK3507+BHCK2744/(BHCK2122+BHCK2744) Schedules HC-C, HC-M & HC-N      Total Nonperforming Assets (NPLs+Foreclosed Real Estate+Other Nonaccrual & Repossessed Assets)/Total Loans+Foreclosed Real Estate Tangible Common Equity as a Percentage of Tangible Assets      (BHDM3210-BHCK3163)/(BHCK2170-BHCK3163)   Schedule HC      (Equity Capital – Goodwill)/(Total Assets – Goodwill) Ratio of Reserves to Non-Performing Loans      (BHCK3123+BHCK3128)/(BHCK5525-BHCK3506+BHCK5526-BHCK3507)   Schedules HC & HC-N & HC-R      Total Loan Loss and Allocated Transfer Risk Reserves/ Total Nonperforming Loans (Nonaccrual + Restructured) Ratio of Net Charge-Offs to Loans      (BHCK4635-BHCK4605)/(BHCK3516)   Schedules HI-B & HC-K      Net charge offs for the period as a percentage of average loans. Return on Average Assets (annualized)      (BHCK4340/BHCK3368)   Schedules HI & HC-K      Net Income as a percentage of Assets. Net Interest Margin (annualized)      (BHCK4519/(BHCK3515+BHCK3365+BHCK3516+BH CK3401+BHCKB985)   Schedules HI Memorandum and HC-K      (Net Interest Income Fully Taxable Equivalent, if available/Average Earning Assets) -------------------------------------------------------------------------------- Report Item        Corresponding FRY-9C or LP Line Items with Line Item corresponding Schedules        Description of Calculation Efficiency Ratio      (BHCK4093)/(BHCK4519+BHCK4079)   Schedule HI      (Non-interest Expense)/(Net Interest Income Fully Taxable Equivalent, if available, plus Non-interest Income) Ratio of Loans to Assets      (BHCKB528+BHCK5369)/(BHCK2170)   Schedule HC      Total Loans & Leases (Net of Unearned Income & Gross of Reserve)/Total Assets Ratio of Loans to Deposits      (BHCKB528+BHCK5369)/(BHDM6631+BHDM6636+BHFN6631+B HFN6636)   Schedule HC      Total Loans & Leases (Net of Unearned Income & Gross of Reserve)/Total Deposits (Includes Domestic and Foreign Deposits) Total Assets      (BHCK2170)   Schedule HC      The sum of total assets. Includes cash and balances due from depository institutions; securities; federal funds sold and securities purchased under agreements to resell; loans and lease financing receivables; trading assets; premises and fixed assets; other real estate owned; investments in unconsolidated subsidiaries and associated companies; customer’s liability on acceptances outstanding; intangible assets; and other assets. Net Income      (BHCK4300)   Schedule HI      The sum of income (loss)before extraordinary items and other adjustments and extraordinary items; and other adjustments, net of income taxes. FORM OF OFFICERS’ CERTIFICATE UNDER SECTION 10.3   2 -------------------------------------------------------------------------------- Pursuant to Section 10.3 of the Junior Subordinated Indenture, dated as of December 15, 2006 (as amended or supplemented from time to time, the “Indenture”), between Valley Financial Corporation, as issuer (the “Company”), and Wilmington Trust Company, as trustee, each of the undersigned hereby certifies that, to the knowledge of the undersigned, the Company is not in default in the performance or observance of any of the terms, provisions or conditions contained in the Indenture (without regard to any period of grace or requirement of notice provided under the Indenture), for the fiscal year ending on             , 20    , [except as follows: specify each such default and the nature and status thereof]. Capitalized terms used herein, and not otherwise defined herein, have the respective meanings assigned thereto in the Indenture. IN WITNESS WHEREOF, the undersigned have executed this Officers’ Certificate as of             , 20    .     Name:   Title:   [Must be the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the President, or a Vice President] of Valley Financial Corporation   Name:   Title:   [Must be the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary] of Valley Financial Corporation  

  Exhibit 10.118 THIRD MODIFICATION AGREEMENT      THIS THIRD MODIFICATION AGREEMENT (this “Agreement”), effective as of the 30th day of November 2005, is by and between UNITED BANK, a Virginia banking corporation (the “Bank”); and VERSAR, INC. a Delaware corporation, GEOMET TECHNOLOGIES, LLC, a Maryland limited liability company, VERSAR GLOBAL SOLUTIONS, INC., a Virginia corporation, and VEC, INC., a Pennsylvania corporation and successor to Versar Environmental Company, Inc. (individually and collectively, the “Borrower”). WITNESSETH THAT:      WHEREAS, the Bank is the owner and holder of that certain Revolving Commercial Note dated September 26, 2003, in the amount of $5,000,000.00 made by the Borrower payable to the order of the Bank and bearing interest and being payable in accordance with the terms and conditions therein set forth (the “Note”); and      WHEREAS, the Note is issued pursuant to the terms of a certain Loan and Security Agreement dated September 26, 2003, between the Borrower and the Bank (as modified in accordance with that certain First Modification Agreement dated as of May 5, 2004, that certain Second Modification Agreement dated as of May 12, 2004, and as otherwise amended, extended, increased, replaced and supplemented from time to time, the “Loan Agreement”); and      WHEREAS, as of the effective date hereof, the principal balance of the Note is $ 0.00 and the parties hereto desire to modify the Loan Agreement.      NOW, THEREFORE, for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:      1. The maturity date of the Note is hereby extended to November 30, 2007. The definition of “Date of Maturity” in the Note and the Loan Agreement is hereby changed to “November 30, 2007”.      2. The Loan Agreement is hereby further modified by replacing “$6,500,000.00” with “$8,500,000.00” in Section VI(A)(4).      3. The other “Loan Documents”, as defined in the Note, are hereby modified to the extent necessary to carry out the purposes of this Agreement.      4. The Borrower hereby acknowledges and agrees that, as of the effective date hereof, the unpaid principal balance of the Note is $ 0.00 and that there are no set-offs or defenses against the Note, the Loan Agreement, or the other Loan Documents.      5. The parties to this Agreement do not intend that this Agreement be construed as a novation of the Note, the Loan Agreement, or any of the other Loan Documents.      5A. The interest rate on the Note is hereby reduced to the “Prime Rate” (as defined in the Note). 55 --------------------------------------------------------------------------------        6. Except as hereby expressly modified, the Note and Loan Agreement shall      otherwise be unchanged, shall remain in full force and effect, and are hereby expressly approved, ratified and confirmed. A legend shall be placed on the face of the Note indicating that its terms have been modified hereby, and the original of this Agreement shall be affixed to the original of the Note.      7. This Agreement shall be governed in all respects by the laws of the Commonwealth of Virginia and shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and assigns. WITNESS the following signatures and seals.                   UNITED BANK   [SEAL]                   By:   /S/ Dennis M. Coombe                                 Dennis M. Coombe                   Executive Vice President                       VERSAR, INC.   [SEAL]                   By:   /S/ Lawrence W. Sinnott                                 Name: Lawrence W. Sinnott                   Title: Exec. V.P., COO & CFO                       GEOMET TECHNOLOGIES, LLC   [SEAL]                   By:   /S/ Lawrence W. Sinnott                                 Name: Lawrence W. Sinnott                   Title: V.P. and Treasurer                       VERSAR GLOBAL SOLUTIONS, INC.   [SEAL]                   By:   /S/ Lawrence W. Sinnott                                 Name: Lawrence W. Sinnott                   Title: V.P. and Treasurer                       VEC, INC.   [SEAL]                   By:   /S/ Lawrence W. Sinnott                                 Name: Lawrence W. Sinnott                   Title: V.P. and Treasurer     56

  EXHIBIT 10.3 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE — GROSS (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS) 1. Basic Provisions (“Basic Provisions”).      1.1 Parties. This Lease (“Lease”), dated for reference purposes only August 28, 2004, is made by and between RICHARD E. BATTENSCHLAG and BOB B KAY (“Lessor”) and SILVERGRAPH LGT a DELAWARE LLC (“Lessee”), collectively the “Parties,” or individually a “Party”).      1.2 Premises. That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known as 11925-11927 Burke Street located in the County of Los Angeles, State of California and generally described as (describe briefly the nature of the property and, if applicable, the “Project” if the property is located within a Project) an approximately 9,150 sq. ft. Concrete Tilt-up Building      1.3 Term. Three (3) years and -0- months (“Original Term”) commencing October 1, 2004 (“Commencement Date”) and ending September 30, 2007 (“Expiration Date”). (See also Paragraph 3)      1.4 Early Possession: --- (“Early Possession Date”). (See also Paragraphs 3.2 and 3.3)      1.5 Base Rent: $5,900.00 per month (“Base Rent”), payable on the First day of each month commencing October 1, 2004. Per agreement, $2,000.00 off the first and last month’s rent. (See also Paragraph 4) o   If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.      1.6 Base Rent and Other Monies Paid Upon Execution:   (a)   Base Rent: $5,900.00 for the period October 1 through October 31, 2004 less $2,000.00 as per agreement.     (b)   Security Deposit: $5,900.00 (“Security Deposit”). (See also Paragraph 5)     (c)   Association Fees: $ -- for the period --     (d)   Other: $ -- for --     (e)   Total Due Upon Execution of this Lease: $9,800.00      1.7 Agreed Use: Graphic reproductions and any related lawful uses and general office use. (See also Paragraph 6).      1.8 Insuring Party. Lessor is the “Insuring Party”. The annual “Base Premium” is $1,733.00 (See also Paragraph 8)      1.9 Real Estate Brokers: (See also Paragraph 15)                (a) Representation. The following real estate brokers (the “Brokers”) and brokerage relationships exist in this transaction (check applicable boxes:           WL       BK           JRS   Page 1 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   o   ----- represents Lessor exclusively (“Lessor’s Broker”);   o   ----- represents Lessee exclusively (“Lessee’s Broker”); or   o   ----- represents both Lessor and Lessee (“Dual Agency”(.           (b) Payment to Brokers. Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of — or — % of the total Base Rent) for the brokerage services rendered by the Brokers.      1.10 Grantor. The obligations of the Lessee under this Lease are to be guaranteed by William Lee, James R. Simpson, James Martin (“Guarantor”) (See also Paragraph 37).      1.11 Attachments. Attached hereto are the following, all of which constitute a part of this Lease: þ   an Addendum consisting of Paragraphs 51 through 55;   o   a plot plan depicting the Premises;   o   a current set of the Rules and Regulations;   o   a Work Letter;   þ   other (specify): Rent adjustment — See Addendum Paragraph 52 2. Premises.      2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. Note: Lessee is advised to verify the actual size prior to executing this Lease.      2.2 Condition. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs (“Start Date”), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“HVAC”), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the surface and structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “Building”) shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense. The warranty periods shall be as follows: (i) 6           WL       BK           JRS   Page 2 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Building. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense, except for the roof, foundations, and bearing walls which are handled as provided in paragraph 7.      2.3 Compliance. Lessor warrants that the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances (“Applicable Requirements”) that were in effect at the time that each improvement, or portion thereof, was constructed. Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee Is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building (“Capital Expenditure”), Lessor and Lessee shall allocate the cost of such work as follows:           (a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months’ Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.           (b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor’s share of such costs have been fully paid. If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.           WL       BK           JRS   Page 3 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------             (c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not, however, have any right to terminate this Lease.      2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises; (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate td its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations of warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.      2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work. 3. Term.      3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.      3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.      3.3 Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate. If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.           WL       BK           JRS   Page 4 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------        3.4 Lessee Compliance. Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied. 4. Rent.      4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (“Rent”).      4.2 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States on or before the day on which it is due, without offset :or deduction (except as specifically permitted in this Lease). Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check. Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Operating Expense Increase, and any remaining amount to any other outstanding charges or costs.      4.3 Association Fees. In addition to the Base Rent, Lessee shall pay to Lessor each month an amount equal to any owner’s association or condominium fees levied or assessed against the Premises. Said monies shall be paid at the same time and in the same manner as the Base Rent. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or Incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts.           WL       BK           JRS   Page 5 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease. 6. Use.      6.1 Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its content to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.      6.2 Hazardous Substances.           (a) Reportable Uses Require Consent. The term “Hazardous Substance” as used in this Lease shall mean any product, substance, or waste whose presence, use; manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises,; is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements. “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.           (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as           WL       BK           JRS   Page 6 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.           (c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused of materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.           (d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties not caused or contributed to by Lessee). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.           (e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which result from Hazardous Substances which existed on the Premises prior to Lessee’s occupancy or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.           (f) Investigations and Remediations. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee’s occupancy, unless such !remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.           (g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and thin Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, ail Lessor’s option, either (1) investigate and remediate           WL       BK           JRS   Page 7 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease/ as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 1d days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.      6.3 Lessee’s Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the such Requirements, without regard to whether such Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor i writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.      6.4 Inspection; Compliance. Lessor and Lessor’s “Lender” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefor. 7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.      7.1 Lessee’s Obligations.           (a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lease , and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of           WL       BK           JRS   Page 8 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), ceilings, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Lessee is also responsible for keeping the roof and roof drainage clean and free of debris. Lessor shall keep the surface and structural elements of the roof, foundations, and bearing walls in good repair (see paragraph 7.2). Lessee, in keeping the Premises in !good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.           (b) Service Contracts. Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) clarifiers, (vi) basic utility feed to the perimeter of the Building, and (viii) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.           (c) Failure to Perform. If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.           (d) Replacement. Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (i.e. 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessors accountants. Lessee may, however, prepay its obligation at any time.      7.2 Lessor’s Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee, except for the surface and structural elements of the roof, foundations and bearing walls, the repair of which shall be the responsibility of Lessor upon receipt of written notice that such a repair is necessary. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance           WL       BK           JRS   Page 9 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.      7.3 Utility Installations; Trade Fixtures; Alterations.           (a) Definitions. The term “Utility Installations” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).           (b) Consent. Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.           (c) Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.      7.4 Ownership; Removal; Surrender; and Restoration.           WL       BK           JRS   Page 10 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------             (a) Ownership. Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall! be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.           (b) Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.           (c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises, or if applicable, the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below. 8. Insurance; Indemnity.      8.1 Payment of Premium Increases.           (a) Lessee shall pay to Lessor any insurance cost increase (“Insurance Cost Increase”) occurring during the term of this Lease. Insurance Cost Increase is defined as any increase in the actual cost of the insurance required under Paragraph 8.2(b), 8.3(a) and 8.3(b) (“Required Insurance”), over and above the Base Premium as hereinafter defined calculated on an annual basis. Insurance Cost Increase shall include but not be limited to increases resulting from the nature of Lessee’s occupancy, any act or omission of Lessee, requirements of the holder of mortgage or deed of trust covering the Premises, increased valuation of the Premises and/or a premium rate increase. The parties are encouraged to fill in the Base Premium in paragraph 1.9 with a reasonable premium for the Required Insurance based on the Agreed Use of the Premises. If the parties fail to insert a dollar amount in Paragraph 1.9, then the Base Premium shall be the lowest annum premium reasonably obtainable for the Required Insurance as of the commencement of the Original Term for the Agreed Use of the Premises. In           WL       BK           JRS   Page 11 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------              no event, however, shall Lessee be responsible for any portion of the increase in the premium cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence.           (b) Lessee shall pay any such Insurance Cost Increase to Lessor within 30 days after receipt by Lessee of a copy of the premium statement or other reasonable evidence of the amount due. If the insurance policies maintained hereunder cover other property besides the Premises, Lessor shall also deliver to Lessee a statement of the amount of such Insurance Cost Increase attributable only to the Premises showing in reasonable detail the manner in which such amount was computed. Premiums for policy periods commencing prior to, or extending beyond the term of this Lease, shall be prorated to correspond to the term of this Lease.      8.2 Liability Insurance.           (a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an “Additional Insured-Managers or Lessors of Premises Endorsement” and contain the “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.           (b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.      8.3 Property Insurance — Building, Improvements and Rental Value.           (a) Building and Improvements. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender or included in the Base Premium), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city           WL       BK           JRS   Page 12 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.           (b) Rental Value. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value insurance”). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. Lessee shall be liable for any deductible amount in the event of such loss.           (c) Adjacent Premises. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.      8.4 Lessee’s Property; Business Interruption Insurance.           (a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and (lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.           (b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.           (c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate td cover Lessee’s property, business operations or obligations under this Lease.      8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least B+, V, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 30 days prior to the expiration of such policies, furbish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.           WL       BK           JRS   Page 13 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------        8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.      8.7 Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.      8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury Is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the allure of Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom.      8.9 Failure to Provide Insurance. Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/ costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease. 9. Damage or Destruction.      9.1 Definitions.           (a) “Premises Partial Damage” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can           WL       BK           JRS   Page 14 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.           (b) “Premises Total Destruction” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.           (c) “Insured Loss” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.           (d) “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.           (e) “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.      9.2 Partial Damage — Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.           WL       BK           JRS   Page 15 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------        9.3 Partial Damage — Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably possible’ at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.      9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.      9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing,; if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this;’ Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.      9.6 Abatement of Rent; Lessee’s Remedies.           (a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.           (b) Remedies. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to           WL       BK           JRS   Page 16 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   terminate this Lease do a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.      9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.      9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. Real Property Taxes.      10.1 Definition. As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project, Lessors right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any Increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.      10.2           (a) Payment of Taxes. Lessor shall pay the Real Property Taxes applicable to the Premises provided, however, that Lessee shall pay to Lessor the amount, if any, by which Real Property Taxes applicable to the Premises Increase over the fiscal tax year during which the Commencement Date occurs (“Tax Increase”). Payment of any such Tax Increase shall be made by Lessee to Lessor within 30 days after receipt of Lessors written statement setting forth the amount due and the computation thereof. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect. In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that the Tax Increase be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent. Such monthly payment shall be an amount equal to the amount of the estimated installment of the Tax Increase divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable Tax Increase is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable Tax Increase. If the amount collected by Lessor is insufficient to pay the Tax Increase when due, Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. Advance payments may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee           WL       BK           JRS   Page 17 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit. TAX BASE $1608 .66. LESSEE to pay any TAX Base increase).      (b) Additional Improvements. Notwithstanding anything to the contrary in this Paragraph 10.2, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in Real Property Taxes assessed by reason of Alterations or Utility Installations placed upon the Premises by Lessee or at Lessee’s request.      10.3 Joint Assessment. If the Premises are not separately assessed, Lessee’s liability shall be an equitable proportion of the Tax Increase for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessors work sheets or such other information as may be reasonably available.      10.4 Personal Property Taxes. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property. 11. Utilities and Services. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessors reasonable control or in cooperation with governmental request or directions. 12. Assignment and Subletting.      12.1 Lessor’s Consent Required.           (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessors prior written consent.           (b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.           (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent           WL       BK           JRS   Page 18 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.           (d) An assignment or subletting without consent shall, at Lessors option, be a Default curable after notice per Paragraph 13.1(c), , or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.           (e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.      12.2 Terms and Conditions Applicable to Assignment and Subletting.           (a) Regardless of Lessor’s consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.           (b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessors right to exercise its remedies for Lessee’s Default or Breach.           (c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.           (d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.           (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)           (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by           WL       BK           JRS   Page 19 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.           (g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)      12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:           (a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee’s obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.           (b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall hot be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.           (c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.           (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.           (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. Default; Breach; Remedies.      13.1 Default; Breach. A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:           WL       BK           JRS   Page 20 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------             (a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.           (b) The failure of Lessee to mike any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.           (c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.           (d) A Default by Lessee as to, the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.           (e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. §101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.           (f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.           (g) If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this! Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.           WL       BK           JRS   Page 21 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------        13.2 Remedies. It Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, Insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with, or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:           (a) Terminate Lessee’s right toy possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.           (b) Continue the Lease and lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.           (c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.           WL       BK           JRS   Page 22 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------        13.3 Inducement Recapture. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions,” shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor ht the time of such acceptance.      13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.      13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest (“Interest”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.      13.6 Breach by Lessor.           (a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than’, 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 36 day period and thereafter diligently pursued to completion.           (b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that           WL       BK           JRS   Page 23 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to seek reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the, Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation Which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation. 15. Brokerage Fees.      15.1 Additional Commission. In addition to the payments owed pursuant to Paragraph 1.9 above, and unless Lessor and the Brokers otherwise agree in writing, Lesson agrees that: (a) If Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, If any, within which the Premises is located, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.      15.2 Assumption of Obligations. Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay arty amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.      15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other           WL       BK           JRS   Page 24 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto. 16. Estoppel Certificates.           (a) Each Party (as “Responding Party”) shall within 10 days after written notice from the other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may de reasonably requested by the Requesting Party.           (b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.           (c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser In confidence and shall be used only for the purposes herein set forth. 17. Definition of Lessor. The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all’ liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Days. Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days. 20. Limitation on Liability. The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to           WL       BK           JRS   Page 25 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction. 21. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the; foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker. 23. Notices.      23.1 Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.      23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine insufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day. 24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessors consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or           WL       BK           JRS   Page 26 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. Disclosures Regarding The Nature of a Real Estate Agency Relationship.           (a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:                (i) Lessor’s Agent. A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor’s agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.                (ii) Lessee’s Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills and care in performance of the agent’s duties, b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.                (iii) Agent Representing Both Lessor and Lessee. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost tare, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.           (b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker With respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker           WL       BK           JRS   Page 27 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.           (c) Lessor and Lessee agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential. 26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. 27. Cumulative Remedies. No remedy, or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it. 29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. Subordination; Attornment; Non-disturbance.      30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device”), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.      30.2 Attornment. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations hereunder, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or           WL       BK           JRS   Page 28 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor.      30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for` the execution and delivery of a Non-Disturbance Agreement.      30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein. 31. Attorneys’ Fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred. In addition, Lessor shall be entitled to attorneys’ fees, costs and expanses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation). 32. Lessor’s Access; Showing Premises; Repairs. Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee’s use of the Premises. All such activities shall be without abatement of rent or liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction. 34. Signs. Lessor may place on the Premises ordinary “For Sale” signs at anytime and ordinary “For Lease” signs during the last 6 months of the term hereof. Except for ordinary “for sublease” signs, Lessee           WL       BK           JRS   Page 29 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   shall not place any sign upon the Premises without Lessor’s prior written consent. All signs must comply with all Applicable Requirements. 35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate’ in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest. 36. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request. 37. Guarantor.      37.1 Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.      37.2 Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect. 38. Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof. 39. Options. If Lessee is granted an Option, as defined below, then the following provisions shall apply:      39.1 Definition. “Option” shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or           WL       BK           JRS   Page 30 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.      39.2 Options Personal To Original Lessee. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.      39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.      39.4 Effect of Default on Options.           (a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.           (b) The period of time within; which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).           (c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to; the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such !Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease. 40. Multiple Buildings. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations. 41. Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. Reservations. Lessor reserves 4 itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, (naps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.           WL       BK           JRS   Page 31 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   43. Performance Under Protest. If at, any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as It was not legally required to pay. 44. Authority; Multiple Parties; Execution.           (a) If either Party hereto is la corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority.           (b) If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.           (c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 45. Conflict. Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. Offer. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 47. Amendments. This Lease may be modified only in writing, signed by the Parties In interest at the time of the modification. As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises. 48. Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT. 49. Mediation and Arbitration of Disputes. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease ¨ is ¨ is not attached to this Lease. 50. Americans with Disabilities Act. Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be           WL       BK           JRS   Page 32 of 36   REB           Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO: 1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. 2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE. WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.                WL                 BK           JRS        Page 33 of 36      REB      Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.       Executed at: Santa Fe Springs, California   Executed at: Santa Fe Springs, California       on: 8/30/04   on: August 30, 2004       By LESSOR:   By LESSEE:       RICHARD E. BATTENSCHLAG   SILVERGRAPH LGT a DELAWARE and BOB B. KAY   CORPORATION LLC                       By:   /s/ Richard E. Battenschlag         By:   /s/ William W. Lee                             Name Printed: Richard E. Battenschlag       Name Printed: William W. Lee                           Title:   Owner       Title: Principal                           By:   /s/ Bob B. Kay       By:   /s/ James R. Simpson                                                 Name Printed: Bob B. Kay       Name Printed: James R. Simpson                           Title: Owner       Title: Principal                           Address:   24666 Dana Point Drive       Address:                                   Dana Point, California 92629                                                         Telephone: (949) 493-8549 (REB)       Telephone: ( )                                                                                       Facsimile: (714) 525-8578 (BBK)       Facsimile: ( )                                                                                       Federal ID No. 95-6168294       Federal ID No.                                                                                 WL                 BK           JRS        Page 34 of 36      REB      Initials       Initials       ©1997 — American Industrial Real Estate Association   FORM STG-8-7/01   --------------------------------------------------------------------------------   GUARANTY OF LEASE      WHEREAS, Richard E. Battenschlag and Bob B. Kay , hereinafter “Lessor”, and Silvergraph LGT , hereinafter “Lessee”, are about to execute a document entitled “Lease” dated August 28, 2004 , concerning the premises commonly known as 11925-11927 Burke Street, Wherein Lessor will lease the premises to Lessee, and      WHEREAS, James R. Martin, James R. Simpson and William W. Lee hereinafter “Guarantors” have a financial interest in Lessee, and      WHEREAS, Lessor would not execute the Lease if Guarantors did not execute and deliver to Lessor this Guarantee of Lease.      NOW THEREFORE, in consideration of the execution of the foregoing Lease by Lessor and as a material inducement to Lessor to execute said Lease, Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee the prompt payment by Lessee of all rents and all other sums payable by Lessee under said Lease and the faithful and prompt performance by Lessee of each and every one of the terms, conditions and covenants of said Lease to be kept and performed by Lessee.      It is specifically agreed that the terms of the foregoing Lease may be modified by agreement between Lessor and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor or any assignee of Lessor without consent or notice to Guarantors and that this Guaranty shall guarantee the performance of said Lease as so modified.      This Guaranty shall not be released, modified or affected by the failure or delay on the part of Lessor to enforce any of the rights or remedies of the Lessor under said Lease, whether pursuant to the terms thereof or at law or in equity.      No notice of default need be given to Guarantors, it being specifically agreed that the guarantee of the undersigned is a continuing guarantee under which Lessor may proceed immediately against Lessee and/or against Guarantors following any breach or default by Lessee or for the enforcement of any rights which Lessor may have as against Lessee under the terms of the Lease or at law or in equity.      Lessor shall have the right to proceed against Guarantors hereunder following any breach or default by Lessee without first proceeding against Lessee and without previous notice to or demand upon either Lessee or Guarantors.      Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b) demand of payment, presentation and protest, (c) all right to assert or plead any statute of limitations relating to this Guaranty or the Lease, (d) any right to require the Lessor to proceed against the Lessee or any other Guarantor or any other person or entity liable to Lessor, (e) any right to require Lessor to apply to any default, any security deposit or other security it may hold under the Lease, (f) any right to require Lessor to proceed under any other remedy Lessor may have before proceeding against Guarantors, (g) any right of subrogation.      Guarantors do hereby subrogate all existing or future indebtedness of Lessee to Guarantors to the obligations owed to Lessor under the Lease and this Guaranty.      If a Guarantor is married, such Guarantor expressly agrees that recourse may be had against his or her separate property for all of the obligations hereunder.   --------------------------------------------------------------------------------        The obligations of Lessee under the Lease to execute and deliver estoppel statements and financial statements, as therein provided, shall be deemed to also require the Guarantors hereunder to do and provide the same.      The term “Lessor” refers to and means the Lessor named in the Lease and also Lessor’s successors and assigns. So long as Lessor’s interest in the Lease, the leased premises or the rents, issues and profits therefrom, are subject to any mortgage or deed of trust or assignment for security, no acquisition by Guarantors of the Lessor’s interest shall affect the continuing obligation of Guarantors under this Guaranty which shall nevertheless continue in full force and effect for the benefit of the mortgagee, beneficiary, trustee or assignee under such mortgage, deed of trust or assignment and their successors and assigns.      The term “Lessee” refers to and means the Lessee named in the Lease and also Lessee’s successors and assigns.      In the event any action be brought by said Lessor against Guarantors hereunder to enforce the obligation of Guarantors hereunder, the unsuccessful party in such action shall pay to the prevailing party therein a reasonable attorney’s fee which shall be fixed by the court. If this Form has been filled in, it has been prepared for submission to your attorney for his approval. No representation or recommendation is made by the American Industrial Real Estate Association, the real estate broker or its agents or employees as to the legal sufficiency, legal effect, or tax consequences of this Form or the transaction relating thereto.                   Executed at Santa Fe Springs, California       /s/ William W. Lee                         on                             /s/ James R. Simpson                                         Address: 11925-11927 Burke Street       /s/ James R. Martin                                             Santa Fe Springs, California                      “GUARANTORS”          For this form, write: American Industrial Real Estate Association, 700 S. Flower Street, Suite 600, Los Angeles, Calif. 90017  

Exhibit 10.1 DEFERRED STOCK AWARD AGREEMENT UNDER THE MERCURY COMPUTER SYSTEMS, INC. 2005 STOCK INCENTIVE PLAN Name of Grantee: No. of Phantom Stock Units Granted: Grant Date: Pursuant to the Mercury Computer Systems, Inc. 2005 Stock Incentive Plan (the “Plan”) as amended through the date hereof, Mercury Computer Systems, Inc. (the “Company”) hereby grants a deferred stock award consisting of the number of phantom stock units listed above (an “Award”) to the Grantee named above. Each “phantom stock unit” shall relate to one share of Common Stock, par value $.01 per share (the “Stock”) of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan. 1. Restrictions on Transfer of Award. The Award shall not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, until (i) the phantom stock units have vested as provided in Section 2 of this Agreement, and (ii) shares have been issued pursuant to Section 4 of this Agreement. 2. Vesting of Phantom Stock Units. The phantom stock units shall vest in accordance with the schedule set forth below, provided in each case that the Grantee is then, and since the Grant Date has continuously been, employed by the Company or its Subsidiaries.   Incremental (Aggregate) Number of Phantom Stock Units Vested   Vesting Date                 3. Forfeiture. In the event the Grantee’s employment is terminated prior to the applicable vesting dates, all phantom stock units that have not previously been vested on such dates shall be immediately forfeited to the Company. 4. Receipt of Shares of Stock. (a) As soon as practicable following each vesting date, the Company shall direct its transfer agent to issue to the Grantee in book entry form the number of shares of Stock equal to the number of phantom stock units credited to the Grantee that have vested pursuant to Section 2 of this Agreement on such date in satisfaction of such phantom stock units. (b) In each instance above, the issuance of shares of Stock shall be subject to the payment by the Grantee by cash or other means acceptable to the Company of any federal, -------------------------------------------------------------------------------- state, local and other applicable taxes required to be withheld in connection with such issuance in accordance with Section 7 of this Agreement. The Grantee understands that once shares have been delivered by book entry to the Grantee in respect of the phantom stock units, the Grantee will be free to sell such shares of Stock, subject to applicable requirements of federal and state securities laws. 5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein. 6. Transferability of this Agreement. This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. 7. Tax Withholding. The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Grantee may elect to have the required minimum tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued, or (ii) transferring to the Company, a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due. 8. Miscellaneous. (a) Notice hereunder shall be given to the Company at its principal place of business, and shall be given to the Grantee at the address set forth below, or in either case at such other address as one party may subsequently furnish to the other party in writing. (b) This Agreement does not confer upon the Grantee any rights with respect to continuation of employment by the Company or any Subsidiary.   MERCURY COMPUTER SYSTEMS, INC. By:        Title:   2 -------------------------------------------------------------------------------- The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.     Dated: __________________________________________   _____________________________________________   Grantee’s Signature   Grantee’s name and address:   _____________________________________________   _____________________________________________   _____________________________________________   3

Exhibit 10.1     FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT AND TO UNSECURED NOTE DUE 2006   THIS FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT AND TO UNSECURED NOTE DUE 2006 (this “Amendment”), dated as of August 14, 2006, is entered into by and among BUTLER INTERNATIONAL, INC., a Maryland corporation, (the “Parent”), BUTLER SERVICE GROUP, INC., a New Jersey corporation (“BSG”), BUTLER SERVICES INTERNATIONAL, INC., a Delaware corporation (“BSI”), BUTLER TELECOM, INC., a Delaware corporation (“Butler Telecom”), BUTLER SERVICES, INC., a Delaware corporation (“Butler Services ”), BUTLER UTILITY SERVICE, INC., a Delaware corporation (“Butler Utility ”), BUTLER PUBLISHING, INC., a Delaware corporation (“Butler Publishing” and together with Parent, BSG, BSI, Butler Telecom, Butler Services, and Butler Utility, are referred to hereinafter each individually as “Company”, and individually and collectively, jointly and severally, as the “Companies”), and LEVINE LEICHTMAN CAPITAL PARTNERS III, L.P., a California limited partnership (the “Purchaser”). Terms used herein without definition shall have the meanings ascribed to them in, as applicable, the Securities Purchase Agreement or the Note (each as defined below). RECITALS A.           Pursuant to that certain Securities Purchase Agreement dated as of June 30, 2006 (as amended from time to time, the “Securities Purchase Agreement”), by and among the Companies, the guarantors named therein and the Purchaser, the Companies have previously issued and sold to the Purchaser their Unsecured Note Due 2006 in the original principal amount of $2,500,000, dated June 30, 2006 (as amended, modified and supplemented from time to time, the “Note”). B.           The Companies have requested that the Purchaser amend the Securities Purchase Agreement and the Note in order to have more time to satisfy the closing conditions set forth in Section 6.2 of the Securities Purchase Agreement, including issuing the Restated SEC Documents, which the Purchaser is willing to do in consideration of the terms and conditions set forth herein. C.           The Companies are entering into this Amendment with the understanding and agreement that, except as specifically provided herein, none of the Purchaser’s rights or remedies as set forth in the Securities Purchase Agreement, the Note or any other Investment Document is being waived or modified by the terms of this Amendment. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:     --------------------------------------------------------------------------------     1. Amendments to Securities Purchase Agreement. (a)          Section 1.1 of the Securities Purchase Agreement is hereby amended by adding the following defined term thereto in its proper alphabetical order: “ ‘Daily Cash Flow Forecast ’ shall mean a daily cash flow forecast, in form and substance satisfactory to the Purchaser, in its sole discretion, for the period commencing on August 14, 2006 and ending on August 25, 2006, including, without limitation, detailed information concerning cash collections, cash disbursements and net borrowing availability under the GECC Credit Documents.” (b)          Section 10.15(e) of the Securities Purchase Agreement is hereby amended and restated to read in its entirety as follows: “(e)        Minimum Excess Availability. (i) prior to the Final Closing, the Companies shall not permit their net borrowing availability under the GECC Credit Documents to be less than $2,000,000 as of August 24, 2006; and (ii) after the Final Closing, the Companies shall not permit Availability (as defined in the Bank Credit Documents), calculated on a monthly basis, to be less than the greater of (A) $2,500,000 or (B) such amount to be determined in the corresponding financial covenant set forth in the Bank Credit Documents. 2.           Amendment to Note. Section 2 of the Note is hereby amended and restated to read in its entirety as follows: “2.          Payment of Principal; Maturity Date. The Companies agree to pay the outstanding principal balance of, and other amounts owing under, this Note as follows: (a) in the amount of $1,000,000 on August 15, 2006 and (b) in an amount equal to the remaining outstanding principal balance, together with all accrued and unpaid interest on and all other unpaid amounts owing under this Note on August 25, 2006 (the “Maturity Date”).” 3.          Amendment Fee. In consideration of the agreements set forth herein, the Companies hereby agree, jointly and severally, to pay to Purchaser an amendment fee in immediately available funds in the amount of $100,000 (the “Amendment Fee”), which fee is non-refundable, fully-earned as of the date of this Amendment and due and payable on August 15, 2006. 4.          Effectiveness of this Amendment. Purchaser must have received the following items, in form and content acceptable to Purchaser in its sole discretion, before this Amendment is effective. (a)          This Amendment and the attached Acknowledgment, fully executed in a sufficient number of counterparts for distribution to all parties.   (b)   The Daily Cash Flow Forecast. (c)          Parent’s consolidated balance sheet as of June 30, 2006 and its consolidated income statement and cash flow statement for each of (i) the one month period ended June 30, 2006 and (ii) the six month period ended June 30, 2006.   2   --------------------------------------------------------------------------------   (d)          Payment of $20,000 of the fees and expenses of Purchaser incurred as of the date of this Amendment and payable by the Companies under Section 8.5 of the Securities Purchase Agreement and/or Section 12 of the Note. (e)          All accrued and unpaid interest due under the Note as of the date of this Amendment. (f)           All other documents and legal matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded, as required by Purchaser. 5.          Representations and Warranties. Each Company hereby represents and warrants as follows: (a)          Authority . Each Company has the requisite corporate power and authority to execute and deliver this Amendment, and to perform its obligations hereunder and under the Investment Documents (as amended or modified hereby) to which it is a party. The execution, delivery and performance by each Company of this Amendment have been duly approved by all necessary corporate action and no other corporate proceedings are necessary to consummate such transactions. (b)           Enforceability. This Amendment has been duly executed and delivered by each Company. This Amendment and each Investment Document (as amended or modified hereby) is the legal, valid and binding obligation of each Company, enforceable against such Company in accordance with its terms, and is in full force and effect. (c)          Due Execution. The execution, delivery and performance of this Amendment are within the power of each Company, have been duly authorized by all necessary corporate action, have received all necessary governmental approval, if any, and do not contravene any law or any contractual restrictions binding on such Company. (d)          No Default . No event has occurred and is continuing that constitutes a Default or an Event of Default. 6.          Choice of Law. The validity of this Amendment, its construction, interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the internal laws of the State of California governing contracts only to be performed in that State. 7.          Counterparts. This Amendment may be executed in any number of counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile or other similar method of electronic transmission shall be effective as delivery of a manually executed counterpart of this Amendment.   3   --------------------------------------------------------------------------------     8. Reference to and Effect on the Investment Documents. (a)          Upon and after the effectiveness of this Amendment, each reference in the Securities Purchase Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Securities Purchase Agreement, and each reference in the other Investment Documents to “the Securities Purchase Agreement,” “thereof” or words of like import referring to the Securities Purchase Agreement, shall mean and be a reference to the Securities Purchase Agreement as modified and amended hereby. (b)          Upon and after the effectiveness of this Amendment, each reference in the Note to “this Note”, “hereunder”, “hereof” or words of like import referring to the Note, and each reference in the other Investment Documents to “the Unsecured Notes”, “an Unsecured Note,” “thereof” or words of like import referring to the Note, shall mean and be a reference to the Note as modified and amended hereby. (c)          Except as specifically amended above, the Securities Purchase Agreement, the Note and all other Investment Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed and shall constitute the legal, valid, binding and enforceable obligations of the Companies to the Purchaser. (d)          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 Purchaser under any of the Investment Documents, nor constitute a waiver of any provision of any of the Investment Documents. (e)          To the extent that any terms and conditions in any of the Investment Documents shall contradict or be in conflict with any terms or conditions of the Securities Purchase Agreement or the Note, after giving effect to this Amendment, such terms and conditions are hereby deemed modified or amended accordingly to reflect the terms and conditions of the Securities Purchase Agreement and the Note as modified or amended hereby. 9.          Ratification. Each Company hereby restates, ratifies and reaffirms each and every term and condition set forth in the Securities Purchase Agreement and the Note, each as amended hereby, and the other Investment Documents effective as of the date hereof. 10.         Estoppel . To induce the Purchaser to enter into this Amendment, the Companies each hereby acknowledge and agree that, as of the date hereof, there exists no right of offset, defense, counterclaim or objection in favor of any Company as against the Purchaser with respect to the Securities Purchase Agreement, the Note or any other Investment Document. 11.         Integration. This Amendment, together with the other Investment Documents, incorporates all negotiations of the parties hereto with respect to the subject matter hereof and is the final expression and agreement of the parties hereto with respect to the subject matter hereof. 12.         Severability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, such provision shall be severable from the remainder of this Amendment and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. [signature pages follow]   4   --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. COMPANIES: BUTLER INTERNATIONAL INC., a Maryland corporation By:    \s\ Edward M. Kopko   Name: Edward M. Kopko Title: Chairman and CEO   BUTLER SERVICE GROUP, INC., a New Jersey corporation By:    \s\Edward M. Kopko   Name: Edward M. Kopko Title: CEO     BUTLER PUBLISHING, INC., a Delaware corporation By:    \s\ Edward M. Kopko   Name: Edward M. Kopko Title: CEO   BUTLER TELECOM, INC., a Delaware corporation By:    \s\ Edward M. Kopko   Name: Edward M. Kopko Title: CEO       S-1   --------------------------------------------------------------------------------     BUTLER SERVICES, INC., a Delaware corporation By:    \s\ Edward M. Kopko   Name: Edward M. Kopko Title: CEO   BUTLER UTILITY SERVICE, INC., a Delaware corporation By:    \s\ Edward M. Kopko   Name: Edward M. Kopko Title: CEO   PURCHASER: LEVINE LEICHTMAN CAPITAL PARTNERS, INC., a California corporation On behalf of LEVINE LEICHTMAN CAPITAL PARTNERS III, L.P. , a California limited partnership By:    \s\ Steven Hartman   Name: Steven Hartman Title: Vice President         S-2   --------------------------------------------------------------------------------   ACKNOWLEDGEMENT In connection with the foregoing First Amendment to Securities Purchase Agreement and Unsecured Note (the “Amendment”), each of the undersigned, being a “Guarantor” under their respective General Continuing Guaranties, dated June 30, 2006 (each a “Guaranty”), in favor of Purchaser (as defined in the Amendment), hereby acknowledges and agrees to the Amendment and confirms and agrees that its Guaranty is and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, upon the effectiveness of, and on and after the date of the Amendment, each reference in such Guaranty to the Securities Purchase Agreement or Note (as defined in the Amendment), “thereunder”, “thereof” or words of like import referring to the Securities Purchase Agreement or Note (as applicable), shall mean and be a reference to the Securities Purchase Agreement or Note (as applicable) as amended or modified by the Amendment. Although the Purchaser has informed the undersigned of the matters set forth above, and the undersigned have acknowledged the same, each of the undersigned understands and agrees that the Purchaser has no duty under the Securities Purchase Agreement, Note or any other Investment Document (as defined in the Amendment) to so notify any of the undersigned or to seek such an acknowledgement, and nothing contained herein is intended to or shall create such a duty as to any transaction hereafter.     \s\ Edward M. Kopko  EDWARD M. KOPKO, an individual     AAC CORP., a Delaware corporation By:    \s\ Edward M. Kopko   Name: Edward M. Kopko Title: CEO     SYLVAN INSURANCE CO., LTD., a company organized under the laws of Bermuda By:    \s\ Edward M. Kopko   Name: Edward M. Kopko Title: CEO       --------------------------------------------------------------------------------       DATA PERFORMANCE, INC., a New Jersey corporation By:    \s\ Edward M. Kopko   Name: Title:             --------------------------------------------------------------------------------  

  Exhibit 10.18 Form of Amendment to Key Executive Employment Protection Agreement      This amendment (this “Amendment”) to the Key Executive Employment Protection Agreement (the “Agreement”) between Landstar System, Inc., a Delaware corporation (the “Company”), and _______________ (the “Executive”), dated _______________ __, 200__, is entered into as of _______________, 200__.      WHEREAS, the parties to the Agreement desire to amend the Agreement in certain respects.      NOW THEREFORE, the Agreement is hereby amended as follows:      1. Section 2(a)(ii) of the Agreement is hereby deleted in its entirety and a new Section 2(a)(ii) shall be added to read as follows: (ii) the Shareholders of the Company approve a definitive agreement (a “Definitive Agreement”) (a) for the merger or other business combination of the Company with or into another corporation, a majority of the directors of which were not directors of the Company immediately prior to the merger and in which the shareholders of the Company immediately prior to the effective date of such merger directly or indirectly own less than 50% of the voting power in such corporation or (b) for the sale or other disposition of all or substantially all of the assets of the Company, and the transactions contemplated by such Definitive Agreement are, in either case, consummated;      2. The first sentence of Section 3(a) of the Agreement is hereby deleted in its entirety and a new first sentence of such Section 3(a) shall be added to read as follows: If (x) on or before the second anniversary of the Change in Control Date (i) the Company terminates the Executive’s employment for any reason other than for Cause or Disability or (ii) the Executive voluntarily terminates his employment for Good Reason or (y) the Executive voluntarily terminates his employment for any reason at any time within the 60-day period beginning on the 181st day following the Change in Control Date or (z) if the Executive’s employment is terminated by the Company for any reason other than death, Disability or Cause or by the Executive for Good Reason, after the execution of a Definitive Agreement but prior to   --------------------------------------------------------------------------------   the consummation thereof and the transaction contemplated by such Definitive Agreement are consummated, then the Company shall pay to the Executive the following amounts:      3. Except as set forth above, the Agreement shall remain in full force and effect in all respects.      IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the ___ day of _______________, 200__.             LANDSTAR SYSTEM, INC.       By:   /s/         Name:           Title:         Agreed and Accepted:             ____________________________ ____________________________ Date                         2

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Exhibit 10.1 INDUSTRIAL BUILDING LEASE (BUILD-TO-SUIT/TRIPLE NET) 1. BASIC TERMS. This Section 1 contains the Basic Terms of this Lease between Landlord and Tenant, named below. Other Sections of the Lease referred to in this Section 1 explain and define the Basic Terms and are to be read in conjunction with the Basic Terms.     1.1. Effective Date of Lease: August 22, 2006     1.2. Landlord: First Industrial Development Services, Inc.     1.3. Tenant: Cybex International, Inc.     1.4. Premises: Approximately 340,478 rentable square feet included in the Improvements (as defined on Exhibit B attached hereto) to be constructed pursuant to the terms of this Lease on land legally described on Exhibit A attached hereto.     1.5. Lease Term: fifteen (15) years (the “Initial Term”), commencing on the Commencement Date (as defined in Exhibit B attached hereto) and ending fifteen (15) Lease Years (as hereinafter defined) thereafter unless sooner terminated as provided in this Lease (the “Expiration Date”). The Initial Term, as the same may be extended pursuant to Addendum No. 1 for any Renewal Term provided therein, is hereinafter referred to as the “Term.” The term, “Lease Year,” refers to a period of twelve (12) consecutive calendar months, the first of which twelve (12) month periods is referred to as the “Initial Lease Year;” such Initial Lease Year is the period from the Commencement Date to the last day of the calendar month in which the first annual anniversary of the Commencement Date occurs.     1.6. Permitted Uses: (See Section 4.1) Warehousing, assembly manufacturing distribution and ancillary office     1.7. Tenant’s Guarantor: NONE     1.8. Brokers: (See Section 23; if none, so state): (A) Tenant’s Broker: NONE; and (B) Landlord’s Broker: NONE     1.9. Security/Damage Deposit: (See Section 4.3) $300,000.00     1.10. Exhibits to Lease: The following exhibits are attached to and made a part of this Lease: A (legal description); B (Construction of Improvements, inclusive of B-1 (Landlord Improvements), B-2 (Tenant Improvements), B-3 (Acceptance Agreement) and B-4 (Allowances); C (Tenant Operations Inquiry Form); D (Broom Clean Condition and Repair Requirements); Addendum No. 1 (Renewal Option); and E (Agreement of Purchase and Sale) 2. LEASE OF PREMISES; RENT. 2.1. Lease of Premises for Term. Landlord hereby leases the Premises to Tenant, and Tenant hereby rents the Premises from Landlord, for the Term and subject to the conditions of this Lease. 2.2. Types of Rental Payments. Tenant shall pay net base rent to Landlord in monthly installments, in advance, on the first day of each and every calendar month during the Term of this Lease (the “Base Rent”) in the amounts and for the periods as set forth below: Rental Payments   Lease Period    Annual Base Rent    Monthly Base Rent Year 1    $ 1,298,460    $ 108,205 Year 2    $ 1,298,460    $ 108,205 Year 3    $ 1,298,460    $ 108,205 Year 4    $ 1,377,936    $ 114,828 Year 5    $ 1,405,500    $ 117,125 Year 6    $ 1,433,616    $ 119,468 Year 7    $ 1,462,284    $ 121,857 Year 8    $ 1,491,528    $ 124,294 Year 9    $ 1,521,360    $ 126,780 Year 10    $ 1,551,792    $ 129,316 Year 11    $ 1,582,824    $ 131,902 Year 12    $ 1,614,480    $ 134,540 Year 13    $ 1,646,772    $ 137,231 Year 14    $ 1,679,712    $ 139,976 Year 15    $ 1,711,104    $ 142,592 -------------------------------------------------------------------------------- Tenant shall also pay all Operating Expenses (defined below) and any other amounts owed by Tenant hereunder, including amounts owed by Tenant pursuant to the Tri-Party Agreement (defined in Section 4.4 below) (collectively, “Additional Rent”). In the event any monthly installment of Base Rent or Additional Rent, or both, is not paid within 10 days of the date when due, a late charge in an amount equal to 5% of the then delinquent installment of Base Rent and/or Additional Rent (the “Late Charge”; the Late Charge, Default Interest, as defined in Section 22.3 below, Base Rent and Additional Rent are collectively be referred to as “Rent”), shall be paid by Tenant to Landlord, c/o First Industrial, L.P., 75 Remittance Drive, Suite 1066, Chicago, IL 60675-1066 or if sent by overnight courier, The Northern Trust Company, 350 North Orleans Street, 8th Floor Receipt and Dispatch, Chicago, IL 60654 Attn: First Industrial Development Services, Inc., Suite 1066 (or such other entity designated as Landlord’s management agent, if any, and if Landlord so appoints such a management agent, the “Agent”), or pursuant to such other directions as Landlord shall designate in this Lease or otherwise in writing. 2.3. Covenants Concerning Rental Payments; Initial and Final Rent Payments. Tenant shall pay the Rent promptly when due, without notice or demand, and without any abatement, deduction or setoff, except as specifically provided herein. No payment by Tenant, or receipt or acceptance by Agent or Landlord, of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or letter accompanying any payment be deemed an accord or satisfaction, and Agent or Landlord may accept such payment without prejudice to its right to recover the balance due or to pursue any other remedy available to Landlord. If the Commencement Date occurs on a day other than the first day of a calendar month, the Rent due for the first partial calendar month of the Term shall be prorated on a per diem basis (based on a 360 day, 12 month year) and paid to Landlord on the Commencement Date. 2.4. Net Lease. This is an absolutely net lease to Landlord. It is the intent of the parties hereto that the Base Rent payable under this Lease shall be an absolutely net return to Landlord and that Tenant shall pay all costs and expenses relating to the ownership and operation of the Premises and the business carried on therein, unless otherwise expressly provided to the contrary in this Lease. Any amount or obligation relating to the Premises that is not expressly declared (under this Lease) to be that of Landlord shall be deemed to be an obligation of Tenant, to be performed by Tenant, at Tenant’s expense. It is the intention of the parties hereto that the obligations of Tenant hereunder shall be separate and independent covenants and agreements, that the Base Rent and the Additional Rent shall continue to be payable in all events, and that the obligations of Tenant hereunder shall continue unaffected in all events, unless the requirement to pay or perform the same shall have been specifically terminated pursuant to an express provision of this Lease.   2 -------------------------------------------------------------------------------- 3. OPERATING EXPENSES. 3.1. Definitional Terms Relating to Additional Rent. For purposes of this Section and other relevant provisions of the Lease: 3.1.1. Operating Expenses. The term “Operating Expenses” shall mean all of the following: (i) all market-based premiums for commercial property, casualty, general liability, boiler, flood, earthquake, terrorism and all other types of insurance provided by Landlord and relating to the Premises, all reasonable administrative costs incurred in connection with the procurement and implementation of such insurance policies, and all deductibles paid by Landlord pursuant to insurance policies required to be maintained by Landlord under this Lease, provided at any time during the Term, upon forty-five (45) days prior written notice to Landlord, Tenant may obtain directly property insurance required by the terms of this Lease pursuant to the terms of Section 10.2.2 below, in which event, after such notice period has lapsed and Tenant has provided to Landlord evidence of such insurance, no future administrative costs or premiums shall be payable to Landlord, subject to the terms of Section 10 below; (ii) Taxes, as hereinafter defined in Section 3.1.2 (subject, however, to the last sentence of Section 3.1.2); (iii) dues, fees or other costs and expenses, of any nature, due and payable to any association or comparable entity to which Landlord, as owner of the Premises, is a member or otherwise belongs and that governs or controls any aspect of the ownership and operation of the Premises; and (iv) any real estate taxes and common area maintenance expenses levied against, or attributable to, the Premises under any declaration of covenants, conditions and restrictions, reciprocal easement agreement or comparable arrangement that encumbers and benefits the Premises and other real property (e.g. a business park). 3.1.2. Taxes. The term “Taxes,” as referred to in Section 3.1.1(iii) above shall mean (i) all governmental taxes, assessments, fees and charges of every kind or nature (other than Landlord’s income taxes and any taxes in substitution therefor), whether general, special, ordinary or extraordinary, due at any time or from time to time, during the Term and any extensions thereof, in connection with the ownership, leasing, or operation of the Premises, or of the personal property and equipment located therein or used in connection therewith; and (ii) any reasonable expenses incurred by Landlord in contesting such taxes or assessments and/or the assessed value of the Premises. For purposes hereof, Tenant shall be responsible for any Taxes that are due and payable at any time or from time to time during the Term and for any Taxes that are assessed, become a lien, or accrue during any Operating Year, which obligation shall survive the termination or expiration of this Lease. If Landlord so elects, by delivery of written notice to Tenant at any time during the Term, Tenant shall pay the Taxes directly to the taxing authority(ies), rather than to Landlord for payment to the taxing authority(ies), whereupon Tenant shall be required to pay all Taxes prior to the date on which they become delinquent and Tenant shall deliver to Landlord, promptly after Tenant’s payment of same, reasonable evidence of such payments. So long as Tenant is not in default under the Lease, Landlord shall not contest Taxes due during the Term without the prior consent of Tenant, not to be unreasonably withheld, conditioned or delayed. Landlord shall cooperate with Tenant (at no cost or expense to Landlord) in connection with any such contest which Tenant may choose to bring, provided, however, that as to any period for which the Development Agreement (defined below) prohibits or restricts any contest of Taxes, Tenant shall not contest any Taxes. Notwithstanding the foregoing, Tenant shall take no action, and Landlord shall not be required to take any action, which would cause or allow the taxing authority to take any enforcement action with respect to the Property or subject Landlord to any liability and Tenant shall be responsible for any interest or penalty arising in connection with Tenant’s failure to pay such Taxes in a timely manner in connection with Tenant’s contest of Taxes. Notwithstanding the foregoing or anything else herein to the contrary, the defined term “Taxes” shall be deemed to include (i) for so long as the Development Agreement by and between the Landlord and the City of Owatonna (the “City”), Minnesota (as amended, modified, or supplemented, the “Development Agreement”) is in effect, all ad valorum real estate taxes paid by Landlord, whether on not Landlord could have contested such Taxes or otherwise obtained relief in relation to such Taxes, and (ii) any and all amounts that are required to be paid by the Landlord pursuant to the Development Agreement in order to fund the tax increment required to be funded by the City of Owatonna therein. The Tenant agrees that prior to the termination date of the Development Agreement: (1) it will not seek administrative review or judicial review of the applicability of any tax statute relating to the taxation of real property contained on the Premises determined by any tax official to be applicable to the Premises or the Landlord or Tenant or raise the inapplicability of any such tax statute as a defense in any proceedings, including delinquent tax proceedings; provided, however, “tax statute” does not include any local ordinance or resolution levying a tax; (2) it will not seek administrative review or judicial review of the constitutionality of any tax statute relating to the taxation of real property contained on the Premises determined by any tax official to be applicable to the Premises or the Landlord or Tenant or raise the unconstitutionality of any such tax statute as a defense in any proceedings, including delinquent tax proceedings; provided, however, “tax statute” does not include any local ordinance or resolution levying a tax; (3) it will not seek any tax deferral or abatement, either presently or prospectively authorized under any other State or federal law, of the taxation of real property contained in the Premises between the date of the Development Agreement and the termination date of the Development Agreement.   3 -------------------------------------------------------------------------------- 3.1.3. Operating Year. The term “Operating Year” shall mean the calendar year commencing January 1st of each year (including the calendar year within which the Commencement Date occurs) during the Term. 3.2. Payment of Operating Expenses. Tenant shall pay, as Additional Rent and in accordance with the requirements of Section 3.3, all of the Operating Expenses, as set forth in Section 3.3. Additional Rent commences to accrue upon the Commencement Date. The Operating Expenses payable hereunder for the Operating Years in which the Term begins and ends shall be prorated to correspond to that portion of said Operating Years occurring within the Term. The Operating Expenses and any other sums due and payable under this Lease shall be adjusted upon receipt of the actual bills therefor, and the obligations of this Section 3 shall survive the termination or expiration of the Lease. 3.3. Payment of Additional Rent. Landlord shall have the right to reasonably estimate the Operating Expenses for each Operating Year. Upon Landlord’s or Agent’s notice to Tenant of such estimated amount, Tenant shall pay, on the first day of each month during that Operating Year, an amount (the “Estimated Additional Rent”) equal to the estimate of the Operating Expenses divided by 12 (or the fractional portion of the Operating Year remaining at the time Landlord delivers its notice of the estimated amounts due from Tenant for that Operating Year). If the aggregate amount of Estimated Additional Rent actually paid by Tenant during any Operating Year is less than Tenant’s actual ultimate liability for Operating Expenses for that particular Operating Year, Tenant shall pay the deficiency within 30 days of Landlord’s written demand therefor. If the aggregate amount of Estimated Additional Rent actually paid by Tenant during a given Operating Year exceeds Tenant’s actual liability for such Operating Year, the excess shall be credited against the Estimated Additional Rent next due from Tenant during the immediately subsequent Operating Year, except that in the event that such excess is paid by Tenant during the final Lease Year, then upon the expiration of the Term, Landlord or Agent shall pay Tenant the then-applicable excess promptly after determination thereof. 3.4. Audit. Tenant shall have the right, at Tenant’s sole cost and expense, to review and audit Landlord’s records with respect to any Operating Expenses. If such audit discloses discrepancies in the amounts paid, the appropriate adjustments shall be made. 4. USE OF PREMISES; SIGNAGE; SECURITY DEPOSIT. 4.1. Use of Premises. The Premises shall be used by the Tenant for the purpose(s) set forth in Section 1.6 above and for no other purpose whatsoever. Tenant shall not, at any time, use or occupy, or suffer or permit anyone to use or occupy, the Premises, or do or permit anything to be done in the Premises, in any manner that may (a) violate any Certificate of Occupancy for the Premises; (b) cause, or be liable to cause, injury to, or in any way impair the value or proper utilization of, all or any portion of the Premises (including, but not limited to, the structural elements of the Premises) or any equipment, facilities or systems therein; (c) constitute a violation of the laws and requirements of any public authority or the requirements of insurance bodies or the rules and regulations of the Premises, including any covenant, condition or restriction affecting the Premises; and (d) exceed the load bearing capacity of the floor of the Premises. On or prior to the date hereof, Tenant has completed and delivered for the benefit of Landlord a “Tenant Operations Inquiry Form” in the form attached hereto as Exhibit C describing the nature of Tenant’s proposed business operations at the Premises, which form is intended to, and shall be, relied upon by Landlord. From time to time during the Term (but no more often than once in any twelve month period unless Tenant is in default hereunder or unless Tenant assigns this Lease or subleases all or any portion of the Premises, whether or not in accordance with Section 8), Tenant shall provide an updated and current Tenant Operations Inquiry Form upon Landlord’s request. 4.2. Signage. Tenant may affix any sign of any size or character to any portion of the Premises, without prior written approval of Landlord, subject to and as permitted by the requirements of any governmental code or authority and/or park association rules. Tenant shall remove all signs of Tenant upon the expiration or earlier termination of this Lease and immediately repair any damage to the Premises caused by, or resulting from, such removal. 4.3. Security/Damage Deposit. Simultaneously with the execution and delivery of this Lease, Tenant shall deposit with Landlord or Agent the sum set forth in Section 1.9 above, in cash (the “Security”), representing security for the performance by Tenant of the covenants and obligations hereunder. The Security shall be held by Landlord or Agent, without interest, in favor of Tenant; provided, however, that no trust relationship shall be deemed created thereby; the Security may be commingled with other assets of Landlord; and Landlord shall not be required to pay any interest on the Security. If Tenant defaults in the performance of any of its covenants hereunder, Landlord or Agent may, without notice to Tenant, apply all or any part of the Security to the cure of such default or the payment of any sums then due from Tenant under this Lease (including, but not limited to, amounts due under Section 22.2 of this Lease as a consequence of termination of this Lease or Tenant’s right to possession), in addition to any other remedies available to Landlord. In the event the Security is so applied, Tenant shall, upon demand, immediately deposit with   4 -------------------------------------------------------------------------------- Landlord or Agent a sum equal to the amount so used. If Tenant fully and faithfully complies with all the covenants and obligations hereunder, the Security (or any balance thereof) shall be returned to Tenant within 30 days after the last to occur of (i) the date the Term expires or terminates or (ii) delivery to Landlord of possession of the Premises. Landlord may deliver the Security to any lender with a mortgage lien encumbering the Premises or to any Successor Landlord (defined below), and thereupon Landlord and Agent shall be discharged from any further liability with respect to the Security. 4.4. TIF Obligations. Tenant shall timely and duly perform all of its obligations pursuant to the Tri-Party Agreement (the “Tri-Party Agreement”), as amended, by and among the City, the Landlord and the Tenant, and the Business Subsidy Agreement, as amended, by and between Tenant and the City. Tenant shall not have caused, through any action or any failure to act by Tenant when and as required hereunder, Landlord to be in non-compliance with the Development Agreement by and between the Landlord and the City. 5. CONDITION AND DELIVERY OF PREMISES. 5.1. Condition of Premises. Landlord shall deliver the Premises in accordance with the requirements in Exhibit B hereto. Except as otherwise expressly provided in Exhibit B, Landlord shall not be obligated to make any repairs, replacements or improvements (whether structural or otherwise) of any kind or nature to the Premises in connection with, or in consideration of, this Lease. 5.2. Commencement Date. The Commencement Date shall be determined pursuant to Exhibit B. 6. SUBORDINATION; ESTOPPEL CERTIFICATES; ATTORNMENT. 6.1. Subordination and Attornment. Provided that Tenant is provided with a reasonable and customary subordination, nondisturbance and attornment agreement from the holder of any mortgage or deed of trust, this Lease is and shall be subject and subordinate at all times to (a) all ground leases or underlying leases that may now exist or hereafter be executed affecting the Premises and (b) any mortgage or deed of trust that may now exist or hereafter be placed upon, and encumber, any or all of (x) the Premises; (y) any ground leases or underlying leases for the benefit of the Premises; and (z) all or any portion of Landlord’s interest or estate in any of said items. Tenant shall execute and deliver, within ten (10) days of Landlord’s request, and in the form reasonably requested by Landlord (or its lender), any documents evidencing the subordination of this Lease. Tenant hereby covenants and agrees that Tenant shall attorn to any successor to Landlord. 6.2. Estoppel Certificate. Tenant agrees, from time to time and within 10 days after request by Landlord, to deliver to Landlord, or Landlord’s designee, an estoppel certificate stating such matters pertaining to this Lease as may be reasonably requested by Landlord. Failure by Tenant to timely execute and deliver such certificate shall constitute a Default, as defined below (without any obligation to provide any notice thereof or any opportunity to cure such failure to timely perform). 6.3. Transfer by Landlord. In the event of a sale or conveyance by Landlord of the Premises, the same shall operate to release Landlord from any liability for any of the covenants or conditions, express or implied, herein contained in favor of Tenant and first arising or accruing after the effective date of Landlord’s transfer of its interest in the Premises, provided such successor assumes in writing the obligations of Landlord arising after such assignment or conveyance and in such event Tenant agrees to look solely to Landlord’s successor in interest (“Successor Landlord”) with respect thereto and agrees to attorn to such successor; provided further that in the event of an assignment by Landlord of its interest in this Lease prior to the Commencement Date, Landlord shall nonetheless remain responsible for causing the Substantial Completion Date to occur and to provide the warranty pursuant to Section 7 of Exhibit B. 7. QUIET ENJOYMENT. Subject to the provisions of this Lease, so long as Tenant pays all of the Rent and performs all of its other obligations hereunder, Tenant shall not be disturbed in its possession of the Premises by Landlord, Agent or any other person lawfully claiming through or under Landlord. 8. ASSIGNMENT AND SUBLETTING. Tenant shall not (a) assign (whether directly or indirectly), in whole or in part, this Lease, or (b) allow this Lease to be assigned, in whole or in part, by operation of law or otherwise, including, without limitation, by transfer of a controlling interest (i.e. greater than a 25% interest) of stock, membership interests or partnership interests, or by merger or dissolution, which transfer of a controlling interest, merger or dissolution shall be deemed an assignment for purposes of this Lease, or (c) mortgage or pledge the Lease, or (d) sublet the Premises, in whole or in part, without (in the case of any or all of (a) through (d) above) the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Upon ten   5 -------------------------------------------------------------------------------- (10) days prior written notice to Landlord, Tenant may, without Landlord’s prior written consent, assign this Lease or sublease a portion of the Premises (i) to an entity in which Tenant is merged or consolidated or to an entity to which all or substantially all of Tenant’s assets are transferred, provided such merger, consolidation or transfer of assets is for a bona fide business purpose and not principally for the purpose of transferring Tenant’s leasehold estate or (ii) to any entity controlling Tenant, controlled by Tenant or under common control of Tenant. In no event shall any assignment or sublease ever release Tenant or any guarantor from any obligation or liability hereunder; and in the case of any assignment, Landlord shall retain all rights with respect to the Security. Any purported assignment, mortgage, transfer, pledge or sublease made without the prior written consent of Landlord shall be absolutely null and void. No assignment of this Lease shall be effective and valid unless and until the assignee executes and delivers to Landlord any and all documentation reasonably required by Landlord in order to evidence assignee’s assumption of all obligations of Tenant hereunder. Regardless of whether or not an assignee or sublessee executes and delivers any documentation to Landlord pursuant to the preceding sentence, any assignee or sublessee shall be deemed to have automatically attorned to Landlord in the event of any termination of this Lease. If this Lease is assigned, or if the Premises (or any part thereof) are sublet or used or occupied by anyone other than Tenant, whether or not in violation of this Lease, Landlord or Agent may (without prejudice to, or waiver of its rights), collect Rent from the assignee, subtenant or occupant. 9. COMPLIANCE WITH LAWS. 9.1. Compliance with Laws. Landlord shall deliver the Premises to Tenant in accordance with the terms of Exhibit B hereto. After the Premises are delivered to Tenant, Tenant shall, at its sole expense (regardless of the cost thereof), comply with all local, state and federal laws, rules, regulations and requirements now or hereafter in force and all judicial and administrative decisions in connection with the enforcement thereof (collectively, “Laws”), whether such Laws (a) pertain to either or both of the Premises and Tenant’s use and occupancy thereof; (b) concern or address matters of an environmental nature; (c) require the making of any structural, unforeseen or extraordinary changes; and (d) involve a change of policy on the part of the body enacting the same, including, in all instances described in (a) through (d), but not limited to, the Americans With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.). If any license or permit is required for the conduct of Tenant’s business in the Premises, Tenant, at its expense, shall procure such license prior to the Commencement Date, and shall maintain such license or permit in good standing throughout the Term. Tenant shall give prompt notice to Landlord of any written notice it receives of the alleged violation of any Law or requirement of any governmental or administrative authority with respect to either or both of the Premises and the use or occupation thereof. 9.2. Hazardous Materials. If, at any time or from time to time during the Term (or any extension thereof), any Hazardous Material (defined below) is generated, transported, stored, used, treated or disposed of at, to, from, on or in the Premises by, or as a result of any act or omission of, any or all of Tenant and any or all of Tenant Parties (defined below): (i) Tenant shall, at its own cost, at all times comply (and cause all others to comply) with all Laws relating to Hazardous Materials, and Tenant shall further, at its own cost, obtain and maintain in full force and effect at all times all permits and other approvals required in connection therewith; (ii) Tenant shall promptly provide Landlord or Agent with complete copies of all communications, permits or agreements with, from or issued by any governmental authority or agency (federal, state or local) or any private entity relating in any way to the presence, release, threat of release, or placement of Hazardous Materials on or in the Premises or any portion of the Premises, or the generation, transportation, storage, use, treatment, or disposal at, on, in or from the Premises, of any Hazardous Materials; (iii) at any time after Landlord has a reasonable basis to believe that Tenant is not in compliance with this Section 9 or if any claim is made or threatened by any governmental authority or agency, Landlord, Agent and their respective agents and employees shall have the right to either or both (x) enter the Premises and (y) conduct appropriate tests, at Tenant’s expense, for the purposes of ascertaining Tenant’s compliance with all applicable Laws or permits relating in any way to the generation, transport, storage, use, treatment, disposal or presence of Hazardous Materials on, at, in or from all or any portion of the Premises; and (iv) upon written request by Landlord or Agent, Tenant shall cause to be performed, and shall provide Landlord with the results of reasonably appropriate tests of air, water or soil to demonstrate that Tenant complies with all applicable Laws or permits relating in any way to the generation, transport, storage, use, treatment, disposal or presence of Hazardous Materials on, at, in or from all or any portion of the Premises. This Section 9.2 does not authorize the generation, transportation, storage, use, treatment or disposal of any Hazardous Materials at, to, from, on or in the Premises in contravention of this Section 9. Tenant covenants to investigate, clean up and otherwise remediate, at Tenant’s sole expense, any release of Hazardous Materials caused, contributed to, or created by any or all of (A) Tenant and (B) any or all of Tenant’s officers, directors, members, managers, partners, invitees, agents, employees, contractors or representatives (“Tenant Parties”) during the Term. Such investigation and remediation shall be performed only after Tenant has obtained Landlord’s prior written consent; provided, however, that Tenant shall be entitled to respond (in a reasonably appropriate manner) immediately to an emergency without first obtaining such consent. All remediation shall be performed in strict compliance with Laws and to the reasonable satisfaction of Landlord. Tenant shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to any Hazardous Materials in any way connected to the Premises without first   6 -------------------------------------------------------------------------------- obtaining Landlord’s written consent (which consent may be given or withheld in Landlord’s sole, but reasonable, discretion) and affording Landlord the reasonable opportunity to participate in any such proceedings. As used herein, the term, “Hazardous Materials,” shall mean any waste, material or substance (whether in the form of liquids, solids or gases, and whether or not airborne) that is or may be deemed to be or include a pesticide, petroleum, asbestos, polychlorinated biphenyl, radioactive material, urea formaldehyde or any other pollutant or contaminant that is or may be deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or injurious, or that presents a risk to public health or to the environment, and that is or becomes regulated by any Law. The undertakings, covenants and obligations imposed on Tenant under this Section 9.2 shall survive the termination or expiration of this Lease. 10. INSURANCE. 10.1. Insurance to be Maintained by Landlord. Landlord shall maintain: (a) a commercial property insurance policy covering the Premises (at its full replacement cost), but excluding Tenant’s personal property; (b) commercial general public liability insurance covering Landlord for claims arising out of liability for bodily injury, death, personal injury, advertising injury and property damage occurring in and about the Premises and otherwise resulting from any acts and operations of Landlord, its agents and employees; (c) rent loss insurance; (d) any other insurance coverage required by Landlord’s lender; and (e) or cause the General Contractor to maintain during the course of construction through Substantial Completion of the Improvements, Builder’s Risk insurance. All of the coverages described in (a) through (e) shall be reasonably determined from time to time by Landlord, as would be made by a prudent owner of similar property as the Premises. All insurance maintained by Landlord shall be in addition to and not in lieu of the insurance required to be maintained by the Tenant. 10.2. Insurance to be Maintained by Tenant. Tenant shall purchase, at its own expense, and keep in force at all times from and after the date of this Lease, the policies of insurance set forth below (collectively, “Tenant’s Policies”). All Tenant’s Policies shall (a) be issued by an insurance company with a Best’s rating of A or better and otherwise reasonably acceptable to Landlord and shall be licensed to do business in the state in which the Premises is located; (b) provide that said insurance shall not be canceled or materially modified unless 30 days’ prior written notice shall have been given to Landlord; (c) provide for deductible amounts that are reasonably acceptable to Landlord (and its lender, if applicable) and (d) otherwise be in such form, and include such coverages, as Landlord may reasonably require. The Tenant’s Policies described in (i) and (ii) below shall (1) provide coverage on an occurrence basis; (2) name Landlord (and its lender, if applicable) as an additional insured; (3) provide coverage, to the extent insurable, for the indemnity obligations of Tenant under this Lease; (4) contain a separation of insured parties provision; (5) be primary, not contributing with, and not in excess of, coverage that Landlord may carry; and (6) provide coverage with no exclusion for a pollution incident arising from a hostile fire. All Tenant’s Policies or Certificates of Insurance shall be delivered to Landlord prior to the Commencement Date and renewals thereof shall be delivered to Landlord’s notice addresses at least 30 days prior to the applicable expiration date of each Tenant’s Policy. In the event that Tenant fails, at any time or from time to time, to comply with the requirements of the preceding sentence, Landlord may following notice to Tenant order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant to Landlord upon demand, as Additional Rent. Tenant shall give prompt notice to Landlord and Agent of any known bodily injury, death, personal injury, advertising injury or property damage occurring in and about the Premises. 10.2.1. Tenant shall purchase and maintain, throughout the Term, a Tenant’s Policy(ies) of (i) commercial general or excess liability insurance, including personal injury and property damage, in the amount of not less than $1,000,000.00 per occurrence, $2,000,000.00 annual general aggregate, and $4,000,000 umbrella per location; (ii) comprehensive automobile liability insurance covering Tenant against any personal injuries or deaths of persons and property damage based upon or arising out of the ownership, use, occupancy or maintenance of a motor vehicle at the Premises and all areas appurtenant thereto in the amount of not less than $1,000,000, combined single limit; (iii) commercial property insurance covering Tenant’s personal property (at its full replacement cost); and (iv) workers’ compensation insurance per the applicable state statutes covering all employees of Tenant. 10.2.2. Provided Tenant is not in default under this Lease and has not assigned its interest in this Lease to Landlord, to procure and pay directly for the commercial property insurance covering the Property. Tenant’s property insurance policy shall name Landlord (and its lender, if applicable) as mortgagee loss payee as its interest may appear, and cover all improvements at any time situated upon the Premises, including, without limitation, the Improvements, the parking areas, against loss or damage by fire, lighting, wind storm, hail storm, aircraft, vehicles, smoke, explosion, riot or civil commotion as provided by the Standard Fire and Extended Coverage Policy and all other risks of direct physical loss as insured against under Special Form (“all risk” coverage). The insurance coverage shall be for not less than 100% of the full replacement cost of such improvements with agreed amount endorsement and building ordinance coverage and shall include rental interruption insurance for twelve (12) months of rent and operating expenses reimbursement.   7 -------------------------------------------------------------------------------- 10.3. Waiver of Subrogation. Notwithstanding anything to the contrary in this Lease, Landlord and Tenant mutually waive their respective rights of recovery against each other and each other’s officers, directors, constituent partners, members, agents and employees, and Tenant further waives such rights against (a) each lessor under any ground or underlying lease encumbering the Premises and (b) each lender under any mortgage or deed of trust or other lien encumbering the Premises (or any portion thereof or interest therein), to the extent any loss is insured against or required to be insured against under this Lease, including, but not limited to, losses, deductibles or self-insured retentions covered by Landlord’s or Tenant’s commercial property policies described above. This provision is intended to waive, fully and for the benefit of each party to this Lease, any and all rights and claims that might give rise to a right of subrogation by any insurance carrier. Each party shall cause its respective insurance policy(ies) to be endorsed to evidence compliance with such waiver. 11. ALTERATIONS. From and after the Commencement Date, Tenant may, from time to time, at its expense, make alterations or improvements in and to the Premises (hereinafter collectively referred to as “Alterations”), provided that Tenant first obtains the written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, that Tenant may make any interior, non-structural Alterations costing less than $50,000 per Alteration and less than $150,000 in the aggregate for all Alterations occurring during a particular calendar year without obtaining Landlord’s consent, provided that Tenant shall provide Landlord with 5 days written notice prior to the commencement of any such Alterations for which Landlord’s consent is not required and Tenant complies with the requirements set forth below in this Section 11. All of the following shall apply with respect to all Alterations: (a) the Alterations are non-structural and the structural integrity of the Premises shall not be affected; (b) the Alterations are to the interior of the Premises; (c) the proper functioning of the mechanical, electrical, heating, ventilating, air-conditioning (“HVAC”), sanitary and other service systems of the Premises shall not be affected and the usage of such systems by Tenant shall not be increased; and (d) Tenant shall have appropriate insurance coverage, reasonably satisfactory to Landlord, regarding the performance and installation of the Alterations. Additionally, before proceeding with any Alterations, Tenant shall (i) at Tenant’s expense, obtain all necessary governmental permits and certificates for the commencement and prosecution of Alterations; (ii) if Landlord’s consent is required for the planned Alteration, submit to Landlord, for its written approval, working drawings, plans and specifications and all permits for the work to be done and Tenant shall not proceed with such Alterations until it has received Landlord’s approval (if required); and (iii) cause those contractors, materialmen and suppliers engaged to perform the Alterations to deliver to Landlord certificates of insurance (in a form reasonably acceptable to Landlord) evidencing policies of commercial general liability insurance (providing the same coverages as required in Section 10.2 above) and workers’ compensation insurance. Such insurance policies shall satisfy the obligations imposed under Section 10.2. Tenant shall cause the Alterations to be performed in compliance with all applicable permits, Laws and requirements of public authorities, and with Landlord’s reasonable rules and regulations or any other restrictions that Landlord may impose on the Alterations. Tenant shall cause the Alterations to be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to the standards for the Premises established by Landlord. With respect to any and all Alterations for which Landlord’s consent is required, Tenant shall provide Landlord with “as built” plans, copies of all construction contracts, governmental permits and certificates and proof of payment for all labor and materials, including, without limitation, copies of paid invoices and final lien waivers. If Landlord’s consent to any Alterations is required, and Landlord provides that consent, then at the time Landlord so consents, Landlord shall also advise Tenant whether or not Landlord shall require that Tenant remove such Alterations at the expiration or termination of this Lease. If Landlord requires Tenant to remove the Alterations, then, during the remainder of the Term, Tenant shall be responsible for the maintenance of appropriate commercial property insurance (pursuant to Section 10.2) therefor; however, if Landlord shall not require that Tenant remove the Alterations, such Alterations shall constitute Landlord’s Property and Landlord shall be responsible for the insurance thereof, pursuant to Section 10.1. 12. LANDLORD’S AND TENANT’S PROPERTY. All fixtures, machinery, equipment, improvements and appurtenances attached to, or built into, the Premises at the commencement of, or during the Term, whether or not placed there by or at the expense of Tenant, but excluding all machinery, equipment and such fixtures purchased by Tenant not pertaining to the operating systems of the Building and pertaining to Tenant’s business, shall become and remain a part of the Premises; shall be deemed the property of Landlord (the “Landlord’s Property”), without compensation or credit to Tenant; and shall not be removed by Tenant at the Expiration Date unless Landlord requires their removal (including, but not limited to, Alterations pursuant to Section 11). Further, any personal property in the Premises on the Commencement Date, movable or otherwise, unless installed and paid for by Tenant, shall also constitute Landlord’s Property and shall not be removed by Tenant. In no event shall Tenant remove any of the following materials or equipment without Landlord’s prior written consent (which consent may be given or withheld in Landlord’s sole discretion): any power wiring or power panels, lighting or lighting fixtures, wall or window coverings, carpets or other floor coverings, heaters, air conditioners or any other HVAC equipment, fencing or security gates, or other similar building operating equipment and decorations. At or before the Expiration Date, or the date of any earlier termination, Tenant, at its expense, shall remove from the Premises all of Tenant’s personal property and any Alterations that Landlord requires be removed pursuant to Section 11, and Tenant shall repair (to Landlord’s reasonable satisfaction) any damage to the Premises resulting from either or both   8 -------------------------------------------------------------------------------- such installation and removal. Without respect to the portion of Tenant’s Property that is described as collateral pursuant to any third party financing for Tenant’s Property, Landlord agrees to waive any lien, statutory or otherwise, that Landlord may have with respect to such Tenant’s Property for the duration of such third party financing, provided, however, that such waiver shall not relieve Tenant of the obligation to remove Tenant’s Property from the Premises on a timely basis and provided further that Landlord’s waiver of lien shall not apply to any of Tenant’s Property that is not subject to or that is released from the lien created by the third party financing obtained by Tenant. Landlord agrees to execute a Landlord’s waiver in a form reasonably acceptable to Landlord, provided that Tenant’s Property is specifically described thereon and does not include any of Landlord’s Property and subject to the other terms and conditions of this Lease. Any other items of Tenant’s personal property that remain in the Premises after the Expiration Date, or following an earlier termination date, may, at the option of Landlord, be deemed to have been abandoned, and in such case, such items may be retained by Landlord as its property or be disposed of by Landlord, in Landlord’s sole and absolute discretion and without accountability, at Tenant’s expense. 13. REPAIRS AND MAINTENANCE. 13.1. Tenant Responsibilities. Tenant acknowledges that, with full awareness of its obligations under this Lease, Tenant has accepted the condition, state of repair and appearance of the Premises, subject to the obligations of Landlord pursuant to Exhibit B. Except for (a) Landlord’s obligations under Exhibit B and (b) events of damage, destruction or casualty to the Premises (as addressed in Section 18 below), Tenant agrees that, at its sole expense, it shall put, keep and maintain the Premises, including any Alterations and any altered, rebuilt, additional or substituted buildings, structures and other improvements thereto or thereon, in the same condition that exists on the Commencement Date (reasonable wear and tear excepted), and in a safe condition, repair and appearance (collectively, the “Required Condition”) and shall make all repairs and replacements necessary therefor. Without limiting the foregoing, Tenant shall promptly make all structural and nonstructural, foreseen and unforeseen, ordinary and extraordinary changes, replacements and repairs of every kind and nature, and correct any patent or latent defects in the Premises, which may be required to put, keep and maintain the Premises in the Required Condition. Tenant will keep the Premises orderly and free and clear of rubbish. Tenant covenants to perform or observe all terms, covenants and conditions of any easement, restriction, covenant, declaration or maintenance agreement (collectively, “Easements”) to which the Premises are currently subject or become subject pursuant to this Lease, whether or not such performance is required of Landlord under such Easements, including, without limitation, payment of all amounts due from Landlord or Tenant (whether as assessments, service fees or other charges) under such Easements. Tenant shall deliver to Landlord promptly, but in no event later than five (5) business days after receipt thereof, copies of all written notices received from any party thereto regarding the non-compliance of the Premises or Landlord’s or Tenant’s performance of obligations under any Easements. Tenant shall, at its expenses, use reasonable efforts to enforce compliance with any Easements benefiting the Premises by any other person or entity or property subject to such Easement. Except with respect to Landlord’s obligations under Exhibit B, Landlord shall not be required to maintain, repair or rebuild, or to make any alterations, replacements or renewals of any nature to the Premises, or any part thereof, whether ordinary or extraordinary, structural or nonstructural, foreseen or not foreseen, or to maintain the Premises or any part thereof in any way or to correct any patent or latent defect therein. Tenant hereby expressly waives any right to make repairs at the expense of Landlord which may be provided for in any Law in effect at the Commencement Date or that may thereafter be enacted. If Tenant shall vacate or abandon the Premises, it shall give Landlord immediate written notice thereof. 13.2. HVAC Maintenance Contract. Tenant shall also maintain, in full force and effect, a preventative maintenance and service contract with a reputable service provider for maintenance of the HVAC systems of the Premises (the “HVAC Maintenance Contract”). Such HVAC Maintenance Contract may commence immediately following the expiration of the one-year warranty relating to the HVAC system, as described in Exhibit B hereto. The terms and provisions of any such HVAC Maintenance Contract shall require that the service provider maintain the Premises’ HVAC system in accordance with the manufacturer’s recommendations and otherwise in accordance with normal, customary and reasonable practices in the geographic area in which the Premises is located and for HVAC systems comparable to the Premises’ HVAC system. Within 30 days following the Commencement Date, Tenant shall procure and deliver to Landlord the HVAC Maintenance Contract. Thereafter, upon written request, Tenant shall provide to Landlord a copy of renewals or replacements of such HVAC Maintenance Contract no later than 30 days prior to the then-applicable expiry date of the existing HVAC Maintenance Contract. If Tenant fails to timely deliver to Landlord the HVAC Maintenance Contract (or any applicable renewal or replacement thereof), then Landlord shall have the right to contract directly for the periodic maintenance of the HVAC systems in the Premises and to charge the cost thereof back to Tenant as Additional Rent. 14. UTILITIES. Tenant shall purchase all utility services and shall provide for scavenger, cleaning and extermination services. Tenant shall pay the utility charges for the Premises directly to the utility or municipality providing such service, all charges shall be paid by Tenant before they become delinquent. Tenant shall be solely responsible for the repair and maintenance of any   9 -------------------------------------------------------------------------------- meters necessary in connection with such services. Tenant’s use of electrical energy in the Premises shall not, at any time, exceed the capacity of either or both of (x) any of the electrical conductors and equipment in or otherwise servicing the Premises; and (y) the HVAC systems of the Premises. 15. INVOLUNTARY CESSATION OF SERVICES. Landlord reserves the right, without any liability to Tenant and without affecting Tenant’s covenants and obligations hereunder, to stop service of any or all of the HVAC, electric, sanitary, elevator (if any), and other systems serving the Premises, or to stop any other services required by Landlord under this Lease, whenever and for so long as may be necessary by reason of (i) accidents, emergencies, strikes, or (ii) any other cause beyond Landlord’s reasonable control. Further, it is also understood and agreed that Landlord or Agent shall have no liability or responsibility for a cessation of services to the Premises that occurs as a result of causes beyond Landlord’s or Agent’s reasonable control. No such interruption of service shall be deemed an eviction or disturbance of Tenant’s use and possession of the Premises or any part thereof, or render Landlord or Agent liable to Tenant for damages, or relieve Tenant from performance of Tenant’s obligations under this Lease, including, but not limited to, the obligation to pay Rent; provided, however, that if any interruption of services persists for a period in excess of five (5) consecutive business days Tenant shall, as Tenant’s sole remedy, be entitled to a proportionate abatement of Rent to the extent, if any, of any actual loss of use of the Premises by Tenant. 16. LANDLORD’S RIGHTS. Landlord, Agent and their respective agents, employees and representatives shall have the right to enter and/or pass through the Premises at any time or times upon reasonable prior notice and with the accompaniment of a representative of Tenant (except in the event of emergency) to examine and inspect the Premises and to show them to actual and prospective lenders, prospective purchasers or mortgagees of the Premises or providers of capital to Landlord and its affiliates; and in connection with the foregoing, to install a sign at or on the Premises to advertise the Premises for lease or sale; during the period of six months prior to the Expiration Date (or at any time, if Tenant has abandoned the Premises), Landlord and its agents may exhibit the Premises to prospective tenants. Additionally, Landlord and Agent shall have the following right with respect to the Premises, exercisable without notice to Tenant, without liability to Tenant, and without being deemed an eviction or disturbance of Tenant’s use or possession of the Premises or giving rise to any claim for setoff or abatement of Rent: to have pass keys, access cards, or both, to the Premises. 17. NON-LIABILITY AND INDEMNIFICATION. 17.1. Non-Liability. Except as otherwise expressly set forth in this Lease, none of Landlord, Agent, any other managing agent, or their respective affiliates, owners, partners, directors, officers, agents and employees shall be liable under this Lease to Tenant for any loss, injury, or damage, to Tenant or to any other person, or to its or their property. Further, except as otherwise expressly set forth in this Lease, none of Landlord, Agent, any other managing agent, or their respective affiliates, owners, partners, directors, officers, agents and employees shall be liable to Tenant under this Lease (a) for any damage caused by other persons in, upon or about the Premises, or caused by operations in construction of any public or quasi-public work; (b) for consequential or indirect damages, including those purportedly arising out of any loss of use of the Premises or any equipment or facilities therein by Tenant or any person claiming through or under Tenant; (c) for any defect in the Premises; (d) for injury or damage to person or property caused by fire, or theft, or resulting from the operation of heating or air conditioning or lighting apparatus, or from falling plaster, or from steam, gas, electricity, water, rain, snow, ice, or dampness, that may leak or flow from any part of the Premises, or from the pipes, appliances or plumbing work of the same. 17.2. Tenant Indemnification. Except in the event of, and to the extent of, Landlord’s gross negligence or willful misconduct, Tenant hereby indemnifies, defends, and holds Landlord, Agent, Landlord’s members and their respective affiliates, owners, partners, members, directors, officers, agents and employees (collectively, “Landlord Indemnified Parties”) harmless from and against any and all Losses (defined below) arising from or in connection with any or all of: (a) the conduct or management of the Premises or any business therein, or any work or Alterations done, or any condition created by any or all of Tenant and Tenant Parties in or about the Premises during the Term or during the period of time, if any, prior to the Commencement Date that Tenant has possession of, or is given access to the Premises; (b) any act, omission or negligence of any or all of Tenant and Tenant Parties; (c) any accident, injury or damage whatsoever occurring in, at or upon the Premises and caused by any or all of Tenant and Tenant Parties; (d) any breach by Tenant of any or all of its warranties, representations and covenants under this Lease; (e) any actions necessary to protect Landlord’s interest under this Lease in a bankruptcy proceeding or other proceeding under the Bankruptcy Code; (f) the creation or existence of any Hazardous Materials in, at, on or under the Premises, if and to the extent brought to the Premises or caused by Tenant or any party within Tenant’s control; and (g) any violation or alleged violation by any or all of Tenant and Tenant Parties of any Law (collectively, “Tenant’s Indemnified Matters”). In case any action or proceeding is brought against any or all of Landlord and the Landlord Indemnified Parties by reason of any of Tenant’s Indemnified Matters, Tenant, upon notice from any or all of Landlord, Agent or any Superior Party (defined below), shall resist and defend such action or proceeding by counsel reasonably   10 -------------------------------------------------------------------------------- satisfactory to, or selected by, Landlord. The term “Losses” shall mean all claims, demands, expenses, actions, judgments, damages (actual, but not consequential), penalties, fines, liabilities, losses of every kind and nature, suits, administrative proceedings, costs and fees, including, without limitation, attorneys’ and consultants’ reasonable fees and expenses, and the costs of cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity. The provisions of this Section 17.2 shall survive the expiration or termination of this Lease. 17.3. Landlord Indemnification. Landlord hereby indemnifies, defends and holds Tenant harmless from and against any and all Losses actually suffered or incurred by Tenant as the result of any gross negligence, willful or intentional acts or omissions of any or all of Landlord, Agent and any parties within the control of either or both of Landlord and Agent and from the existence of any Hazardous Materials in violation of Environmental Laws to the extent brought to the Premises or due to a violation caused by Landlord or Agent or any parties within the control of either or both of Landlord and Agent. Notwithstanding anything to the contrary set forth in this Lease, however, in all events and under all circumstances, the liability of Landlord to Tenant, whether under this Section 17.3 or any other provision of this Lease, shall be limited to the interest of Landlord in the Premises, and Tenant agrees to look solely to Landlord’s interest in the Premises for the recovery of any judgment or award against Landlord, it being intended that Landlord shall not be personally liable for any judgment or deficiency. The provisions of this Section 17.3 shall survive the expiration or termination of this Lease. 17.4. Force Majeure. From and after the Commencement Date, neither the obligations of Tenant (except the obligation to pay Rent and the obligation to maintain insurance, and provide evidence thereof, in accordance with Section 10.2) nor those of Landlord (except as otherwise specifically provided in Exhibit B) shall be affected, impaired or excused, and neither Landlord nor Tenant shall have any liability whatsoever to the other, with respect to any act, event or circumstance arising out of either or both (a) Landlord’s or Tenant’s, as the case may be, failure to fulfill, or delay in fulfilling any of its obligations under this Lease (except, with respect to Tenant, the obligation to pay Rent and the obligation to maintain insurance, and provide evidence thereof, in accordance with Section 10.2) by reason of labor dispute, governmental preemption of property in connection with a public emergency or shortages of fuel, supplies, or labor, or any other cause, whether similar or dissimilar, beyond Landlord’s or Tenant’s, as the case may be, reasonable control; or (b) any failure or defect in the supply, quantity or character of utilities furnished to the Premises, or by reason of any requirement, act or omission of any public utility or others serving the Premises, beyond Landlord’s or Tenant’s, as the case may be, reasonable control. 18. DAMAGE OR DESTRUCTION. 18.1. Notification and Repair; Rent Abatement. Tenant shall give prompt notice to Landlord and Agent of (a) any fire or other casualty to the Premises, and (b) any damage to, or defect in, any part or appurtenance of the Premises’ sanitary, electrical, HVAC, elevator or other systems. In the event that, as a result of Tenant’s failure to promptly notify Landlord pursuant to the preceding sentence, Landlord’s insurance coverage is compromised or adversely affected, then Tenant is and shall be responsible for the payment to Landlord of any insurance proceeds that Landlord’s insurer fails or refuses to pay to Landlord as a result of the delayed notification. Subject to the provisions of Section 18.2 below, if the Premises is damaged by fire or other insured casualty, Landlord shall repair (or cause Agent to repair) the damage and restore and rebuild the Premises (except Tenant’s personal property) with reasonable dispatch after the adjustment of the insurance proceeds attributable to such damage. Landlord (or Agent, as the case may be) shall use its diligent, good faith efforts to make such repair or restoration promptly and in such manner as not to unreasonably interfere with Tenant’s use and occupancy of the Premises, but Landlord or Agent shall not be required to do such repair or restoration work except during normal business hours of business days. If the Premises are partially damaged by fire or other casualty, the Rent shall be proportionally abated to the extent of any actual loss of use of the Premises by Tenant. 18.2. Total Destruction. If, after the Commencement Date, the Premises shall be totally destroyed by fire or other casualty, or, after the Commencement Date, if the Premises shall be so damaged by fire or other casualty that (in the reasonable opinion of a reputable contractor or architect designated by Landlord): (i) its repair or restoration requires more than 180 days or (ii) such repair or restoration requires the expenditure of more than 50% of the full insurable value of the Premises immediately prior to the casualty, Landlord and Tenant shall each have the option to terminate this Lease (by so advising the other, in writing) within 10 days after said contractor or architect delivers written notice of its opinion to Landlord and Tenant, but in all events prior to the commencement of any restoration of the Premises by Landlord. Additionally, if the damage (x) is less than the amount stated in (ii) above, but more than 10% of the full insurable value of the Premises; and (y) occurs during the last two years of Lease Term, then Landlord, but not Tenant, shall have the option to terminate this Lease pursuant to the notice and within the time period established pursuant to the immediately preceding sentence. In the event of a termination pursuant to either of the preceding two (2) sentences, the termination shall be effective as of the date upon which either Landlord or Tenant, as the case may be, receives timely written notice from the other terminating this Lease pursuant to the preceding sentence. If neither Landlord nor Tenant timely delivers a   11 -------------------------------------------------------------------------------- termination notice, this Lease shall remain in full force and effect. Notwithstanding the foregoing, if (A) any holder of a mortgage or deed of trust encumbering the Premises or landlord pursuant to a ground lease encumbering the Premises (collectively, “Superior Parties”) or other party entitled to the insurance proceeds fails to make such proceeds available to Landlord in an amount sufficient for restoration of the Premises, or (B) the issuer of any commercial property insurance policies on the Premises fails to make available to Landlord sufficient proceeds for restoration of the Premises, then Landlord may, at Landlord’s sole option, terminate this Lease by giving Tenant written notice to such effect within 30 days after Landlord receives notice from the Superior Party or insurance company, as the case may be, that such proceeds shall not be made available, in which event the termination of this Lease shall be effective as of the date Tenant receives written notice from Landlord of Landlord’s election to terminate this Lease. Landlord shall have no liability to Tenant, and Tenant shall not be entitled to terminate this Lease by virtue of any delays in completion of repairs and restoration, provided if restoration is delayed for a period of 90 days beyond the date established by Landlord for completion, subject to extension for any force majeure delays or Tenant-caused delays,, Tenant may terminate this Lease upon notice to Landlord given within thirty (30) days after ninety (90) day period, unless Landlord completes the restoration within 60 days following Tenant’s notice of termination. For purposes of this Section 18.2 only, “full insurable value” shall mean replacement cost, less the cost of footings, foundations and other structures below grade. 19. EMINENT DOMAIN. If, after the Commencement Date, the whole, or any substantial (as reasonably determined by Landlord) portion, of the Premises is taken or condemned for any public use under any Law or by right of eminent domain, or by private purchase in lieu thereof, and such taking would prevent or materially interfere with the Permitted Use of the Premises, this Lease shall terminate effective when the physical taking of said Premises occurs. If less than a substantial portion of the Premises is so taken or condemned, or if the taking or condemnation is temporary (i.e., for a period of less than 180 days) regardless of the portion of the Premises affected, this Lease shall not terminate, but the Rent payable hereunder shall be proportionally abated to the extent of any actual loss of use of the Premises by Tenant. Landlord shall be entitled to any and all payment, income, rent or award, or any interest therein whatsoever, which may be paid or made in connection with such a taking or conveyance, and Tenant shall have no claim against Landlord for the value of any unexpired portion of this Lease. Notwithstanding the foregoing, any compensation specifically and independently awarded to Tenant for loss of business or goodwill, or for its personal property, shall be the property of Tenant. 20. SURRENDER AND HOLDOVER. On the last day of the Term, or upon any earlier termination of this Lease, or upon any re-entry by Landlord upon the Premises: (a) Tenant shall quit and surrender the Premises to Landlord “broom-clean” (as defined by Exhibit D, attached hereto and incorporated herein by reference), and in a condition that would reasonably be expected with normal and customary use in accordance with prudent operating practices and in accordance with the covenants and requirements imposed under this Lease, subject only to ordinary wear and tear (as is attributable to deterioration by reason of time and use, in spite of Tenant’s reasonable care) and such damage or destruction as Landlord is required to repair or restore under this Lease; (b) Tenant shall remove all of Tenant’s personal property therefrom, except as otherwise expressly provided in this Lease; and (c) Tenant shall surrender to Landlord any and all keys, access cards, computer codes or any other items used to access the Premises. Landlord shall be permitted to inspect the Premises in order to verify compliance with this Section 20 at any time prior to (x) the Expiration Date, (y) the effective date of any earlier termination of this Lease, or (z) the surrender date otherwise agreed to in writing by Landlord and Tenant. The obligations imposed under the first sentence of this Section 20 shall survive the termination or expiration of this Lease. If Tenant remains in possession after the Expiration Date hereof or after any earlier termination date of this Lease or of Tenant’s right to possession: (i) Tenant shall be deemed a tenant-at-will; (ii) Tenant shall pay 150% of the aggregate of all Rent last prevailing hereunder; (iii) there shall be no renewal or extension of this Lease by operation of law; and (iv) the tenancy-at-will may be terminated by either party hereto upon 30 days’ prior written notice given by the terminating party to the non-terminating party. The provisions of this Section 20 shall not constitute a waiver by Landlord of any re-entry rights of Landlord provided hereunder or by law. 21. EVENTS OF DEFAULT. 21.1. Bankruptcy of Tenant. It shall be a default by Tenant under this Lease (“Default” or “Event of Default”) if Tenant makes an assignment for the benefit of creditors, or files a voluntary petition under any state or federal bankruptcy (including the United States Bankruptcy Code) or insolvency law, or an involuntary petition is filed against Tenant under any state or federal bankruptcy (including the United States Bankruptcy Code) or insolvency law that is not dismissed within 90 days after filing, or whenever a receiver of Tenant, or of, or for, the property of Tenant shall be appointed, or Tenant admits it is insolvent or is not able to pay its debts as they mature. 21.2. Default Provisions. In addition to any Default arising under Section 21.1 above, each of the following shall constitute a Default: (a) if Tenant fails to pay Rent or any other payment when due hereunder within five days after written notice from Landlord of such failure to pay on the due date; provided, however, that if in any consecutive 12 month period, Tenant   12 -------------------------------------------------------------------------------- shall, on two (2) separate occasions, fail to pay any installment of Rent on the date such installment of Rent is due, then, on the third such occasion and on each occasion thereafter on which Tenant shall fail to pay an installment of Rent on the date such installment of Rent is due, Landlord shall be relieved from any obligation to provide notice to Tenant, and Tenant shall then no longer have a five day period in which to cure any such failure; (b) if Tenant fails, whether by action or inaction, to timely comply with, or satisfy, any or all of the obligations imposed on Tenant under this Lease (other than the obligation to pay Rent) for a period of 30 days after Landlord’s delivery to Tenant of written notice of such default under this Section 21.2(b); provided, however, that if the default cannot, by its nature, be cured within such 30 day period, but Tenant commences and diligently pursues a cure of such default promptly within the initial 30 day cure period, then Landlord shall not exercise its remedies under Section 22 unless such default remains uncured for more than 120 days after the initial delivery of Landlord’s original default notice; and, at Landlord’s election; or (c) after execution thereof by Tenant, any default by Tenant pursuant to that certain Business Subsidy Agreement, as amended, by and between Tenant and the City or that certain Tri-Party Agreement, as amended, by and among the City, the Landlord and the Tenant. 22. RIGHTS AND REMEDIES. 22.1. Landlord’s Cure Rights Upon Default of Tenant. If a Default occurs, then Landlord may (but shall not be obligated to) cure or remedy the Default for the account of, and at the expense of, Tenant, but without waiving such Default. 22.2. Landlord’s Remedies. In the event of any Default by Tenant under this Lease, Landlord, at its option, may, in addition to any and all other rights and remedies provided in this Lease or otherwise at law or in equity do or perform any or all of the following: 22.2.1. Terminate Tenant’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession to Landlord. In such event, Landlord shall be entitled to recover from Tenant all of: (i) the unpaid Rent that is accrued and unpaid as of the date on which this Lease is terminated; (ii) the worth, at the time of award, of the amount by which (x) the unpaid Rent that would otherwise be due and payable under this Lease (had this Lease not been terminated) for the period of time from the date on which this Lease is terminated through the Expiration Date exceeds (y) the amount of such rental loss that the Tenant proves could have been reasonably avoided; and (iii) any other amount necessary to compensate Landlord for all the detriment proximately caused by the Tenant’s failure to perform its obligations under this Lease or which, in the ordinary course of events, would be likely to result therefrom, including but not limited to, the cost of recovering possession of the Premises, expenses of reletting, including renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Landlord in connection with this Lease applicable to the unexpired Term (as of the date on which this Lease is terminated). The worth, at the time of award, of the amount referred to in provision (ii) of the immediately preceding sentence shall be computed by discounting such amount at the current yield, as of the date on which this Lease is terminated under this Section 22.2.1, on United States Treasury Bills having a maturity date closest to the stated Expiration Date of this Lease, plus one percent per annum. Efforts by Landlord to mitigate damages caused by Tenant’s Default (which mitigation Landlord agrees to pursue in a commercially reasonable manner) shall not waive Landlord’s right to recover damages under this Section 22.2. If this Lease is terminated through any unlawful entry and detainer action, Landlord shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable in such action, or Landlord may reserve the right to recover all or any part of such Rent and damages in a separate suit; or 22.2.2. Continue the Lease and either (a) continue Tenant’s right to possession or (b) terminate Tenant’s right to possession and in the case of either (a) or (b), recover the Rent as it becomes due. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Landlord’s interests shall not constitute a termination of the Tenant’s right to possession; or 22.2.3. Pursue any other remedy now or hereafter available under the laws of the state in which the Premises are located. 22.2.4. Without limitation of any of Landlord’s rights in the event of a Default by Tenant, Landlord may also exercise its rights and remedies with respect to any Security under Section 4.3 above. Any and all personal property of Tenant that may be removed from the Premises by Landlord pursuant to the authority of this Lease or of law may be handled, removed or stored by Landlord at the sole risk, cost and expense of Tenant, and in no event or circumstance shall Landlord be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges for such property of Tenant so long as the same shall be in Landlord’s possession or under Landlord’s control. Any such property of Tenant not removed from the Premises as of the Expiration Date or any   13 -------------------------------------------------------------------------------- other earlier date on which this Lease is terminated shall be conclusively presumed to have been conveyed by Tenant to Landlord under this Lease as in a bill of sale, without further payment or credit by Landlord to Tenant. Neither expiration or termination of this Lease nor the termination of Tenant’s right to possession shall relieve Tenant from its liability under the indemnity provisions of this Lease. 22.3. Additional Rights of Landlord. All sums advanced by Landlord or Agent on account of Tenant under this Section, or pursuant to any other provision of this Lease, and all Base Rent and Additional Rent, if delinquent or not paid by Tenant and received by Landlord when due hereunder, shall bear interest at the rate of 5% per annum above the “prime” or “reference” or “base” rate (on a per annum basis) of interest publicly announced as such, from time to time, by the JPMorgan Chase Bank, NA, or its successor (“Default Interest”), from the due date thereof until paid, and such interest shall be and constitute Additional Rent and be due and payable upon Landlord’s or Agent’s submission of an invoice therefor. The various rights, remedies and elections of Landlord reserved, expressed or contained herein are cumulative and no one of them shall be deemed to be exclusive of the others or of such other rights, remedies, options or elections as are now or may hereafter be conferred upon Landlord by law. 22.4. Event of Bankruptcy. In addition to, and in no way limiting the other remedies set forth herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a voluntary or involuntary bankruptcy, reorganization, composition, or other similar type proceeding under the federal bankruptcy laws, as now enacted or hereinafter amended, then: (a) “adequate assurance of future performance” by Tenant pursuant to Bankruptcy Code Section 365 will include (but not be limited to) payment of an additional/new security deposit in the amount of three times the then current Base Rent payable hereunder; (b) any person or entity to which this Lease is assigned, pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to have assumed all of the obligations of Tenant arising under this Lease on and after the effective date of such assignment, and any such assignee shall, upon demand by Landlord, execute and deliver to Landlord an instrument confirming such assumption of liability; (c) notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as “Rent”, shall constitute “rent” for the purposes of Section 502(b)(6) of the Bankruptcy Code; and (d) if this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations payable or otherwise to be delivered to Landlord or Agent (including Base Rent, Additional Rent and other amounts hereunder), shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the bankruptcy estate of Tenant. Any and all monies or other considerations constituting Landlord’s property under the preceding sentence not paid or delivered to Landlord or Agent shall be held in trust by Tenant or Tenant’s bankruptcy estate for the benefit of Landlord and shall be promptly paid to or turned over to Landlord. 22.5. Payment in the Event of Full Recovery. Notwithstanding anything to the contrary contained herein, in the event Tenant exercised its Purchase Option pursuant to Section 24 below and Tenant breached its obligation to close on the purchase of the Property such that Landlord was entitled to and received the Earnest Money (as defined in Section 24.4), pursuant to the Purchase and Sale Agreement (as defined in Section 24.1), then in the event that Landlord has through either a single action or a series of actions collected a final and full satisfaction of all of its claims against Tenant for all amounts, including all Rent, owing to Landlord under the Lease (the “Claim Amount”) from Tenant, then Landlord will pay to Tenant all or a portion of the amount of the Earnest Money to the extent that the Claim Amount exceeds the Earnest Money and Landlord previously received the Earnest Money and has not returned any portion of it to Tenant. By receipt of all or any portion of the Earnest Money, Tenant waives any right to contest the amount or payment of any Claim Amount. In the event that all or any portion of a Claim Amount is refunded to Tenant for any reason, Tenant shall refund the corresponding portion of the Earnest Money paid hereunder by Landlord. 22.6. Landlord Default; Tenant’s Remedies. Landlord shall be in default if Landlord fails to perform any term, condition, covenant or obligation required under this Lease by Landlord after the Rent Commencement Date, and such default continues for a period of 30 days after receipt of written notice thereof from Tenant to Landlord; provided, however, that if the term, condition, covenant or obligation to be performed by Landlord is such that it cannot reasonably be performed within 30 days, such default shall be deemed to have been cured if Landlord commences such performance within said 30 day period and thereafter diligently undertakes to complete the same. Provided that Landlord is in default hereunder beyond the notice and cure periods provided for above, then Tenant shall have the right to use reasonable measures to cure such default on behalf of Landlord and all reasonable sums incurred by Tenant (together with interest accruing thereon at the Default Rate from and after the date that Tenant expends any such sums) shall be reimbursed by Landlord to Tenant within 30 days following Landlord’s receipt of written demand therefor accompanied by supporting invoices. 23. BROKER. Tenant covenants, warrants and represents that the broker set forth in Section 1.8(A) was the only broker to represent Tenant in the negotiation of this Lease (“Tenant’s Broker”). Landlord covenants, warrants and represents that the broker set forth in Section 1.8(B) was the only broker to represent Landlord in the negotiation of this Lease (“Landlord’s Broker”).   14 -------------------------------------------------------------------------------- Landlord shall be solely responsible for paying the commission of Landlord’s Broker. Each party agrees to and hereby does defend, indemnify and hold the other harmless against and from any brokerage commissions or finder’s fees or claims therefor by a party claiming to have dealt with the indemnifying party and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys’ fees and expenses, for any breach of the foregoing. The foregoing indemnification shall survive the termination or expiration of this Lease. 24. LIMITED PURCHASE OPTION. 24.1. Purchase Option. Tenant shall have the right to purchase the Premises in accordance with the terms of the Purchase and Sale Agreement attached hereto as Exhibit E (the “Purchase and Sale Agreement”). Tenant shall have the option to purchase the Premises on two separate occasions pursuant to the terms and conditions set forth in this Section 24. 24.2. Term of Purchase Option. The term of the first Purchase Option (the “First Purchase Option Term”) shall commence and terminate on the Effective Date of the Lease. The term of the second Purchase Option (the “Second Purchase Option Term”) shall commence on the day after the Effective Date of the Lease and shall terminate on December 31, 2006 (the “First Purchase Option Term” and the “Second Purchase Option Term” are herein individually and collectively referred to as the “Purchase Option Term” as the content requires). 24.3. Manner and Effect of Exercise. Tenant may exercise the Purchase Option only by (i) delivering to Landlord, prior to the expiration of the applicable Purchase Option Term, (a) a written notice of exercise (an “Exercise Notice”), (b) four original counterparts of the Purchase and Sale Agreement executed and delivered in counterparts by Tenant, and (ii) depositing with the escrowee under the Purchase and Sale Agreement, prior to the expiration of the applicable Purchase Option Term the earnest money deposit as required by the Purchase and Sale Agreement. If Tenant fails timely and properly to exercise the Purchase Option in accordance herewith, the Purchase Option shall automatically and irrevocably expire and Tenant shall have no further rights under this Section 24. 24.4. Purchase Price and Earnest Money. The total purchase price to be paid to Landlord by Tenant at Closing (defined below) for the sale hereunder shall be an amount equal to $14,250,000.00, if the Exercise Notice is timely given for the First Purchase Option Term subject to increase on account of Additional Project Costs as defined in Exhibit B (the “First Option Purchase Price”); and (b) $14,500,000.00, if the Exercise Notice is timely given for the Second Purchase Option Term subject to increase on account of Additional Project Costs as defined in Exhibit B (the “Second Option Purchase Price”); the “First Option Purchase Price” and the “Second Option Purchase Price” are herein sometimes referred to as the “Purchase Price”). Within four (4) business days after execution of the Purchase and Sale Agreement, Tenant shall deliver to Landlord, as earnest money, the sum of $500,000.00 in cash (“Earnest Money”), which Earnest Money amount shall be applicable to either the First Purchase Option Term or the Second Purchase Option Term. The Earnest Money shall be applied in the manner described in the Agreement of Purchase and Sale. 24.5. Acquisition Price Assumption. For no further consideration (including, but not limited to any adjustment to the Purchase Price), (a) Tenant shall at Closing assume any and all of Landlord’s obligations (i) to pay the purchase price under the City PSA (the “Acquisition Price”), whether or not such Acquisition Price is past due or not yet due and payable, (ii) under the Development Agreement, and (b) Landlord shall assign all of its rights pursuant to the TIF Note. Notwithstanding the foregoing, to the extent that Tenant has delivered, when and as required hereunder, the amount attributable to such Acquisition Price as part of the Taxes and Landlord has willfully not paid such Acquisition Price to the City, then Tenant shall not be required to assume such obligation. The obligations of the Tenant pursuant to the Tri-Party Agreement shall survive the termination of this Lease and any conveyance of the Premises pursuant to the purchase option set forth in this Section 24. 24.6. Effect on Lease. Upon consummation of the Closing pursuant to the Agreement of Purchase and Sale, this Lease shall terminate except for those provisions which by their terms expressly survive such a termination including, without limitation, the provisions of Exhibit B. If Closing does not occur then the terms and conditions of this Lease shall remain in full force and effect. In the event Tenant gives the Exercise Notice, the provisions of the Purchase and Sale Agreement executed by Landlord and Tenant shall prevail in the event of any conflict between the Purchase and Sale Agreement and the provisions of Sections 18 and 19 of this Lease.   15 -------------------------------------------------------------------------------- 25. MISCELLANEOUS. 25.1. Merger. All prior understandings and agreements between the parties are merged in this Lease, which alone fully and completely expresses the agreement of the parties. No agreement shall be effective to modify this Lease, in whole or in part, unless such agreement is in writing, and is signed by the party against whom enforcement of said change or modification is sought. 25.2. Notices. Any notice required to be given by either party pursuant to this Lease, shall be in writing and shall be deemed to have been properly given, rendered or made only if (a) personally delivered, or (b) if sent by Federal Express or other comparable commercial overnight delivery service, or (c) sent by certified mail, return receipt requested and postage prepaid addressed (in the case of any or all of (a), (b) and (c) above) to the other party at the addresses set forth below each party’s respective signature block (or to such other address as Landlord or Tenant may designate to each other from time to time by written notice), and shall be deemed to have been given, rendered or made (i) on the day so delivered or (ii) in the case of overnight courier delivery on the first business day after having been deposited with the courier service, and (iii) in the case of certified mail, on the third (3rd) business day after deposit with the U.S. Postal Service, postage prepaid. 25.3. Non-Waiver. The failure of either party to insist, in any one or more instances, upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the Lease shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The receipt and acceptance by Landlord or Agent of Base Rent or Additional Rent with knowledge of breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach. 25.4. Legal Costs. Any party in breach or default under this Lease (the “Defaulting Party”) shall reimburse the other party (the “Nondefaulting Party”) upon demand for any legal fees and court (or other administrative proceeding) costs or expenses that the Nondefaulting Party incurs in connection with the breach or default, regardless whether suit is commenced or judgment entered. Such costs shall include legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, in the event of litigation, the court in such action shall award to the party in whose favor a judgment is entered a reasonable sum as attorneys’ fees and costs, which sum shall be paid by the losing party. Tenant shall pay Landlord’s attorneys’ reasonable fees incurred in connection with Tenant’s request for Landlord’s consent under provisions of this Lease governing assignment and subletting, or in connection with any other act which Tenant proposes to do and which requires Landlord’s consent. 25.5. Parties Bound. Except as otherwise expressly provided for in this Lease, this Lease shall be binding upon, and inure to the benefit of, the successors and assignees of the parties hereto. Tenant hereby releases Landlord named herein from any obligations of Landlord for any period subsequent to the conveyance and transfer of Landlord’s ownership interest in the Premises. In the event of such conveyance and transfer, Landlord’s obligations shall thereafter be binding upon each transferee (whether Successor Landlord or otherwise). No obligation of Landlord shall arise under this Lease until the instrument is signed by, and delivered to, both Landlord and Tenant. 25.6. Recordation of Lease. Tenant may record a memorandum of this Lease which may reference Tenant’s option to purchase. 25.7. Governing Law; Construction. This Lease shall be governed by and construed in accordance with the laws of the state in which the Premises is located. If any provision of this Lease shall be invalid or unenforceable, the remainder of this Lease shall not be affected but shall be enforced to the extent permitted by law. The captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. Each covenant, agreement, obligation, or other provision of this Lease to be performed by Tenant, shall be construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. This Lease may be executed in counterpart and, when all counterpart documents are executed, the counterparts shall constitute a single binding instrument.   16 -------------------------------------------------------------------------------- 25.8. Time. Time is of the essence for this Lease. If the time for performance hereunder falls on a Saturday, Sunday or a day that is recognized as a holiday in the state in which the Premises is located, then such time shall be deemed extended to the next day that is not a Saturday, Sunday or holiday in said state. 25.9. Authority of Tenant. Landlord and Tenant hereby represent, warrant, and covenant with and to the other party as follows: the individual(s) acting as signatory on behalf of such party is(are) duly authorized to execute this Lease; such party has procured (whether from its members, partners or board of directors, as the case may be), the requisite authority to enter into this Lease; this Lease is and shall be fully and completely binding upon such party; and such party shall timely and completely perform all of its obligations hereunder. 25.10. WAIVER OF TRIAL BY JURY. THE LANDLORD AND THE TENANT, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY ANY PARTY TO THIS LEASE WITH RESPECT TO THIS LEASE, THE PREMISES, OR ANY OTHER MATTER RELATED TO THIS LEASE OR THE PREMISES. 25.11. Financial Information. If at any time Tenant is no longer publicly held, then (i) from time to time during the Term, Tenant shall deliver to Landlord information and documentation describing and concerning Tenant’s financial condition, and in form and substance reasonably acceptable to Landlord, within ten (10) days following Landlord’s written request therefor, and (ii) upon Landlord’s request, Tenant shall provide to Landlord the most currently available audited financial statement of Tenant and if no such audited financial statement is available, then Tenant shall instead deliver to Landlord its most currently available balance sheet and income statement. Furthermore, upon the delivery of any such financial information from time to time during the Term, Tenant shall be deemed to automatically represent and warrant to Landlord that the financial information delivered to Landlord is true, accurate and complete, and that there has been no adverse change in the financial condition of Tenant since the date of the then-applicable financial information. 25.12. Confidential Information. Except as required with respect to Tenant’s securities filing requirements, Tenant agrees to maintain in strict confidence the economic terms of this Lease and any or all other materials, data and information delivered to or received by any or all of Tenant and Tenants’ Parties either prior to or during the Term in connection with the negotiation and execution hereof. The provisions of this Section 25.12 shall survive the termination of this Lease. 25.13. Submission of Lease. Submission of this Lease to Tenant for signature does not constitute a reservation of space or an option to lease. This Lease is not effective until execution by and delivery to both Landlord and Tenant. 25.14. Lien Prohibition. Tenant shall not permit any mechanics or materialmen’s liens to attach to the Premises. Tenant, at its expense, shall procure the satisfaction or discharge of record of all such liens and encumbrances within 30 days after the filing thereof; or, within such thirty (30) day period, Tenant shall provide Landlord, at Tenant’s sole expense, with endorsements (satisfactory, both in form and substance, to Landlord and the holder of any mortgage or deed of trust) to the existing title insurance policies of Landlord and the holder of any mortgage or deed of trust, insuring against the existence of, and any attempted enforcement of, such lien or encumbrance. In the event Tenant has not so performed, Landlord may, at its option, pay and discharge such liens and Tenant shall be responsible to reimburse Landlord, on demand and as Additional Rent under this Lease, for all costs and expenses incurred in connection therewith, together with Default Interest thereon, which expenses shall include reasonable fees of attorneys of Landlord’s choosing, and any costs in posting bond to effect discharge or release of the lien as an encumbrance against the Premises. 25.15. Counterparts. This Lease may be executed in multiple counterparts, but all such counterparts shall together constitute a single, complete and fully-executed document. 25.16. Lease Contingency. The obligations of Landlord and Tenant under this Lease (including, but not limited to, Landlord’s obligations under Exhibit B hereto) shall be and are expressly conditioned and contingent (the “Conditions Precedent”) upon (i) the closing under the City PSA having occurred; (ii) Landlord, Tenant and the City having entered into the Tri-Party Agreement in form and substance acceptable to Landlord; and (iii) Landlord and the City having entered into the Development Agreement in form and substance acceptable to Landlord, and the City and Tenant having entered into the Business Subsidy Agreement. In the event the foregoing conditions are not satisfied by September 30, 2006, either Landlord or Tenant shall have the right to terminate this Lease by so advising the other in writing, within five (5) business days after the expiration of the date of such conditions, and in the event of such termination, neither party shall have any obligation to the other under this Lease. [Signature Page Follows]   17 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written.   LANDLORD: FIRST INDUSTRIAL DEVELOPMENT SERVICES, INC., a Maryland corporation By:   /s/ Bernard Bak Its:   VP Due Diligence and Investments TENANT: CYBEX INTERNATIONAL, INC., a New York Corporation By:   /s/ Arthur W. Hicks, Jr. Its:   Executive Vice President   Landlord’s Addresses for Notices:    Tenant’s Addresses for Notices: First Industrial Development Services, Inc.    Cybex International, Inc. 311 South Wacker Drive, Suite 4000    10 Trotter Drive Chicago, Illinois 60606    Medway, MA 02053 Attn: Executive Vice President-Operations    Attn: Chief Operating Officer    Facsimile: (508) 533-5799 With a copy to:    With a copy to: First Industrial Realty Trust, Inc.    Archer & Greiner, P.C. 7625 Golden Triangle Drive    One Centennial Square Suite T    Haddonfield, NJ 08033 Eden Prairie, MN 55344    Attn: James H. Carll, Esq. Attn: Chris Willson    Facsimile: (856) 795-0574 With a copy to:    Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLP    333 West Wacker Drive    Suite 2700    Chicago, Illinois 60606    Attn: Julie K. Rademaker, Esq.      S-1 -------------------------------------------------------------------------------- EXHIBIT A Premises Lot 1 and Outlot A of Block 1, Ebeling Farm Addition, City of Owatonna, Steele County, Minnesota.   A-1 -------------------------------------------------------------------------------- Addendum No. 1 Option to Renew 1. Tenant shall have the option (“Renewal Option”) to renew this Lease for two additional periods of five (5) years (each, a “Renewal Term”), on all the same terms and conditions set forth in this Lease, except that Base Rent during the Renewal Term shall be equal as specified in paragraph 2 below. Tenant shall deliver written notice to Landlord of Tenant’s election to exercise the Renewal Option (each, a “Renewal Notice”) not less than one hundred eighty (180) days prior to the expiry date of the original Term or the first Renewal Term, as the case may be; and if Tenant fails to timely deliver a Renewal Notice to Landlord, then Tenant shall automatically be deemed to have irrevocably waived and relinquished a Renewal Option. 2. During the Renewal Term, the Base Rent payable shall be as follows:   Lease Period    Monthly Base Rent    Annual Base Rent First Renewal Term       Renewal Option Lease Year 1    $ 1,745,326    $ 145,444 Renewal Option Lease Year 2    $ 1,780,233    $ 148,353 Renewal Option Lease Year 3    $ 1,815,837    $ 151,320 Renewal Option Lease Year 4    $ 1,852,154    $ 154,346 Renewal Option Lease Year 5    $ 1,889,197    $ 157,433 Second Renewal Term       Renewal Option Lease Year 6    $ 1,926,981    $ 160,582 Renewal Option Lease Year 7    $ 1,965,521    $ 163,793 Renewal Option Lease Year 8    $ 2,004,831    $ 167,069 Renewal Option Lease Year 9    $ 2,044,928    $ 170,411 Renewal Option Lease Year 10    $ 2,085,826    $ 173,819 3. The Renewal Option is granted subject to all of the following conditions:     (a) As of the date on which Tenant delivers its Renewal Notice and continuing through the commencement date of the Renewal Term, this Lease shall be in full force and effect and no act or omission shall occur which, with the giving of notice or the passage of time, or both, shall constitute a breach or default by Tenant under this Lease.     (b) There shall be no further right of renewal after the expiration of the Renewal Term.     (c) The Renewal Option is personal to Tenant. In the event that Tenant assigns its interest under this Lease or subleases all or any portion of the Premises, whether or not in accordance with the requirements of Section 8 of this Lease, and whether directly or indirectly, the provisions of this Addendum No. 1 shall not be available to, or run to the benefit of, and may not be exercised by, any assignee or sublessee.   A-1 -------------------------------------------------------------------------------- LEASE EXHIBIT B CONSTRUCTION OF IMPROVEMENTS The Lease Exhibit B sets forth the rights and obligations of Landlord and Tenant with respect to the construction of the Improvements (as hereinafter defined).   1. DEFINITIONS. For purposes of this Exhibit, the following terms shall have the following meanings, and terms which are not defined below, but which are defined in the Lease, shall have such meanings herein as are ascribed to such terms by the Lease:     1.1. Final Project Plans. The term “Final Project Plans” shall mean the Working Drawings (as hereinafter defined) as modified as of the Plans Approval Date, by such changes, additional information and specifications as contemplated by Section 2 of this Exhibit B, and as further modified by any Change Orders, Required Change Orders or Tenant’s Extra Work (each as hereafter defined), as applicable.     1.2. Preliminary Plans. The term “Preliminary Plans” shall mean the outline specifications and preliminary drawings prepared on behalf of Landlord and approved by Tenant for the Improvements to be constructed which are described in attached Exhibit B-1.     1.3. Improvements. The term “Improvements” shall mean the building (the ”Building”) located on the Premises containing approximately 340,478 square feet of warehouse and distribution space and ancillary office space, the core mechanical, electrical and plumbing systems for the Building shell, surface parking, an access driveway and loading areas and other requirements, as set forth in the Preliminary Plans and all to be as more particularly shown and described in the Final Project Plans. Unless specifically agreed to by Landlord, the Improvements shall not include any Tenant Improvements (as hereinafter defined), whether or not such Tenant Improvements are described in the Final Project Plans.     1.4. Project. The term “Project” shall mean the Premises and the Improvements.     1.5. Substantial Completion and Substantially Complete. The terms “Substantial Completion” and “Substantially Complete” shall mean the condition of the Improvements when the earlier of the following have occurred: (i) the date Tenant begins conducting business or commences operations within the Building, or the first date upon which both of the following have occurred: (a) the date when the construction of the Improvements has been substantially completed in accordance with the requirements of the Final Project Plans excepting only “punch list items” and the architect for the Project executes a certificate of substantial completion for the Improvements, and (b) the date on which a temporary certificate of occupancy, which may be in the form of a letter from such governmental authority (which allows the Improvements to be eligible for a final certificate of occupancy upon completion of items required by the applicable governmental authority to be completed, which requirements may include completion of Tenant Improvements), is issued by the governmental authority having jurisdiction to issue the same; provided, however, if such certificate of occupancy could not be obtained because of any Tenant Improvements or Tenant Delays (as hereinafter defined), then, for purposes hereof, Substantial Completion shall be deemed to occur on the date on which such certificate of occupancy would otherwise have been issued but for such Tenant Delays or Tenant Improvements.     1.6. Tenant Improvements. “Tenant Improvements” shall mean the alterations, additions or improvements to be made or constructed by Tenant to the interior of the Premises to make the Premises ready for operation by Tenant therein, such as installation of racking and equipment. The scope and nature of the Tenant Improvements is described on Exhibit B-2 hereof. To the extent applicable, Tenant shall submit to Landlord any plans, drawings or descriptions of the Tenant Improvements. Unless otherwise required by the Lease, the Tenant Improvements shall be and become Tenant’s personal property.     1.7. Additional Project Costs. The term “Additional Project Costs” shall mean all hard and soft costs when and as first incurred or committed by Landlord and/or the General Contractor (as hereinafter defined)   B-1 -------------------------------------------------------------------------------- including, without limitation, all design fees and expenses, construction costs, general conditions, insurance, financing costs (actual and imputed), inspection fees, commissions, consultants’ and attorneys’ fees, General Contractor’s fees, architect’s fees, due diligence costs, and other development costs in connection with the Project that are the result of any of the following: (a) changes to the Preliminary Plans or Working Drawings (other than to correct errors); (b) changes in any Applicable Laws (as hereinafter defined); (c) any Change Order; (d) Tenant’s Extra Work; (e) any Excused Delays (as hereinafter defined); (f) Allowance (as hereinafter defined) work that exceeds the applicable Allowance amount attributed to such work; or (g) changes required by governmental authorities due to code interpretations unless Landlord’s code interpretation is not reasonable and consistent with interpretations generally made in the region of the Project. For purposes hereof, Change Orders shall be deemed to include an overhead, profit and building supervision charge of ten percent (10%) of the total cost relating to the applicable Change Order.   2. APPROVAL OF PLANS. Tenant hereby acknowledges that Tenant has approved the Preliminary Plans. Landlord and Tenant agree the Preliminary Plans do not constitute a set of working drawings that are sufficient to perform the work necessary to complete the Improvements; however, the parties agree that the Preliminary Plans are sufficient to define, and shall constitute, the definition of the scope of the work for the Improvements (the “Project Scope”).     2.1. Preparation and Approval of Plans. Landlord shall cause to be prepared drawings and specifications at Landlord’s sole cost but as part of the project costs for the Improvements (“Working Drawings”) that are consistent with the Project Scope and necessary for construction of the Improvements. Landlord shall deliver the Working Drawings to Tenant for Tenant’s review and approval (which approval shall not be unreasonably withheld). For purposes of the Lease, in the event Tenant requests material modifications to the Project Scope, including material modifications to the Preliminary Plans or the Working Drawings, any such material modifications or additional work beyond the Project Scope shall be governed by Section 4 of this Exhibit B. Tenant, acting reasonably and in good faith, shall have ten (10) days from Landlord’s delivery of the Working Drawings to advise Landlord, in writing, as to whether or not Tenant desires any changes to the Working Drawings. If Tenant timely requests a change to the Working Drawings (“Tenant’s Objection”), Tenant shall also, within such ten (10) day period, advise Landlord, with reasonable specificity and detail, of Tenant’s Objection, and provided Landlord determines and agrees that such requested change is necessary or appropriate, Landlord shall then use its reasonable efforts to incorporate such change in the Working Drawings as soon as reasonably practicable after delivery of Tenant’s Objection. Notwithstanding the foregoing, if changes to the Working Drawings requested by Tenant are the result of Landlord’s failure to implement the Project Scope, or Landlord’s failure to cause the Working Drawings to comply with Applicable Laws in effect as of the date of the Preliminary Plans, then such delay in changing the Working Drawings shall not be considered an Excused Delay. After the Working Drawings have been revised by Landlord, they shall be re-submitted to the Tenant for Tenant’s review and approval in accordance with the process set forth immediately above, except that the timeframes for Tenant’s review and approval shall be five (5) days. Upon approval or deemed approval of the Working Drawings, those Working Drawings shall replace, be utilized and relied upon in lieu of the Preliminary Plans. The date on which Landlord and Tenant mutually agree upon the Working Drawings shall be referred to as the “Plans Approval Date”. After the Plans Approval Date, Landlord shall not be required to make any changes to the Working Drawings, except to the extent expressly set forth in this Exhibit B.     2.2. Changes to Work. After the Plans Approval Date, Tenant, after consultation with Landlord, shall have the right to order extra work or change orders (which may include changes to the Working Drawings) with respect to the construction of the Improvements, at Tenant’s cost as herein provided. Extra work or change orders requested by either Landlord or Tenant after the Plans Approval Date (each a “Proposed Change Order”) shall be made in writing, shall specify in detail any added or reduced cost and/or estimate of construction delay resulting therefrom, and shall become effective and a part of the Final Project Plans once approved in writing by both Landlord and Tenant (a “Change Order”). Landlord and Tenant each agrees that it shall respond to a Proposed Change Order within five (5) business days after receipt of the Proposed Change Order. No Proposed Change Order will be effective if the content of such Change Order is not permitted by applicable building and zoning regulations, as the same are then in effect, interpreted and   B-2 -------------------------------------------------------------------------------- enforced by the applicable governmental authorities. Notwithstanding the foregoing, Landlord shall be entitled to make changes to the Working Drawings without the approval of Tenant and after written notice to Tenant, to the extent such changes do not materially interfere with Tenant’s intended use (“Required Change Orders”) and (i) are necessary to conform with changes after the date of the Preliminary Plans in requirements of any governmental or quasi-governmental or administrative code, rule, law, approval or other authority as the same are then in effect, or by interpretations or enforcement by the applicable governmental authorities pursuant to a written directive or law from such governmental or quasi-governmental authority, or (ii) are due to any Off-Site Items (as defined in Section 3.5 below), or (iii) are due to any Excused Delay.     2.3. Construction Contract. The parties acknowledge that Landlord proposes to enter into a contract for construction (the “Construction Contract”) of the Improvements with R.J. Ryan Construction, Inc. as general contractor or another general contractor selected by Landlord (the “General Contractor”). Landlord may elect to replace, with Tenant’s consent, not to be unreasonably withheld, conditioned or delayed, the General Contractor at any time.     2.4 Allowances. Landlord and Tenant acknowledge and agree that certain allowances (such allowances, together with any allowances that may be included in the Final Project Plans or that are agreed upon between Landlord and Tenant are collectively referred to herein as the “Allowances”) are included in the Landlord’s estimate of the costs for construction and reflected in the Base Rent amount. Such Allowances existing as of the date of this Lease are set forth on Exhibit B-4 hereto. In the event that the total amount of all Project Costs incurred by Landlord with respect to work covered by any Allowances, after deducting any savings due to the amount of any Allowances being less than the respective Allowance amounts, is more than the aggregate amount of the applicable Allowances, then Tenant shall be responsible for payment of such excess in accordance with Section 5.2 of this Exhibit B. In the event that the amount of all Project Costs incurred by Landlord with respect to any work covered by any Allowances, after adding any Total Project Costs due to the amount of any Allowances being more than the respective Allowance amounts, is less than the aggregate amount of the Allowances, then Tenant shall be entitled to receive the amount of such net savings from Landlord after such amount of savings becomes known upon final completion of the Project.   3. CONSTRUCTION OF IMPROVEMENTS.     3.1 Commencement and Completion of Construction of Improvements. Landlord shall, at Landlord’s sole cost and expense (except as otherwise provided herein), cause to be provided all of the design, material, labor and equipment required to construct the Improvements on the Premises, pursuant to and as described by the Final Project Plans. The Improvements shall be constructed in a good and workmanlike manner, substantially in accordance with the Final Project Plans completed substantially in accordance with all applicable statutes, ordinances and building codes, governmental rules, regulations and orders relating to construction of the Improvements (but not relating to Tenant’s use or occupancy) (“Applicable Laws”). Landlord shall use commercially reasonable efforts to Substantially Complete the Improvements by June 1, 2007 (as such date may be extended, the “Target Substantial Completion Date”); provided, however, if Landlord fails to so Substantially Complete the Improvements and deliver possession of the Premises to Tenant on or before the Target Substantial Completion Date, Landlord shall not be liable to Tenant and the obligations of Tenant under the Lease shall not be affected thereby, except that Tenant shall not be responsible to pay Rent and other payments as set forth in the Lease. Notwithstanding the foregoing, if Landlord fails to Substantially Complete the Improvements (i) within thirty (30) days following the Target Substantial Completion Date (the “Delayed Target Substantial Completion Date”) for any reason other than due to any Excused Delays, then for each day after the Delayed Target Substantial Completion Date, up to the actual Substantial Completion Date, Tenant shall be entitled to $2,500 for each day after the Delayed Target Substantial Completion Date that Landlord shall not have Substantially Completed the Improvements up to the date that is thirty (30) days after the Delayed Target Substantial Completion Date (the “Second Delayed Target Substantial Completion Date”), except to the extent that such delay was caused by any Excused Delays (ii) by the Second Delayed Target Substantial Completion Date for any reason other than due to any Excused Delays, then for each day after the Second Delayed Target Substantial Completion Date, Tenant shall be entitled to $5,000 for each day after the Second Delayed   B-3 -------------------------------------------------------------------------------- Target Substantial Completion Date that Landlord shall not have Substantially Completed the Improvements up to the date that is thirty (30) days after the Second Delayed Target Substantial Completion Date (the “Third Delayed Target Substantial Completion Date”), except to the extent that such delay was caused by any Excused Delays, and (iii) by the Third Delayed Target Substantial Completion Date for any reason other than due to any Excused Delays, then for each day after the Third Delayed Target Substantial Completion Date, Tenant shall be entitled to $10,000 for each day after the Third Delayed Target Substantial Completion Date that Landlord shall not have Substantially Completed the Improvements, except to the extent that such delay was caused by any Excused Delays. The remedy provided to Tenant in this Section 3.1 for failure to achieve Substantial Completion of the Improvements by the Delayed Target Substantial Completion Date (as it may be extended) is and shall be the sole remedy of Tenant therefor and Landlord will not otherwise be liable for any damages or other amount resulting from any delay in the Substantial Completion of the Improvements.     3.2 Force Majeure Delays. If Landlord, as the result of any (a) strikes, lockouts or labor disputes, (b) inability to obtain labor or materials or reasonable substitutes therefor, (c) inclement weather which delays or precludes construction beyond the initial seven (7) days of delays due to inclement weather, acts of God or the public enemy, condemnation, civil commotion, fire or other casualty, (d) shortage of fuel, (e) action or nonaction of public utilities or of local, state or federal governments, affecting the work, including, but not limited to, any delays in the permitting process as a result of the action or inaction or such governmental authorities notwithstanding Landlord’s reasonable diligence and active pursuit thereof, or (f) other conditions similar to those enumerated above which are beyond the reasonable anticipation or control of Landlord, cannot reasonably perform any obligation on Landlord’s part to be performed hereunder within the time periods herein specified (collectively, the “Force Majeure Delays”), then such failure shall be excused and shall not be a breach of Landlord’s obligations under this Lease, and the deadline for performance shall be extended for a period equal to the period of delay, and Landlord will within ten (10) business days after Landlord has actual knowledge of the delay notify Tenant in writing (which may be in the form of job meeting minutes or reports) of the nature and probable duration of such delay. Landlord shall make reasonable efforts to minimize the impact of such delay and use reasonable efforts to avoid foreseeable delays. It is expressly understood that Force Majeure Delays shall not include any of the following events: (1) economic hardship; (2) changes in market conditions; (3) late delivery of machinery, equipment, materials, or spare parts, except to the extent such late delivery is itself caused by an event of Force Majeure; or (4) breakdowns, except to the extent such breakdowns are themselves caused by an event of Force Majeure.     3.3 Tenant Delays. If Landlord shall be delayed in Substantially Completing the Improvements as a result of any Tenant Delays, then the Commencement Date and the payment of Rent under the Lease shall not be affected or deferred on account of any such Tenant Delays. “Tenant Delays” shall mean delays attributed to any or all of the following:     (a) Tenant’s delay in responding to or approving Working Drawings, Final Project Plans or Change Orders on a timely basis and/or to pay for Additional Project Costs in accordance herewith; or     (b) The performance or completion by Tenant, or any person, firm or corporation employed by Tenant or its representatives or agents, of any work in or about the Premises, including, but not limited to, the Tenant Improvements; or     (c) The performance or completion of any Tenant Extra Work to the extent that such delay was set forth in an Estimate (hereinafter defined) and approved by Tenant; or     (d) The acts or omissions of Tenant or its agents, employees, representatives, invitees, contractors; or     (e) Tenant’s failure to timely comply with its obligations under the Lease; or     (f) A Change Order approved by Tenant, provided the approved Change Order provides for a change in the Target Substantial Completion Date.   B-4 -------------------------------------------------------------------------------- Landlord shall, within ten (10) business days after Landlord has actual knowledge of the delay caused by an Excused Delay, notify Tenant in writing (which may be in the form of job meeting minutes or reports), of any Force Majeure Delays and Tenant Delays (collectively, “Excused Delays”) and the nature thereof, which notice shall further specify (i) the anticipated delay in the Target Substantial Completion Date resulting from such Excused Delays as of the date of such notice; (ii) the nature of such Excused Delays and whether any such Excused Delays constitute Tenant Delays; and (iii) whether the conditions, events, acts, omissions or circumstances giving rise to such Excused Delays persist as of the date of such notice.     3.4 Additional Items Affecting Construction. Tenant shall consent (and subordinate its leasehold interest) to, for the benefit of the Premises, any easements which Landlord reasonably deems necessary in order to complete construction of the Improvements in accordance with the Final Project Plans and any Laws, including matters pertaining to access, utility or other lines relating to the Improvements, provided that such easements will not materially interfere with Tenant’s business operations at the Premises.     3.5 Off-Site Requirements. Notwithstanding anything to the contrary contained herein, except as is provided in this Section 3.5, to the extent that in connection with obtaining permits and approvals, complying with Applicable Laws or the design and/or construction of the Improvements, any off-site improvements or other off-site items (collectively, the “Off-Site Items”) are required to be addressed or implemented into the Improvements that are not included in the Final Project Plans, Tenant hereby agrees and acknowledges that such Off-Site Items shall be included in the Final Project Plans (through a Required Change Order, if necessary). The cost of such Off-Site Items shall be included in Additional Project Costs and any delays on account of such Off-Site Items shall be included as Excused Delays. As of the date of this Lease, Landlord has no actual knowledge of the necessity for Off-Site Items required for the Project other than the possibility of a turn lane along the access routes to the Premises, and potential road and related work that may be required by the County as may relate to a traffic study that is being required by Steele County. Notwithstanding the foregoing, in the event that Steele County requires Off-Site Items that cost, in the determination of General Contractor more than $25,000 in the aggregate, then Tenant may terminate this Lease by (i) providing written notice (an “Off-Site Termination Notice”) to Landlord of Tenant’s determination to terminate the Lease within five (5) business days after written notice from Landlord describing, in reasonable detail, the nature and cost of Off-Site Items that cost more than $25,000 (“Off-Site Costs”) in the aggregate, and (ii) paying the Out-of-Pocket Expenses (defined below) of Landlord within twenty (20) days after the delivery of an accounting of such Out-of-Pocket Expenses. From and after the delivery of an Off-Site Termination Notice, Landlord shall have no further obligation to construct the Improvements. The term “Out-of-Pocket Expenses” shall mean the out-of-pocket costs and expenses of (i) Landlord incurred in the negotiation, performance and termination of this Lease and the Construction Contract, (ii) Landlord and General Contractor incurred in the design and construction of and in performing the work for construction of the Improvement through the date an Off-Site Termination Notice is properly given pursuant to this Section 3.5, and (iii) Landlord and General Contractor incurred in the demobilization of the construction of the Improvements and losses and restocking fees with respect to materials, equipment, tools, all construction equipment and machinery incurred because of a termination pursuant to this Section 3.5. If Tenant fails to timely and properly terminate the Lease pursuant to this Section 3.5, then Tenant shall be deemed to have waived the right to terminate pursuant to this Section 3.5, and the Off-Site Costs described in Landlord’s notice to Tenant shall be included as “Additional Project Costs.” The failure to timely pay for any Out-of-Pocket Expenses shall be deemed to be a “Tenant Delay” pursuant to this Agreement.   4. TENANT’S EXTRA WORK. If Tenant desires that any work be performed in connection with the construction of the Improvements other than, or in addition to, the work described in the Working Drawings or the Final Project Plans, as approved by Landlord and Tenant (such other work is hereinafter called “Tenant’s Extra Work”), the following provisions shall be applicable:     4.1 Tenant shall, at its sole cost and expense, furnish to Landlord, Landlord’s architect, the General Contractor, and any electrical and mechanical consultants engaged by Landlord (collectively, “Landlord’s Consultants”), such information as may reasonably be necessary to cause Landlord’s Consultants to prepare and submit to Landlord all necessary drawings, plans and specifications covering the Tenant’s Extra Work (such drawings, plans and specifications are hereinafter called “Tenant’s Extra Work   B-5 -------------------------------------------------------------------------------- Plans”). Tenant shall pay the fees and expenses of Landlord’s Consultants to prepare Tenant’s Extra Work Plans within 10 business days of Landlord’s delivery of the billing statement(s) therefor and provided these amounts do not exceed those set forth in the approved Estimate.     4.2 Landlord agrees to construct the Tenant’s Extra Work provided (i) the Tenant’s Extra Work Plans are acceptable to Landlord, in Landlord’s reasonable discretion, and approved in writing by Landlord, and (ii) Tenant has not defaulted under, or otherwise breached, the terms and provisions of the Lease.     4.3 Prior to commencing any Tenant’s Extra Work, Landlord shall submit to Tenant for Tenant’s approval, a written estimate of the cost of Tenant’s Extra Work, including an estimate of the Landlord’s Consultants’ fees and any projected delay in the Target Substantial Completion Date resulting from the proposed Tenant’s Extra Work (the “Estimate”). Landlord shall not be obligated to proceed with Tenant’s Extra Work until the Estimate is approved in writing by Tenant. Tenant shall have five (5) business days from Landlord’s delivery of the Estimate to advise Landlord of Tenant’s approval or disapproval thereof. If Tenant fails to timely approve the Estimate, then Tenant shall automatically be deemed to have disapproved the Estimate and therefore, Landlord shall have no obligation to perform Tenant’s Extra Work. The costs incurred in the performance of Tenant’s Extra Work is due and payable as Additional Project Costs pursuant to Section 5.2 of this Exhibit B; provided, however, if Landlord has so indicated in the Estimate, Landlord may instead elect to require that Tenant pay the costs of Tenant’s Extra Work to Landlord within a reasonable period of time prior to such time as Landlord is obligated to pay the General Contractor for such work pursuant to the Construction Contract (whether on a percentage of completion basis or otherwise). If Landlord makes such election and Tenant fails timely to make any payments for Tenant’s Extra Work, Landlord may, within three (3) business days after written notice to Tenant, cease to perform the Tenant’s Extra Work and any delays in the Target Substantial Completion Date set forth in the Estimate shall nonetheless remain effective for all relevant purposes. For purposes hereof, Tenant’s Extra Work shall be deemed to also include the cost of an overhead, profit and building supervision charge of ten percent (10%) of the total cost of Tenant’s Extra Work.   5. COMMENCEMENT DATE AND PAYMENT OF ADDITIONAL PROJECT COSTS.     5.1 Commencement Date. From and after the Commencement Date (except as set forth in this Exhibit B), Tenant shall be liable to Landlord for the payment of Rent and any other payment as set forth in the Lease. The “Commencement Date” under the Lease shall be the date on which the Improvements (excluding completion of any Tenant Improvements or Tenant’s Extra Work) are Substantially Completed; provided, however, in the event Substantial Completion of the Improvements (excluding completion of any Tenant Improvements or Tenant’s Extra Work) is delayed due to Tenant Delays, then for purposes of the payment Rent and any other payment required to be made by Tenant pursuant to the Lease, the Commencement Date shall be that date on which the Improvements would have been Substantially Completed but for the occurrence of such Tenant Delays. If the Improvements are not Substantially Completed but are partially ready for occupancy, Tenant may, but need not, occupy the portion of the Improvements that is ready for occupancy, provided such partial occupancy is permitted by applicable law, and in the event of such partial occupancy, and if Tenant elects to partially occupy the Improvements, Tenant shall pay to Landlord pro rata Rent based upon the area of the Premises so occupied by Tenant. Such obligation to pay Rent on a proportionate basis shall commence on the date on which Tenant first occupies and takes possession of any portion of the Premises, and shall continue through the Commencement Date. Tenant’s right to so occupy and utilize a portion of the Premises shall nevertheless be subject to Landlord’s reasonable approval, and throughout such partial occupancy, Tenant shall fully cooperate with Landlord to facilitate Landlord’s Substantial Completion of any remaining or outstanding Improvements without any interference. Except for Tenant’s entry into the Premises for purposes of inspections and performing and installing Tenant Improvements pursuant to Section 8 of this Exhibit B, Tenant shall not occupy any portion of the Premises prior to Substantial Completion thereof.     5.2 No Adjustment to Base Rent. Landlord and Tenant acknowledge that the Base Rent described in Section 2.2 of the Lease is based upon an estimate of project costs, which amount was determined to be the costs to be incurred by Landlord in completing the Improvements in accordance with the Preliminary Plans. Landlord and Tenant further acknowledge and agree that in no event shall the calculation for Base Rent be adjusted, it being understood by the parties that Tenant shall be responsible for Additional Project Costs as   B-6 -------------------------------------------------------------------------------- provided hereunder. Tenant shall pay such Additional Project Costs when incurred by Landlord pursuant to the terms of this Section 5.2. At such time as Landlord may incur, be committed to, or be obligated to pay any Additional Project Costs, Landlord shall provided to Tenant documentation in reasonable specificity of the type and amount of such Additional Project Costs (“Additional Cost Documentation”). Tenant shall pay Landlord the Additional Project Costs within twenty-one (21) days after receipt of Landlord’s notice of same. In no event shall Landlord be required to execute any Change Order with Tenant or work order or change order with the General Contractor approving any work that is the subject of or relating to the applicable Additional Project Costs until Landlord receives payment of such Additional Project Costs from Tenant. Tenant’s payment to Landlord of such Additional Project Costs shall be a condition precedent to Landlord’s obligation to cause to be performed any work in connection with or relating to the Additional Project Costs. To the extent all of the Additional Project Costs are not known as of the Commencement Date, or there are Additional Project Costs that are to be determined or calculated by Landlord, Landlord shall notify Tenant of any such Additional Project Costs within fifteen (15) days after final completion of the Improvements. All amounts for Additional Project Costs to be paid by Tenant shall be paid in cash or immediately available funds.   6. DELIVERY OF POSSESSION; PUNCH LIST; ACCEPTANCE AGREEMENT.     6.1. Acceptance Agreement. When Landlord notifies Tenant that the Improvements are Substantially Completed, Landlord and Tenant shall together walk through the Premises and inspect all Improvements so completed, using reasonable efforts to discover all uncompleted or defective construction in the Improvements. After such inspection has been completed, each party shall sign an acceptance agreement in the form attached hereto as Exhibit B-3 (the “Acceptance Agreement”), which shall include by attachment a list of all “punch list” items which the parties agree are to be corrected by Landlord. Landlord shall cause to be completed and/or repair such “punch list” items within 30 days after executing the Acceptance Agreement, subject to any Excused Delays. Landlord shall have no obligation to deliver possession of the Premises to Tenant until such procedures regarding the preparation of a punch list and the execution of the Acceptance Agreement have been completed.     6.2. Deliveries. Within a commercially reasonable period of time after the Substantial Completion Date, Landlord shall submit the following to Tenant:     (a) as-built plans of the Improvements;     (b) copies of all warranties for the Improvements; and     (c) copies of the manuals of the Building’s systems (except any Tenant Improvements).   7. WARRANTY. Landlord shall, subject to the criteria and conditions set forth herein, provide a warranty with respect to the Improvements against any defective workmanship and materials discovered and brought to Landlord’s attention pursuant to a proper Tenant’s Defect Notice (as hereinafter defined) delivered during a period of one (1) year from the date the Improvements are Substantially Completed (the “Warranty Period”). Nothing set forth herein shall limit any guaranties or warranties of the General Contractor, manufacturers, suppliers or contractors that by their terms extend beyond the Warranty Period. During the Warranty Period, Landlord shall, at Landlord’s sole cost and expense, require General Contractor to repair or replace any defective item occasioned by defective workmanship or materials in and with respect to the construction and installation of the Improvements (and specifically excluding any installations by Tenant or any deficiencies in the Improvements created by, through or under Tenant or otherwise through no fault of or defective performance on the part of Landlord or General Contractor), provided that (a) Tenant notifies Landlord, in writing and with reasonable specificity and detail, of the nature and extent of any such alleged defects in the Improvements (“Tenant’s Defect Notice”) and (b) Tenant delivers the Tenant’s Defect Notice to Landlord prior to the expiration of the Warranty Period. In no event shall Landlord or General Contractor be liable to Tenant for damages as a result of such defect, resulting from loss of business by Tenant or other consequential or speculative damages. Notwithstanding anything to the contrary contained herein, in no event shall Landlord or General Contractor be liable for, and the warranty specified above shall not apply to, defects or alleged deficiencies in any materials or workmanship in or concerning the Improvements if and to the extent the defect   B-7 -------------------------------------------------------------------------------- or deficiency is due to or caused by any Alterations performed by Tenant, installation of Tenant Improvements or the abuse, neglect, negligence or willful or intentional act or omission of Tenant or its agents, employees, representatives, contractors, subcontractors, invitees, successors or assigns, including, without limitation, Tenant’s failure to maintain a HVAC Maintenance Contract. From and after the expiration of the Warranty Period, (x) neither Landlord nor General Contractor shall have any liability or obligation, of any nature whatsoever, to remedy, replace or correct any alleged defects and deficiencies; and (y) Landlord shall reasonably cooperate with Tenant (but at no out-of-pocket expense to Landlord) in the enforcement by Tenant, at Tenant’s sole cost and expense, of any express warranties or guarantees of workmanship or materials given by any subcontractors, architects, draftsmen, or materialmen engaged by Landlord to supply or complete any of the Improvements, if and to the extent that such guarantees or warranties remain in effect after the expiration of the Warranty Period until expiration or termination of the Lease. In providing a Tenant Defect Notice, Tenant shall be obligated to set forth with reasonable specificity and detail the nature and extent of such defect. Except as otherwise expressly set forth above in this Section, from and after the earlier of (1) the date Tenant takes partial occupancy and (2) the Commencement Date, Tenant shall have and hold the Premises in an “AS-IS,” “WHERE-IS” condition, without any liability or obligation on the part of Landlord for making any alterations, improvements, repairs or replacements, of any kind, in or about the Premises at any time during the Term of the Lease or any extension or renewal thereof, and Tenant shall maintain the Premises, and all parts thereof, in a good and sufficient state of repair as required under the Lease. Notwithstanding Tenant’s timely delivery of a Tenant’s Defect Notice, at no time during the Term of the Lease, shall Tenant have any right, of any nature whatsoever, to withhold the timely payment of any Rent due under the Lease, from time to time, as a result of, or due to, or because of, any alleged breaches by Landlord under the Lease or the alleged existence of any defects or deficiencies in the Improvements. Notwithstanding anything contained herein to the contrary, none of the following items that may occur in the Improvements shall be considered defective items occasioned by defective workmanship or materials required to be repaired by Landlord or General Contractor pursuant to this Section 7: (i) any chips, scratches or marks on such items as tile, woodwork, mirrors, walls, porcelain, glass (including breakage or cracks), plumbing fixtures, lighting fixtures, or doors not noted in the punch list set forth in the applicable Acceptance Agreement; (ii) defects resulting from ordinary wear and tear, misuse or neglect, or failure to provide proper maintenance; (iii) cracking or scaling of the concrete flat work (which includes, but is not limited to, sidewalks and warehouse floors) and cracks in foundation walls, if any, not resulting from infiltration of free water; (iv) cracks in walks, driveways, parking lots, floor or fountains due to expanding and contracting of concrete from change in temperature and compacting of the soil on which the concrete is placed; (v) the color of the concrete; (vi) shrinkage in structural wood members; and (vii) drywall cracks, nail pops or seams due to drying out and normal expansion and contraction of the wood or masonry to which it has been secured.   8. TENANT’S ACCESS.     8.1. Entry onto Premises. Tenant and Tenant’s representatives shall have the right during normal working hours, subject to the requirements set forth below, to enter the Premises prior to the Commencement Date, in order that Tenant may perform the Tenant Improvements which are specified in Exhibit B-2 hereto, and Tenant shall have the right to access the Premises, subject to the following, after notice from Landlord or general contractor that the Premises are available for such purposes, provided, that Landlord shall cause the Premises to be available for purposes of Tenant performing the Tenant Improvements by April 1, 2007, subject to extension for Excused Delays. In addition, Tenant shall have the right upon prior notice to Landlord during normal working hours and subject to General Contractor’s requirements, including requirements relating to supervision and OSHA regulations to review and inspect the Premises. Tenant shall give to Landlord not less than five (5) days’ prior written notice requesting access to perform work at the Premises, which notice shall contain and/or shall be accompanied by: (a) a description of the work to be performed by those persons and entities for whom and which such access is being required; (b) the names and addresses of all contractors for whom and which such early access is being requested and the approximate number of individuals, itemized by trade, who will be present in the Premises; (c) copies of all licenses and permits required in connection with the performance of the work for which such access is being requested; and (d) certificates of insurance naming Landlord as additional insured/loss payee as applicable in form acceptable to Landlord and instruments of indemnification against all claims, costs, expenses, damages and liabilities which may arise in connection with such work. All of the foregoing   B-8 -------------------------------------------------------------------------------- shall be subject to Landlord’s written approval, which approval may be withheld in Landlord’s reasonable discretion but shall not be unreasonably delayed. Tenant and Tenant’s agents, employees, representatives, invitees, contractors, subcontractors, workmen, mechanics and suppliers shall work in harmony and not interfere with Landlord and its agents and contractors in doing its work in, to, or on the Premises; and Tenant shall maintain, in full force and effect, the insurance policy or policies required under the Lease, and shall cause the General Contractor to be designated as an Additional Insured with respect to the Improvements and Tenant shall, and shall cause its representatives, agents and contractors to, comply with all safety rules and regulations including OSHA regulations at any time such parties are on the Project site. Tenant agrees that any such entry into and occupancy of the Premises shall be deemed to be under all of the terms, covenants, conditions and provisions of the Lease, except as to the covenant to pay Rent. Tenant further agrees that to the extent permitted by law, Landlord and its principals shall not be liable in any way for any injury or death to any person or persons, loss or damage to any of Tenant’s work and installations made in the Premises (including, without limitation, any Tenant Improvements) or loss or damage to property placed therein prior to the Commencement Date, the same being at Tenant’s sole risk, unless such occurrence is due to Landlord’s or Agent’s gross negligence or willful misconduct. Tenant hereby indemnifies, defends and holds harmless Landlord from and against all Losses which may be brought or made against Landlord or a Landlord Indemnified Party, or which Landlord or a Landlord Indemnified Party may pay or incur, by reason of the Tenant’s early access to the Premises pursuant to this Section 8 or due to Tenant Improvements.     8.2. Meetings. Landlord shall inform Tenant of the usual location dates and time of any regularly scheduled design and construction meetings for the Project, and prompt prior notice of any change in the date, time or location of any such construction meetings. Tenant and/or its representatives shall be permitted to attend all such design and construction meetings. In addition, Landlord shall deliver to Tenant’s authorized representative set forth below final meeting minutes.     8.3. No Deemed Approval, Acceptance or Waiver. Tenant’s exercise of any of the rights under this Section 8 shall not constitute approval, acceptance, waiver or liability by Tenant or alter Landlord’s obligations.   9. AUTHORIZED REPRESENTATIVES. Tenant hereby appoints Jeff Hollister as its duly authorized representative to review and approve the Working Drawings and the Final Project Plans, so as not to unreasonably delay completion of the Improvements. Tenant hereby represents and warrants to Landlord that said authorized representative has authority to approve the Final Project Plans, as well as the authority to approve modifications to the Working Drawings. When Landlord requests Tenant to specify details or layouts, Tenant shall promptly do so, subject to the provisions of the Final Project Plans, so as not to delay completion of the Improvements.   10. NOTICES DURING CONSTRUCTION. Notwithstanding any notice provision in the Lease, any notice required to be given by either party pursuant to this Exhibit B, shall be in writing and, shall be deemed to have been properly given, rendered or made only if personally delivered, or if sent by Federal Express or other comparable commercial overnight delivery service, or sent by confirmed facsimile, addressed to the other party at the addresses set forth below (or to such other addresses as Landlord or Tenant may designate to each other from time to time by written notice), and shall be deemed to have been given, rendered or made on the day so delivered or on the first business day after having been deposited with the courier service:     If to Landlord:    First Industrial Development Services, Inc.      311 South Wacker Drive, Suite 4000      Chicago, IL 60606      Attn.: Executive Vice President - Development   At all times with a copy to:    Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLP      333 West Wacker Drive, Suite 2700      Chicago, IL 60606      Attn.: Julie K. Rademaker, Esq.   B-9 --------------------------------------------------------------------------------   If to Tenant:   Cybex International, Inc.     151 24th Avenue SW     Owatonna, MN 55060     Attn: Arthur Hicks   At all times with a copy to:   Archer & Greiner, A Professional Corporation     One Centennial Square     Haddonfield, NJ 08033     Attn.: James H. Carll, Esq.   B-10 -------------------------------------------------------------------------------- LEASE EXHIBIT B-1 IMPROVEMENTS   B-1-1 -------------------------------------------------------------------------------- LEASE EXHIBIT B-2 TENANT IMPROVEMENTS   B-2-1 -------------------------------------------------------------------------------- LEASE EXHIBIT B-3 ACCEPTANCE AGREEMENT THIS ACCEPTANCE AGREEMENT (this “Agreement”) is made and entered into this      day of                     ,         , by and between                     , a                                 (“Tenant”), and                                                  , a                                              (“Landlord”). RECITALS A. Landlord and Tenant have entered into that certain Industrial Building Lease dated                     ,          (as amended from time to time, the “Lease”). Capitalized terms used herein and not otherwise defined shall have the meanings respectively ascribed to them in the Lease. B. Landlord and Tenant desire to enter into this Agreement to set forth their understanding with respect to the Premises and the Lease. AGREEMENT NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Tenant acknowledges and agrees that Tenant has completed its walk-through of the Premises. Attached hereto as Schedule A is a punch list of items required to be completed by Landlord in or about the Premises (the “Punch List”), which punch list was prepared by                                              Construction Company (the “Contractor”). Tenant hereby unconditionally accepts possession of the Premises for purposes of the Lease (subject, however, to the attached punch list containing only items which do not interfere with the Tenant’s use and possession of the Premises). 2. Tenant hereby acknowledges that there are no defaults under the Lease and that Landlord has completed all of the Improvements except for the Punch List, and that the Premises have been delivered to Tenant for its use and occupancy. 3. Landlord and Tenant hereby acknowledge the following facts:     a. The Commencement Date of the Lease is                                                                          .     b. The Expiration Date of the Lease is                                                                                                   .     c. The rentable square feet of the Premises is                                                                          . 4. As modified hereby, the terms of the Lease, including, without limitation, the Base Rent established pursuant to Section 1 of the Lease, are hereby ratified and shall remain in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement as of the date first above written.   LANDLORD:       , a       By:       Its:         B-3-1 -------------------------------------------------------------------------------- TENANT:                                          ,a                                              By:     Its:       B-3-2 -------------------------------------------------------------------------------- SCHEDULE A PUNCH LIST   B-3-3 -------------------------------------------------------------------------------- LEASE EXHIBIT B-4 ALLOWANCES   B-4-1 -------------------------------------------------------------------------------- LEASE EXHIBIT C TENANT OPERATIONS INQUIRY FORM   1. Name of Company/Contact                                                                                                                                                                  2. Address/Phone                                                                                                                                                                                             ______________________________________________________________________________________________________________________________   3. Provide a brief description of your business and operations:                                                                                                            ______________________________________________________________________________________________________________________________ ____________________________________________________________________________________ ______________________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________________ ____________________________________________________________________________________   4. Will you be required to make filings and notices or obtain permits as required by Federal and/or State regulations for the operations at the proposed facility? Specifically:   a. SARA Title III Section 312 (Tier II) reports   (> 10,000lbs. of hazardous materials STORED at any one time)    YES    NO b. SARA Title III Section 313 (Tier III) Form R reports   (> 10,000lbs. of hazardous materials USED per year)    YES    NO c. NPDES or SPDES Stormwater Discharge permit   (answer “No” if “No-Exposure Certification” filed)    YES    NO d. EPA Hazardous Waste Generator ID Number    YES    NO   5. Provide a list of chemicals and wastes that will be used and/or generated at the proposed location. Routine office and cleaning supplies are not included. Make additional copies if required.   Chemical/Waste    Approximate Annual Quantity Used or Generated    Storage Container(s) (i.e. Drums, Cartons, Totes, Bags, ASTs, USTs, etc)   C-1 -------------------------------------------------------------------------------- LEASE EXHIBIT D Broom Clean Condition and Repair Requirements   •   All lighting is to be placed into good working order. This includes replacement of bulbs, ballasts, and lenses as needed.   •   All truck doors and dock levelers should be serviced and placed in good operating order (including, but not limited to, overhead door springs, rollers, tracks and motorized door operator). This would include the necessary (a) replacement of any dented truck door panels, broken panels and cracked lumber, and (b) adjustment of door tension to insure proper operation. All door panels that are replaced shall be painted to match the building standard.   •   All structural steel columns in the warehouse and office should be inspected for damage, and must be repaired. Repairs of this nature shall be pre-approved by the Landlord prior to implementation.   •   HVAC system shall be in good working order, including the necessary replacement of any parts to return the unit to a well-maintained condition. This includes, but is not limited to, filters, thermostats, warehouse heaters and exhaust fans. Upon move-out, Landlord will have an exit inspection performed by a certified mechanical contractor to determine the condition of the HVAC system.   •   All holes in the sheet rock walls shall be repaired prior to move-out. All walls shall be clean.   •   The carpets and vinyl tiles shall be in a clean condition and shall not have any holes or chips in them. Flooring shall be free of excessive dust, dirt, grease, oil and stains. Cracks in concrete and asphalt shall be acceptable as long as they are ordinary wear and tear, and are not the result of misuse.   •   Facilities shall be returned in a clean condition, including, but not limited to, the cleaning of the coffee bar, restroom areas, windows, and other portions of the Premises.   •   There shall be no protrusion of anchors from the warehouse floor and all holes shall be appropriately patched. If machinery/equipment is removed, the electrical lines shall be properly terminated at the nearest junction box.   •   All exterior windows with cracks or breakage shall be replaced. All windows shall be clean.   •   Tenant shall provide keys for all locks on the Premises, including front doors, rear doors, and interior doors.   •   All mechanical and electrical systems shall be left in a safe condition that confirms to code. Bare wires and dangerous installations shall be corrected to Landlord’s reasonable satisfaction.   •   All plumbing fixtures shall be in good working order, including, but not limited to, the water heater. Faucets and toilets shall not leak.   •   All dock bumpers shall be left in place and well-secured.   •   Drop grid ceiling shall be free of excessive dust from lack of changing filters. No ceiling tiles may be missing or damaged.   •   All trash shall be removed from both inside and outside of the Building.   •   All signs in front of Building and on glass entry door and rear door shall be removed.   D-1

Exhibit 10.3   THIS AMENDED AND RESTATED FEE AGREEMENT, dated as of January 26th, 2006 (this “Agreement”), amends and restates that certain Fee Agreement, dated as of December 23, 2004 (the “Original Agreement”), by and among Marquee Holdings Inc., a Delaware corporation (“Holdings”), AMC Entertainment Inc., a Delaware corporation and wholly-owned subsidiary of Holdings (the “Company”), J.P. Morgan Partners (BHCA), L.P., a Delaware limited partnership (“JPMP”), Apollo Management V, L.P., a Delaware limited partnership (“Apollo” and together with JPMP, the “Original Sponsor Management Entities”) and the affiliates of Apollo listed on Schedule 1 hereto (the “Coinvestors”), and is made by and among Holdings, the Company, the Original Sponsor Management Entities, the Coinvestors, Bain Capital Partners, LLC, a Delaware limited liability company (“Bain”), TC Group, L.L.C., a Delaware limited liability company (“Carlyle”) and Applegate and Collatos, Inc., a Delaware corporation (“Spectrum” and, together with Bain and Carlyle, the “Other Sponsor Management Entities”, and the Other Sponsor Management Entities together with the Original Sponsor Management Entities, the “Sponsor Management Entities”).    BACKGROUND   1.                                       Holdings and LCE Holdings, Inc., a Delaware corporation (“LCE”), are parties to that certain Agreement and Plan of Merger, dated as of June 20, 2005 (the “Merger Agreement”), pursuant to which LCE will be merged with and into Holdings with Holdings remaining as the surviving entity (the “Merger”).   2.                                       In connection with the consummation of the Merger, the Other Sponsor Management Entities have agreed to terminate that certain Management Agreement, dated as of July 30, 2004, by and among the Other Sponsor Management Entities, LCE and certain of its subsidiaries named therein at or prior to the Effective Time (as defined in Section 7).   3.                                       In connection with the consummation of the Merger, the Original Sponsor Management Entities and Coinvestors have agreed to amend and restate the Original Agreement and enter into this Agreement with the Other Sponsor Management Entities.   4.                                       The Sponsor Management Entities have entered into a Second Amended and Restated Stockholders Agreement, dated as of the date of this Agreement, with Holdings and the other Investors (as defined therein) (as the same may be amended from time to time hereafter, the “Stockholders Agreement”), relating to the ownership of the common stock of Holdings by the Investors.   3.                                       The parties hereto desire that the Company avail itself, for the term of this Agreement, of the Sponsor Management Entities’ expertise in providing financial and structural analysis, due diligence investigations, corporate strategy, other advice and negotiation assistance, which the parties believe will be beneficial to the Company, and the Sponsor Management Entities wish to provide the services to the Company as set forth in this Agreement in consideration of the payment of a Management Fee (as defined below).   In consideration of the premises and agreements contained herein and of other good and valuable consideration, the sufficiency of which are hereby acknowledged, the parties agree as follows:   --------------------------------------------------------------------------------   AGREEMENT   SECTION 1.   Appointment.  The Company hereby engages the Sponsor Management Entities to provide the management services to the Company described in Section 2 (the “Management Services”) for the term of this Agreement on the terms and subject to the conditions of this Agreement.   SECTION 2.   Management Services.  The Sponsor Management Entities agree that during the term of this Agreement, they will provide to the Company, by and through themselves, their affiliates and such respective officers, employees, representatives and third parties as the Sponsor Management Entities in their sole discretion may designate from time to time, management, advisory and consulting services in relation to the affairs of the Company and its subsidiaries, including, without limitation, (a) advice regarding the structure, terms, conditions and other provisions, distribution and timing of debt and equity offerings and advice regarding relationships with the lenders and bankers of the Company and its subsidiaries, (b) advice regarding the strategy of the Company, (c) advice regarding dispositions and/or acquisitions and (d) such other advice directly related or ancillary to the above financial advisory services as may be reasonably requested by the Company; provided that the responsibilities of one Sponsor Management Entity shall not be substantially disproportionate to the responsibilities of the other Sponsor Management Entities.  It is expressly agreed that the services to be performed hereunder will not include investment banking or other financial advisory services which may be provided by the Sponsor Management Entities or any of their affiliates to the Company or Holdings in connection with any specific acquisition, divestiture, refinancing or recapitalization of the Company or any of its subsidiaries or by Holdings.  The Sponsor Management Entities may be entitled to receive additional compensation for providing services of the type specified in the preceding sentence by mutual agreement of the Company or such subsidiary or Holdings, on the one hand, and one or more of the Sponsor Management Entities or their relevant affiliates, on the other hand.  The obligation of the Sponsor Management Entities to provide Management Services shall terminate on the Termination Date (as defined below).   SECTION 3.   Management Fee.   (a)                                  In consideration of the Management Services being provided by the Sponsor Management Entities, the Company will pay, to the Sponsor Management Entities a management fee in respect of each fiscal year from and including fiscal 2006 in the aggregate amount of $5,000,000 annually (such management fees in the aggregate are collectively referred to as the “Management Fee”), which shall be paid quarterly and in advance on the first day of each fiscal quarter of the Company.  The first payment to the Sponsor Management Entities in the aggregate amount of $1,250,000 (with such payment to be paid to each Sponsor Management Entity in accordance with Schedule 1 hereto) shall be paid on April 1, 2006.  On each subsequent payment date the Company shall pay to the Sponsor Management Entities the aggregate amount of $1,250,000 in respect of the fiscal quarter then beginning.  The Management Fee will accrue and be payable through the first day of the fiscal quarter in which the Termination Date (as defined below) occurs.  Any amounts payable by the Company to the Sponsor Management Entities pursuant to this Section 3(a) shall be paid to each Sponsor Management Entity pro rata based on the relative percentage ownership of voting stock in Holdings held by such Sponsor Management Entity and its affiliates as compared to the other Sponsor Management Entities and their respective affiliates (it being understood that no person   2 --------------------------------------------------------------------------------   will be considered an affiliate of any Sponsorship Management Entity solely by reason of ownership of capital stock of Holdings), in each case calculated as of the last day of the quarterly period preceding the payment date.  All amounts paid by the Company or Holdings to the Sponsor Management Entities pursuant to this Section 3 shall be made by wire transfer in same-day funds to the respective bank accounts designated by the Sponsor Management Entities, and shall not be refundable under any circumstances.  For purposes of this Agreement, “Termination Date” means the earliest of (i) the twelfth anniversary of the date of the Original Agreement, (ii) such time as the Sponsor Management Entities and their affiliates (it being understood that no person will be considered an affiliate of any Sponsorship Management Entity solely by reason of ownership of capital stock of Holdings) then owning beneficial economic interests Holdings own less in the aggregate than 20% of the beneficial economic interests in Holdings initially owned by the Sponsor Management Entities and (iii) such earlier date as Holdings, the Company and a Requisite Stockholder Majority (as defined in the Stockholders Agreement) may mutually agree upon.   (b)                                 To the extent the Company does not pay the Management Fee for any reason, including if prohibited by any agreement or indenture governing indebtedness of Holdings or its subsidiaries (including the Company), the payment by the Company to the Sponsor Management Entities of the Management Fee will be payable immediately on the earlier of (i) the first date on which the payment of such deferred Management Fee, as the case may be, is no longer prohibited under any contract applicable to Holdings or its subsidiaries (including the Company) and the Company is otherwise able to make such payment, and (ii) total or partial liquidation, dissolution or winding up of Holdings or the Company.   Any quarterly payment of the Management Fee that is not paid on the scheduled due date will bear interest, payable in cash on each scheduled due date, at an annual rate of 10%, compounded quarterly, from the date due until paid.   (c)                                  The parties acknowledge and agree that an objective of the Company is to maximize value for Holdings and its shareholders which may include consummating (or participating in the consummation of) (i) a Change of Control (as defined below) or (ii) an Initial Public Offering (as defined in the Stockholders Agreement).  The term “Change of Control” means a transaction (including, without limitation, any merger, consolidation or sale of assets or equity interests) the result of which is that any Person (as defined in the Stockholders Agreement) other than an Investor (as defined in the Stockholders Agreement) or a Permitted Transferee (as defined in the Stockholders Agreement) of an Investor (as defined in the Stockholders Agreement) becomes the beneficial owner, directly or indirectly, of more than 50% of the voting stock of, or all or substantially all of the assets of, the Company or Holdings.  The Management Services provided to the Company by the Sponsor Management Entities will help to facilitate the consummation of a Change of Control or Initial Public Offering, should the Company or Holdings decide to pursue such a transaction.  In the event of a Change of Control or Initial Public Offering, each of the Sponsorship Management Entities shall receive its pro rata portion of the Lump Sum Payment (as defined below) in lieu of quarterly payments of the Management Fee, such amount to be paid, unless prohibited by and subject to the terms of any agreement or indenture governing indebtedness of Holdings or any of its subsidiaries (including the Company), on the date on which the Change of Control or Initial Public Offering is consummated.  The “Lump Sum Payment” shall be a single lump sum cash payment equal to the then present value of all then current and future Management Fees payable under this   3 --------------------------------------------------------------------------------   Agreement, assuming the Termination Date to be the twelfth anniversary of the date of the Original Agreement (using a discount rate equal to the yield to maturity on the date of the consummation of the Change of Control or Initial Public Offering of the class of outstanding U.S. government bonds having a final maturity closest to the twelfth anniversary of the date of the Original Agreement (the “Discount Rate”)); provided, that no portion of the Lump Sum Payment shall be payable to a Sponsor Management Entity if on the date of the consummation of the Change of Control or Initial Public Offering such Sponsor Management Entity does not own any beneficial economic interest in Holdings or the Company.  A pro rata portion of the Lump Sum Payment will be paid to each Sponsor Management Entity upon a Change of Control or Initial Public Offering based on the relative percentage interests in Holdings held by such Sponsor Management Entity and its affiliates (it being understood that no person will be considered an affiliate of any Sponsorship Management Entity solely by reason of ownership of capital stock of Holdings) as compared to the other Sponsor Management Entities and their respective affiliates (it being understood that no person will be considered an affiliate of any Sponsorship Management Entity solely by reason of ownership of capital stock of Holdings), in each case, at the time of such Change of Control or Initial Public Offering.  The Lump Sum Payment will be payable to the Sponsor Management Entities by wire transfer in same-day funds to the respective bank accounts designated by the applicable Sponsor Management Entities.   (d)                                 To the extent the Company does not pay any portion of the Lump Sum Payment by reason of any prohibition on such payment pursuant to the terms of any agreement or indenture governing indebtedness of Holdings or its subsidiaries (including the Company), any unpaid portion of the Lump Sum Payment shall be paid to the Sponsor Management Entities on the first date on which the payment of such unpaid amount is permitted under such agreement or indenture, to the extent permitted by such agreement or indenture.  Any portion of the Lump Sum Payment not paid on the scheduled due date shall bear interest at an annual rate equal to the Discount Rate, compounded quarterly, from the date due until paid.   SECTION 4.   Reimbursements.   (a)                                  In addition to the fees payable pursuant to this Agreement, the Company will pay directly or reimburse the Sponsor Management Entities and each of their respective affiliates for their respective Out-of-Pocket Expenses (as defined below), and for any Other Expenses (as defined below) for which payment or reimbursement by the Company is provided pursuant to Section 4(b).  For the purposes of this Agreement, the term “Out-of-Pocket Expenses” means the reasonable routine out-of-pocket costs and expenses incurred by a Sponsor Management Entity and their respective affiliates in connection with the Management Services provided under this Agreement (including prior to the Effective Time), including, without limitation, (a) costs of any outside services or independent contractors (other than the fees and disbursements of any independent accountants, outside legal counsel, consultants or similar independent professionals and organizations), such as couriers, business publications, on-line financial services or similar services, retained or used by such Sponsor Management Entity or any of its affiliates and (b) transportation, per diem costs, word processing expenses or any similar expense not associated with its or its affiliates’ ordinary operations.   (b)                                 Notwithstanding the foregoing, except as provided in this Section 4(b), neither the Company nor Holdings shall pay directly or reimburse any Sponsor Management   4 --------------------------------------------------------------------------------   Entity or its affiliates for costs and expenses incurred by such Sponsorship Management Entity or its affiliates that are not Out-of-Pocket Expenses (“Other Expenses”); provided, that the Company or Holdings shall pay directly or reimburse a Sponsor Management Entity and its affiliates for any of such Sponsor Management Entity’s and its affiliates’ Other Expenses that are (A) less than $10,000 in the aggregate in any calendar year or (B) approved by the Requisite Stockholder Majority (as defined in the Stockholders Agreement) for payment or reimbursement by the Company or Holdings.  If any Sponsor Management Entity or any of its affiliates requests payment or reimbursement for Out-of-Pocket Expenses in excess of $100,000 in the aggregate in any calendar year, such Sponsor Management Entity or its relevant affiliate shall provide notice of such request(s) to each other Sponsor Management Entity in accordance with Section 9(b).  All payments or reimbursements for Out-of-Pocket Expenses and approved or permitted Other Expenses will be made by wire transfer in same-day funds to the bank account designated by such Sponsor Management Entity or its relevant affiliate (other than any such affiliate that would not be an affiliate of such Sponsor Management Entity, but for such Sponsor Management Entity’s ownership of capital stock of Holdings) (if such expenses were incurred by such Sponsor Management Entity or its affiliates) promptly upon or as soon as practicable following request for reimbursement, to the account indicated to the Company by the relevant payee.   (c)                                  Apart from the Out-of-Pocket Expenses and such other reasonable out-of-pocket expenses as are approved pursuant to Section 4(b) of the Sponsor Management Entities, Holdings will also incur reimbursable expenses from time to time.  For each fiscal year, the Company shall make cash payments to Holdings in an amount equal to the sum of (x) any fees payable by Holdings in order to maintain its corporate existence and (y) any amounts attributable to (i) corporate overhead expenses of Holdings incurred in the ordinary course of business and (ii) salaries or other compensation of employees who perform services for both Holdings and the Company (collectively, the “Holdings Expenses”); provided, that reimbursements for Holdings Expenses made pursuant to this clause (i) shall not exceed, in the aggregate, $3,500,000 in any fiscal year and (ii) shall not be deemed as part of the Management Fee.  Any payments of Holdings Expenses made pursuant to this Section 4(b) shall be made as requested by Holdings in its sole discretion, exercised in good faith.   SECTION 5.   Indemnification.  The Company will indemnify and hold harmless each of the Sponsor Management Entities, their respective affiliates and partners (both general and limited), members (both managing and otherwise), officers, directors, employees, agents and representatives (each such person being an “Indemnified Party”) from and against any and all losses, claims, damages and liabilities, including in connection with seeking indemnification, whether joint or several (the “Liabilities”), related to, arising out of or in connection with the Management Services contemplated by this Agreement or the engagement of the Sponsor Management Entities pursuant to, and the performance by the Sponsor Management Entities or their affiliates of the Management Services contemplated by, this Agreement, whether or not pending or threatened, whether or not an Indemnified Party is a party, whether or not resulting in any liability and whether or not such action, claim, suit, investigation or proceeding is initiated or brought by the Company.  The Company will reimburse any Indemnified Party for all reasonable costs and expenses (including reasonable attorneys’ fees and expenses) as they are incurred in connection with investigating, preparing, pursuing, defending or assisting in the defense of any action, claim, suit, investigation or proceeding for which the Indemnified Party would be entitled to indemnification under the terms of the previous sentence, or any action or   5 --------------------------------------------------------------------------------   proceeding arising therefrom, whether or not such Indemnified Party is a party thereto.  The Company will not be liable under the foregoing indemnification provision with respect to any particular loss, claim, damage, liability, cost or expense of an Indemnified Party that is determined by a court, in a final judgment from which no further appeal may be taken, to have resulted primarily from the gross negligence or willful misconduct of such Indemnified Party.  The attorneys’ fees and other expenses of an Indemnified Party shall be paid by the Company as they are incurred upon receipt, in each case, of an undertaking by or on behalf of the Indemnified Party to repay such amounts if it is finally judicially determined that the Liabilities in question resulted primarily from the gross negligence or willful misconduct of such Indemnified Party.   SECTION 6.   Accuracy of Information.  The Company shall furnish or cause to be furnished to the Sponsor Management Entities such information as the Sponsor Management Entities believe reasonably appropriate to their Management Services hereunder and to comply with Securities and Exchange Commission or other legal requirements relating to the beneficial ownership by the Investors (as defined in the Stockholders Agreement) of equity securities of the Company (all such information so furnished, the “Information”).  The Company recognizes and confirms that the Sponsor Management Entities (a) will use and rely primarily on the Information and on information available from generally recognized public sources in performing the Management Services contemplated by this Agreement without having independently verified the same, (b) do not assume responsibility for the accuracy or completeness of the Information and such other information and (c) are entitled to rely upon the Information without independent verification.   SECTION 7.   Effective Time.  This Agreement will become effective at the “Effective Time”, as defined in the Merger Agreement.   SECTION 8.   Permissible Activities.  Subject to applicable law and the provisions of Section 13(b) of the Stockholders Agreement, nothing herein will in any way preclude the Sponsor Management Entities or their respective affiliates (other than the Company or its subsidiaries and their respective employees) or their respective partners (both general and limited), members (both managing and otherwise), officers, directors, employees, agents or representatives from engaging in any business activities or from performing services for its or their own account or for the account of others, including for companies that may be in competition with the business conducted by Holdings and its subsidiaries (including the Company).   SECTION 9.   Miscellaneous.   (A)                                  NO AMENDMENT OR WAIVER OF ANY PROVISION OF THIS AGREEMENT, OR CONSENT TO ANY DEPARTURE BY ANY PARTY HERETO FROM ANY SUCH PROVISION, WILL BE EFFECTIVE UNLESS IT IS IN WRITING AND SIGNED BY THE COMPANY, HOLDINGS AND THE REQUISITE STOCKHOLDER MAJORITY (AS DEFINED IN THE STOCKHOLDERS AGREEMENT).  ANY AMENDMENT, WAIVER OR CONSENT WILL BE EFFECTIVE ONLY IN THE SPECIFIC INSTANCE AND FOR THE SPECIFIC PURPOSE FOR WHICH GIVEN.  THE WAIVER BY ANY PARTY OF ANY BREACH OF THIS AGREEMENT WILL NOT OPERATE AS OR BE CONSTRUED TO BE A WAIVER BY SUCH PARTY OF ANY SUBSEQUENT BREACH.   (B)                                 ANY NOTICES OR OTHER COMMUNICATIONS REQUIRED OR PERMITTED HEREUNDER WILL BE SUFFICIENTLY GIVEN IF DELIVERED PERSONALLY OR SENT BY FACSIMILE WITH CONFIRMED RECEIPT, OR BY   6 --------------------------------------------------------------------------------   OVERNIGHT COURIER, ADDRESSED AS FOLLOWS OR TO SUCH OTHER ADDRESS OF WHICH THE PARTIES MAY HAVE GIVEN WRITTEN NOTICE:   if to Holdings, addressed to it at:   Marquee Holdings Inc. 920 Main Street Kansas City, MO  64105 Fax:                 (816) 480-4700 Attn:          Kevin M. Connor   with a copy to:   Latham & Watkins LLP 885 Third Avenue New York, NY 10022 Fax: (212) 751-4864 Attn:  David S. Allinson   if to the Company, addressed to it at:   AMC Entertainment Inc. 920 Main Street Kansas City, MO  64105 Fax:                 (816) 480-4700 Attn:          Kevin M. Connor   with a copy to:   Latham & Watkins LLP 885 Third Avenue New York, NY 10022 Fax: (212) 751-4864 Attn:  David S. Allinson   if to JPMP, addressed as follows:   J.P. Morgan Partners (BHCA), L.P. and affiliated funds 1221 Avenue of the Americas 39th Floor New York, New York 10020 Attn:          Michael R. Hannon Stephen P. Murray   7 --------------------------------------------------------------------------------   with a copy to:   Latham & Watkins LLP 885 Third Avenue New York, NY 10022 Fax: (212) 751-4864 Attn:  David S. Allinson   if to Apollo or the Coinvestors (as applicable), addressed as follows:   Apollo Management, L.P. 9 West 57th Street 43rd Floor New York, New York 10019 Attn:          Marc Rowan Aaron Stone   with a copy to:   Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attn:          Daniel A. Neff David C. Karp   if to Bain, addressed as follows:   c/o Bain Capital, LLC 111 Huntington Avenue Boston, MA 02199   with a copy to: Ropes & Gray LLP One International Place Boston, Massachusetts  02110 Fax:                 (617) 951-7050 Attn:          R. Newcomb Stillwell Howard S. Glazer   if to Carlyle, addressed as follows:   c/o The Carlyle Group 520 Madison Avenue, 42nd Floor New York, New York 10022 Fax:                 (212) 381-4901 Attn:          Michael Connelly Eliot P. S. Merrill   8 --------------------------------------------------------------------------------   with a copy to:   Latham & Watkins LLP 885 Third Avenue New York, New York 10022 Fax:                 (212) 751-4864 Attn:          R. Ronald Hopkinson   and   if to Spectrum, addressed as follows:   c/o Spectrum Equity Investors 333 Middlefield Road Suite 200 Menlo Park, CA  94025 Fax:                 (415) 464-4601 Attn:          Brion Applegate Benjamin Coughlin   with a copy to:   Latham & Watkins LLP 505 Montgomery Street, Suite 1900 San Francisco, California 94111 Fax:                 (415) 395-8095 Attn:          Scott R. Haber Tad J. Freese   Unless otherwise specified herein, such notices or other communications will be deemed received (i) on the date delivered, if delivered personally or sent by facsimile with confirmed receipt, and (ii) one business day after being sent by overnight courier.   (C)                                  THIS AGREEMENT, THE STOCKHOLDERS AGREEMENT AND THE MERGER AGREEMENT WILL CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND WILL SUPERSEDE ALL PREVIOUS ORAL AND WRITTEN (AND ALL CONTEMPORANEOUS ORAL) NEGOTIATIONS, COMMITMENTS, AGREEMENTS AND UNDERSTANDINGS RELATING HERETO.   (D)                                 THIS AGREEMENT AND ANY CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW THAT WOULD APPLY THE LAW OF ANOTHER JURISDICTION).   (E)                                  THE PROVISIONS OF THIS AGREEMENT WILL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS.  SUBJECT TO THE NEXT SENTENCE, NO PERSON OTHER THAN THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS IS INTENDED TO BE A BENEFICIARY OF THIS AGREEMENT.  THE PARTIES ACKNOWLEDGE AND AGREE THAT THE AFFILIATES OF THE SPONSOR MANAGEMENT ENTITIES AND THEIR RESPECTIVE PARTNERS (BOTH GENERAL AND LIMITED), MEMBERS (BOTH   9 --------------------------------------------------------------------------------   MANAGING AND OTHERWISE), OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND REPRESENTATIVES ARE INTENDED TO BE THIRD-PARTY BENEFICIARIES UNDER SECTION 5 OF THIS AGREEMENT.   (F)                                    THIS AGREEMENT MAY BE EXECUTED BY ONE OR MORE PARTIES TO THIS AGREEMENT ON ANY NUMBER OF SEPARATE COUNTERPARTS (INCLUDING BY FACSIMILE), AND ALL OF SAID COUNTERPARTS TAKEN TOGETHER WILL BE DEEMED TO CONSTITUTE ONE AND THE SAME INSTRUMENT.   (G)                                 ANY PROVISION OF THIS AGREEMENT THAT IS PROHIBITED OR UNENFORCEABLE IN ANY JURISDICTION WILL, AS TO SUCH JURISDICTION, BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT INVALIDATING THE REMAINING PROVISIONS HEREOF, AND ANY SUCH PROHIBITION OR UNENFORCEABILITY IN ANY JURISDICTION WILL NOT INVALIDATE OR RENDER UNENFORCEABLE SUCH PROVISION IN ANY OTHER JURISDICTION.   (H)                                 AT THE EFFECTIVE TIME, THIS AGREEMENT SHALL AMEND AND RESTATE THE ORIGINAL AGREEMENT IN ITS ENTIRETY.   10 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Agreement on the date first written above.     MARQUEE HOLDINGS INC.     By: /s/ Craig R. Ramsey     Name: Craig R. Ramsey   Title: Executive Vice President and   Chief Financial Officer     AMC ENTERTAINMENT INC.     By: /s/ Craig R. Ramsey     Name: Craig R. Ramsey   Title: Executive Vice President and   Chief Financial Officer   --------------------------------------------------------------------------------   J.P. MORGAN PARTNERS (BHCA), L.P.     By: /s/ Stephen P. Murray     Name: Stephen P. Murray   Title: Managing Director   --------------------------------------------------------------------------------   APOLLO MANAGEMENT V, L.P.     By: /s/ Patricia M. Navis     Name: Patricia M. Navis   Title: Vice President     APOLLO INVESTMENT FUND V, L.P.   By: APOLLO ADVISORS V, L.P.,   ITS GENERAL PARTNER By: APOLLO CAPITAL MANAGEMENT V, INC.   ITS GENERAL PARTNER   By: /s/ Patricia M. Navis     Name: Patricia M. Navis   Title: Vice President     APOLLO OVERSEAS PARTNERS V, L.P.   By: APOLLO ADVISORS V, L.P.,   ITS GENERAL PARTNER By: APOLLO CAPITAL MANAGEMENT V, INC.   ITS GENERAL PARTNER   By: /s/ Patricia M. Navis     Name: Patricia M. Navis   Title: Vice President     APOLLO NETHERLANDS PARTNERS V(A), L.P.   By: APOLLO ADVISORS V, L.P.,   ITS GENERAL PARTNER By: APOLLO CAPITAL MANAGEMENT V, INC.   ITS GENERAL PARTNER   By: /s/ Patricia M. Navis     Name: Patricia M. Navis   Title: Vice President   --------------------------------------------------------------------------------     APOLLO NETHERLANDS PARTNERS V(B), L.P.   By: APOLLO ADVISORS V, L.P.,   ITS GENERAL PARTNER By: APOLLO CAPITAL MANAGEMENT V, INC.   ITS GENERAL PARTNER   By: /s/ Patricia M. Navis     Name: Patricia M. Navis   Title: Vice President     APOLLO GERMAN PARTNERS V GMBH & CO KG     By: APOLLO ADVISORS V, L.P.,   ITS GENERAL PARTNER By: APOLLO CAPITAL MANAGEMENT V, INC.   ITS GENERAL PARTNER   By: /s/ Patricia M. Navis     Name: Patricia M. Navis   Title: Vice President   --------------------------------------------------------------------------------   BAIN CAPITAL PARTNERS, LLC     By: /s/ John P. Connaughton     Name: John P. Connaughton   Title: Managing Director   --------------------------------------------------------------------------------   TC GROUP, L.L.C.       By: /s/ Michael J. Connelly     Name: Michael J. Connelly   Title: Managing Director   --------------------------------------------------------------------------------   APPLEGATE AND COLLATOS, INC.       By: /s/ Brion Applegate     Name: Brion Applegate   Title: Co-Founder   --------------------------------------------------------------------------------

EXHIBIT 10.2   REGISTRATION RIGHTS AGREEMENT   This Registration Rights Agreement (this "Agreement") is made and entered into as of February 2, 2006, by and between Conversion Services International, Inc., a Delaware corporation (the "Company"), and Taurus Advisory Group, LLC (the "Purchaser").   This Agreement is made pursuant to the Stock Purchase Agreement, dated as of the date hereof, by and between the Purchaser and the Company (as amended, modified or supplemented from time to time, the “Purchase Agreement”).   The Company and the Purchaser hereby agree as follows:   1.  Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:   "Commission" means the Securities and Exchange Commission.   "Common Stock" means shares of the Company's common stock, par value $0.001 per share.   "Effectiveness Period" shall have the meaning set forth in Section 2(a).   "Exchange Act" means the Securities Exchange Act of 1934, as amended, and any successor statute.   "Filing Date" means, (i) with respect to the initial Registration Statement required to be filed hereunder, a date no later than ninety (90) days following the date hereof and (ii) with respect to shares of Common Stock issuable to the Holder as a result of adjustments to the Exercise Price made pursuant to the Series A Preferred Stock or Warrants or otherwise, thirty (30) days after the occurrence such event or the date of the adjustment of the Exercise Price, as the case may be.   "Holder" or "Holders" means the Purchaser or any of its affiliates or transferees to the extent any of them hold 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).   "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 or deemed to be incorporated by reference in such Prospectus.   "Purchase Agreement" shall have the meaning provided above.   "Registrable Securities" means the shares of Common Stock issuable upon the conversion of the Series A Preferred Stock or the exercise of the Warrants.   "Registration Statement" means each registration statement required to be filed hereunder, including 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 or deemed to be 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 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, and any successor statute.   "Trading Market" means any of the NASD OTCBB, NASDAQ Capital Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange.   "Warrants" means, collectively, each Common Stock purchase warrant issued by the Company to the Purchaser on or prior to the date hereof to the extent such Common Stock purchase warrant is exercisable into shares of Common Stock and such shares of Common Stock are not otherwise subject to an effective Registration Statement.   2.  Registration.   (a)  On or prior to the Filing Date the Company shall prepare and file with the Commission a Registration Statement covering the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Company shall cause the Registration Statement to become effective and remain effective as provided herein. The Company shall 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. The Company shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act until the date which is the earlier date of when (i) all Registrable Securities have been sold or (ii) all Registrable Securities may be sold immediately without registration under the Securities Act and without volume restrictions pursuant to Rule 144(k), as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Holders (the "Effectiveness Period").     2 --------------------------------------------------------------------------------           (b)   Within three business days of the effectiveness date of a Registration Statement, the Company shall cause its counsel to issue a blanket opinion in the form attached hereto as Exhibit A, to the transfer agent stating that the shares are subject to an effective registration statement and can be reissued free of restrictive legend upon notice of a sale by the Purchaser and confirmation by the Purchaser that it has complied with the prospectus delivery requirements, provided that the Company has not advised the transfer agent orally or in writing that the opinion has been withdrawn. Copies of the blanket opinion required by this Section 2(b) shall be delivered to the Purchaser within the time frame set forth above.   3.  Registration Procedures. If and whenever the Company is required by the provisions hereof to effect the registration of any Registrable Securities under the Securities Act, the Company will use its best efforts to within 90 days after the date hereof:   (a)  prepare and file with the Commission the Registration Statement with respect to such Registrable Securities, respond as promptly as possible to any comments received from the Commission, and use its best efforts to cause the Registration Statement to become and remain effective for the Effectiveness Period with respect thereto, and promptly provide to the Purchaser copies of all filings and Commission letters of comment relating thereto;   (b)  prepare and file with the Commission such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by the Registration Statement and to keep such Registration Statement effective until the expiration of the Effectiveness Period;   (c)  furnish to the Purchaser such number of copies of the Registration Statement and the Prospectus included therein (including each preliminary Prospectus) as the Purchaser reasonably may request to facilitate the public sale or disposition of the Registrable Securities covered by the Registration Statement;   (d)  use its commercially reasonable efforts to register or qualify the Purchaser's Registrable Securities covered by the Registration Statement under the securities or "blue sky" laws of such jurisdictions within the United States as the Purchaser may reasonably request, provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction;     3 --------------------------------------------------------------------------------   (e)  list the Registrable Securities covered by the Registration Statement with any securities exchange on which the Common Stock of the Company is then listed;   (f)  immediately notify the Purchaser at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the Prospectus contained in such 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 not misleading in light of the circumstances then existing; and   (g)  make available for inspection by the Purchaser and any attorney, accountant or other agent retained by the Purchaser, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the attorney, accountant or agent of the Purchaser.   4.  Registration Expenses. All expenses relating to the Company's compliance with Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars, fees of, and disbursements incurred by, one counsel for the Holders (to the extent such counsel is required due to Company's failure to meet any of its obligations hereunder), are called "Registration Expenses". All selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Holders beyond those included in Registration Expenses, are called "Selling Expenses." The Company shall only be responsible for all Registration Expenses.   5.  Indemnification.   (a)  In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the Purchaser, and its officers, directors and each other person, if any, who controls the Purchaser within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Purchaser, or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus which has been printed and distributed (i.e. a “red herring Prospectus”) or final Prospectus related thereto, or any amendment or supplement thereof, or arise out of or are based upon 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, and will reimburse the Purchaser, and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of the Purchaser or any such person in writing specifically for use in any such document.     4 --------------------------------------------------------------------------------   (b)  In the event of a registration of the Registrable Securities under the Securities Act pursuant to this Agreement, the Purchaser will indemnify and hold harmless the Company, and its officers, directors and each other person, if any, who controls the Company within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact which was furnished in writing by the Purchaser to the Company expressly for use in (and such information is contained in) the Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon 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, and will reimburse the Company and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Purchaser will be liable in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing to the Company by or on behalf of the Purchaser specifically for use in any such document. Notwithstanding the provisions of this paragraph, the Purchaser shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by the Purchaser in respect of Registrable Securities in connection with any such registration under the Securities Act.   (c)  Promptly after receipt by a party entitled to claim indemnification hereunder (an "Indemnified Party") of notice of the commencement of any action, such Indemnified Party shall, if a claim for indemnification in respect thereof is to be made against a party hereto obligated to indemnify such Indemnified Party (an "Indemnifying Party"), notify the Indemnifying Party in writing thereof, but the omission so to notify the Indemnifying Party shall not relieve it from any liability which it may have to such Indemnified Party other than under this Section 5(c) and shall only relieve it from any liability which it may have to such Indemnified Party under this Section 5(c) if and to the extent the Indemnifying Party is prejudiced by such omission. In case any such action shall be brought against any Indemnified Party and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such Indemnified Party, and, after notice from the Indemnifying Party to such Indemnified Party of its election so to assume and undertake the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party under this Section 5(c) for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof; if the Indemnified Party retains its own counsel, then the Indemnified Party shall pay all fees, costs and expenses of such counsel, provided, however, that, if the defendants in any such action include both the indemnified party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, the Indemnified Party shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred.     5 --------------------------------------------------------------------------------   (d)  In order to provide for just and equitable contribution in the event of joint liability under the Securities Act in any case in which either (i) the Purchaser, or any officer, director or controlling person of the Purchaser, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of the Purchaser or such officer, director or controlling person of the Purchaser in circumstances for which indemnification is provided under this Section 5; then, and in each such case, the Company and the Purchaser will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Purchaser is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, provided, however, that, in any such case, (A) the Purchaser will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such Registration Statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.   6.  Representations and Warranties.   (a)  The Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and the Company has timely filed all proxy statements, reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act. The Company filed: (i) its Annual Report on Form 10-KSB for its fiscal year ended December 31, 2004, (ii) its Quarterly Reports on Form 10-QSB for its fiscal quarters ended March 31, 2005, June 30, 2005 and September 30, 2005 and (iii) the Form 8-K filings which it has made during the fiscal year 2005 and 2006 to date (collectively, the "SEC Reports"). To the best of the Company’s knowledge, each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports 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 not misleading in light of the circumstances when made.. The financial statements of the Company included in the SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis 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 unaudited interim statements, to the extent they may not include footnotes or may be condensed) and fairly present in all material respects the financial condition, the results of operations and the cash flows of the Company and its subsidiaries, on a consolidated basis, as of, and for, the periods presented in each such SEC Report. To the best of the Company’s knowledge, the Company is eligible to use a Form S-3 Registration Statement to register the Registrable Securities.     6 --------------------------------------------------------------------------------   (b)  The Common Stock is listed for trading on the American Stock Exchange and satisfies all requirements for the continuation of such listing. The Company has not received any notice that its Common Stock will be delisted from the American Stock Exchange (except for prior notices which have been fully remedied) or that the Common Stock does not meet all requirements for the continuation of such listing.   (c)  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 the offering of the Securities pursuant to the Purchase Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Common Stock pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of such Securities to be integrated with other offerings.   (d)  The Series A Preferred Stock and the Warrants and the shares of Common Stock which the Purchaser may acquire pursuant to the Series A Preferred Stock and the Warrants are all restricted securities under the Securities Act as of the date of this Agreement. The Company will not issue any stop transfer order or other order impeding the sale and delivery of any of the Registrable Securities at such time as such Registrable Securities are registered for public sale or an exemption from registration is available, except as required by federal or state securities laws.   (e)  The Company understands the nature of the Registrable Securities issuable upon conversion of the Series A Preferred Stock and exercise of the Warrants and recognizes that the issuance of such Registrable Securities may have a potential dilutive effect. The Company specifically acknowledges that its obligation to issue the Registrable Securities is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.     7 --------------------------------------------------------------------------------   (f)  Except for agreements made in the ordinary course of business, there is no agreement that has not been filed with the Commission as an exhibit to a registration statement or to a form required to be filed by the Company under the Exchange Act, the breach of which could reasonably be expected to have a material and adverse effect on the Company and its subsidiaries, or would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement in any material respect.   (g)  The Company will at all times have authorized and reserved a sufficient number of shares of Common Stock for the full conversion of the Series A Preferred Stock and the exercise of the Warrants.   7.  Miscellaneous.   (a)  Remedies. In the event of a breach by the Company or by a Holder, of any of their respective obligations under this Agreement, each 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.   (b)  No Piggyback on Registrations. Except as and to the extent specified in Schedule 7(b) hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right for inclusion of shares in the Registration Statement to any of its security holders. Except as and to the extent specified in Schedule 7(b) hereto, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been fully satisfied.   (c)  Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.   (d)  Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of a Discontinuation Event (as defined below), such Holder will forthwith discontinue disposition of such Registrable Securities under the applicable Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement 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. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. For purposes of this Section 7(d), a "Discontinuation Event" shall mean (i) 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 (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); (ii) any request by the Commission or any other Federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or for additional information; (iii) the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) 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/or (v) the occurrence of any event or passage of time that makes the financial statements included in such Registration Statement ineligible for inclusion therein or any statement made in such 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 such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any 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.     8 --------------------------------------------------------------------------------   (e)  Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and 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 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, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered to the extent the Company may do so without violating registration rights of others which exist as of the date of this Agreement, subject to customary underwriter cutbacks applicable to all holders of registration rights and subject to obtaining any required the consent of any selling stockholder(s) to such inclusion under such registration statement.   (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 the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.     9 --------------------------------------------------------------------------------   (g)  Notices. Any notice or request hereunder may be given to the Company or the Purchaser at the respective addresses set forth below or as may hereafter be specified in a notice designated as a change of address under this Section 7(g). Any notice or request hereunder shall be given by registered or certified mail, return receipt requested, hand delivery, overnight mail, Federal Express or other national overnight next day carrier (collectively, "Courier") or telecopy (confirmed by mail). Notices and requests shall be, in the case of those by hand delivery, deemed to have been given when delivered to any party to whom it is addressed, in the case of those by mail or overnight mail, deemed to have been given three (3) business days after the date when deposited in the mail or with the overnight mail carrier, in the case of a Courier, the next business day following timely delivery of the package with the Courier, and, in the case of a telecopy, when confirmed. The address for such notices and communications shall be as follows:   If to the Company: Conversion Services International, Inc. 100 Eagle Rock Avenue East Hanover, New Jersey 07936 Attention: Chief Financial Officer Facsimile: 973-581-7113     If to a Purchaser: To the address set forth under such Purchaser name on the signature pages hereto.     If to any other Person who is then the registered Holder: To the address of such Holder as it appears in the stock transfer books of the Company         or such other address as may be designated in writing hereafter in accordance with this Section 7(g) by such Person.   (h)  Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.     10 --------------------------------------------------------------------------------   (i)  Execution and 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. 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.   (j)  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 agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement shall be commenced exclusively in the state and federal courts sitting in the State of New York. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the State of New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such 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 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 either party shall commence a Proceeding to enforce any provisions of this Agreement, the Purchase Agreement or any ancillary agreement, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.   (k)  Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.     11 --------------------------------------------------------------------------------   (l)  Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, 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.   (m)  Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]                     12 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.     CONVERSION SERVICES INTERNATIONAL, INC.     TAURUS ADVISORY GROUP, LLC                      By:      By:     --------------------------------------------------------------------------------     --------------------------------------------------------------------------------   Name:     Scott Newman     Name:   Title:       President     Title:                    Address for Notices:                             Attention:          Facsimile:      13 --------------------------------------------------------------------------------   EXHIBIT A   [Month __, 2006] [Registrar and Transfer Co. 10 Commerce Drive Cranford, New Jersey 32377 Attn: Dan Flynn   Re: Conversion Services International, Inc. Registration Statement on Form S-3   Ladies and Gentlemen:   As counsel to Conversion Services International, Inc., a Delaware corporation (the “Company”), we have been requested to render our opinion to you in connection with the resale by the individuals or entitles listed on Schedule A attached hereto (the “Selling Stockholders”), of an aggregate of [amount]shares (the “Shares”) of the Company’s Common Stock.   A Registration Statement on Form S-3 under the Securities Act of 1933, as amended (the “Act”), with respect to the resale of the Shares was declared effective by the Securities and Exchange Commission on [date]. Enclosed is the Prospectus dated [date]. We understand that the Shares are to be offered and sold in the manner described in the Prospectus.   Based upon the foregoing, upon request by the Selling Stockholders at any time while the registration statement remains effective, it is our opinion that the Shares have been registered for resale under the Act and new certificates evidencing the Shares upon their transfer or re-registration by the Selling Stockholders may be issued without restrictive legend. We will advise you if the registration statement is not available or effective at any point in the future.           Very truly yours,                     -------------------------------------------------------------------------------- [Company counsel]     14 --------------------------------------------------------------------------------